Meituan (3690.HK), the Chinese e-commerce platform, has reported a solid performance in the second quarter of 2024, with a 21% increase in total revenue year-over-year, reaching RMB 28.3 billion. The company's adjusted net profit soared by 77.6% to RMB 13.6 billion, setting a new profitability record.
The earnings call highlighted Meituan's strategic initiatives, including the introduction of Meituan Group Buy and investments in lower-tier markets, which have led to increased user engagement and market leadership in select segments.
Key Takeaways
- Meituan's total revenue increased by 21% year-over-year to RMB 28.3 billion.
- Adjusted net profit rose by 77.6% to RMB 13.6 billion.
- Annual transaction users and active merchants reached new highs of 730 million.
- The company launched Meituan Group Buy and invested in lower-tier markets.
- On-demand delivery and in-store, hotel, and travel businesses saw significant growth.
- Meituan repurchased over USD 2 billion worth of shares and plans to cancel them to reduce share count.
Company Outlook
- Meituan aims to continue its retail plus technology strategy to promote industry growth.
- The focus will be on enhancing collaborations within core local commerce.
- Meituan plans to maintain the momentum of its on-demand delivery business and expects solid year-over-year operating profit growth for its in-store, hotel, and travel business in the second half of the year.
Bearish Highlights
- The company noted a year-over-year decline in average order value (AOV) for their on-demand delivery business, although it has started to normalize.
- Transaction-based services revenue showed robust growth, while online marketing services revenue trailed behind due to changes in the subscription service charge.
Bullish Highlights
- Meituan's on-demand delivery and in-store, hotel, and travel businesses experienced steady growth.
- New initiatives like Meituan Select and Xiaoxiang Supermarket achieved market leadership.
- The company's total revenue and net profit hit record highs.
Misses
- Despite overall growth, the company's initiative segment is still losing money. However, the loss reduction is making progress.
Q&A highlights
- Meituan discussed new cross-selling initiatives and organizational restructuring to enhance business synergies.
- The company is optimistic about the online grocery market in China and is evaluating overseas expansion opportunities.
- Meituan will continue to optimize operational efficiency and invest in cold-chain infrastructure.
- An additional $1 billion buyback plan has been approved by the Board.
Meituan's second quarter of 2024 results demonstrate the company's ability to sustain growth and profitability through strategic initiatives and market expansion.
With a focus on enhancing user experiences and merchant collaborations, Meituan is positioning itself to capitalize on the vast potential of China's local commerce industry.
The company's commitment to operational efficiency and shareholder returns is evident through its substantial share repurchase and cancellation strategy. As Meituan continues to innovate and explore new markets, it remains a significant player in the e-commerce and local services sectors.
InvestingPro Insights
Meituan (MPNGF) has showcased resilience and growth in its recent performance. Here are some key metrics and InvestingPro Tips that provide a deeper understanding of the company's financial health and market position:
InvestingPro Data:
- Market Cap (Adjusted): 86.0B USD, underscoring the company's substantial market valuation.
- P/E Ratio (Adjusted) for the last twelve months as of Q2 2024: 44.9, indicating the market's high expectations for future earnings growth.
- Revenue Growth for the last twelve months as of Q2 2024: 22.6%, reflecting a solid increase in the company’s top-line performance.
InvestingPro Tips:
- Meituan holds more cash than debt on its balance sheet, which suggests a strong financial position and the ability to weather economic uncertainties.
- Analysts have recently revised their earnings upwards for the upcoming period, signaling confidence in Meituan's continued profitability and growth trajectory.
These insights, along with the company’s strategic initiatives, paint a picture of a robust enterprise that is not only a prominent player in the Hotels, Restaurants & Leisure industry but is also managing its resources effectively to sustain growth. Additionally, there are 7 more InvestingPro Tips available for Meituan, which can be found at https://www.investing.com/pro/MPNGF, providing investors with comprehensive analysis and guidance on the company's prospects.
Full transcript - Meituan Dianping (OTC:MPNGF) Q2 2024:
Operator: Thank you for standing by and welcome to the Meituan Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Miss Scarlett Xu, VP and Head of Capital Markets. Please go ahead.
Scarlett Xu: Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter of 2024 earnings conference call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our second quarter of 2024 results, and then conduct our Q&A session. Before we start, we would like to remind you that our presentation contains forward-looking statements which include a number of risks and uncertainties and may differ some actual results in the future. This presentation also contains unaudited non-IFRS accounting standards financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFRS accounting standards. For a detailed discussion of risk factors and non-IFRS accounting standards measures, please refer to the disclosure documents in the IR section of our website. Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing.
Xing Wang: Thank you, Scarlett. Hello, everyone. In the second quarter, we adapted to the latest consumption environment and we actively iterated our projects and operations and achieved solid results. During the second quarter, our total revenue increased bye to 21% year-over-year to RMB28.3 billion. Adjusted net profit increased by 77.6% to RMB13.6 billion and adjusted net profit margin improved significantly both year-on-year and quarter-over-quarter to 16.5% and our annual transaction user and annual active merchants maintained strong growth momentum and reached new highs to 730 million, respectively. Also, average purchase frequency per annual transaction user increased, marking the 15th consecutive quarter of sequential growth since mid-2020 [ph]. At the one-stop local commerce platform in China, we effectively satisfy consumer demand for local services through our comprehensive product offerings and on-demand delivery. We support the local merchants throughout their operation cycle across various marketing scenarios. Compared to other sectors, the local commerce industry in China still has significant growth potential from digital transformation. We will continue to implement our retail plus technology strategy, use technology to promote industry growth, and fulfil our mission to help people eat better and live better. In the second quarter, we continued to integrate the low core local commerce segment and improve its operational efficiency. The goal of our recent organizational restructuring is not only to integrate the on-demand delivery, in store, hotel and travel businesses. What's more important is to better align consumer demand with our platform supply and subsequently Meituan platform. The Meituan infrastructure platform and each business unit in core local commerce will better develop and realize more synergies, and we view core local commerce as a whole when it comes to long-term business planning, operational strategy and resource allocation and product iteration. We hope to empower each business with effective traffic support from Meituan platform and post close the collaborations, create synergies that will add more gross sales. This will bring further integration between the demand side and the supply side and further strengthen our brand awareness. For example, our Shen Hui Yuan membership program, which we expanded nationwide in July, is our very first marketing scheme that covers all categories across on-demand delivery and in-store hotel and travel. Shen Hui Yuan were evoked from the membership program for our on-demand delivery business to effectively enhance the user transaction frequency of on-demand delivery and also brought incremental sales to restaurant merchants and help them operate more efficiently. This newly integrated membership program we can deepen collaborations with an expanded network of merchants with a higher efficiency allowing merchant to benefit from user traffic. Meanwhile, our members will have access to more diverse selections of value for money, products and services across all categories in a local core commerce domain. In addition, we recently introduced a new brand group by Meituan Group Buy. It covers all local service categories, including in store dining, feature and entertainment, attraction, ticketing, duty services, and more. Going forward, we will focus on this new brand and enhance consumer mention in Meituan Group Buy, more stores, more savings. Meituan than [Indiscernible]. Overall, we will continue to explore collaborations within core local commerce with Meituan platforms, integrate our product and services offerings, and provide the best in class experience for both merchants and consumers. And now let's walk through each business in our core local commerce. In the second quarter, on-demand delivery maintained a steady growth for food delivery thanks to years of business iterations. We have successfully cultivated a strong consumer mansion in speed and variety. While we focused on improving operations marketing in our shelf based model to further enhance our consumer mind-set in value for money offerings to adapt to the evolving consumption trend. We deep dived into each consumption category and scenario such as travel, weekend and late night snacks to incentivize demand. During the quarter, average order grew by almost 40% year-over-year and orders from late night snacks grew much faster than the average. Our refined operation and marketing strategies have led to improvement in user stickiness as well as steady growth in user scale and purchased frequency of mid-to-high frequency users. On the supply side, we actively explored new products formats to capture different consumption, consumer demand, and especially in the low price domain. Pin Hao Fan did exceptionally well this quarter. Peak daily order volume broke 8 million, setting a new record. This quarter we worked closely with a branded restaurant to introduce more high quality value for money offering for Pin Hao Fan, and further improved our products and user experience. Subsequently, both user retention and frequency were largely enhanced as consumers increasingly recognize Pin Hao Fan high quality value for money features. That demand also extended from lunch and dinner to other discretionary categories like beverage and late night snacks. After our continuous iteration in the Pin Hao Fan model, it has now become a new growth driver for many small and medium sized restaurants. It also helps branded restaurants improve single store productivity and attracted young consumers. Through Pin Hao Fan, merchants can effectively manage megahit products and offer low price in exchange for high order volume. This allows merchants to unleash more economies of scale. In addition, merchants can cut costs and enhance efficiency by using our platform's in-house procurement and group delivery. Therefore, merchants can pass savings to consumers through a lower price. Going forward, we will continue to help merchants optimize efficiency, help them improve SKU selections, and broaden their price bands to attract more price sensitive consumers. For branded restaurant last quarter, we launched the branded satellite stores in [Foreign Language]. This quarter, we worked with more brands such as Lao Xiang Ji and Haidilao to help them open more satellite stores, thus bringing more quality selection and low price for our consumers. Looking ahead, we will continue to innovate our supply formats, penetrate deeper into the supply chain, helping merchant improve efficiency and pricing ability, and consistently provide the value for money products for consumers. Meituan Instashopping posted another robust growth. And on-demand retail has become a significant growth driver for local retailers. It is also a reliable shopping channel for consumers. We see steady increase in Meituan Instashopping annual transacting user base and even faster growth in order frequency in this quarter. We precisely capture the latest trend in diversity and personalized consumptions and continue to refine our operations and marketing strategies. Through these measures, we effectively cater to consumer demands across various scenarios such as the holiday gifting travel and camping activities. During the quarter, we deepened our collaborations with the leading brands in FMCG, apparel, liquor and beverage, and more and on-boarded many branded stores to our platform. In addition, we provided various emerging support measures, such as to refine the marketing strategy to increase transaction conversion rate and bring incremental sales to these branded merchants. Those categories I just mentioned achieved steady order growth in the second quarter better with on-demand retail. We proactively penetrate deeper into the industry value chain and expanded Meituan InstaMart [Foreign language] to broader regions. In higher incentives, we increased the density of Meituan InstaMart. In lower densities, we also deepened the penetration to drive strong order volume growth. Meituan InstaMart is a marketplace model where merchants rent and operate brand distribution warehouses and we help merchants with online tenant operations offering traffic support, product selection recommendations and pricing strategy, etcetera. And this new supply format effectively matches supply with demand for on-demand retail. The value of our Meituan InstaMart was gradually recognized by offline retailers. An increasing number of leading offline brands failed to work with us. They can fully capitalize their advantages in the supply chain while leveraging our location based marketing strategy, online solutions and efficient delivery network to offer consumers value for money products through on-demand retail. For certain categories, we penetrated deeper into the supply chain and adopted in-house procurement. For example, we have self-operated brand Wai Ma Song Jiu in the liquor beverage category and continue to expand in scale. Wai Ma Song Jiu has integrated self-operating supply chain plus brand distribution warehouses plus self-operated delivery. This model effectively meets consumers instant consumption needs and in second quarter Wai Ma achieved a record high GTV. For the medicine category, we further strengthened consumer mindshare, build stronger capacity to satisfy seasonal demand and enhanced our product availability in health supplements. In July, we rolled out online medical insurance payment channel for most LTC products in a few cities, including Beijing, Shanghai and Qingdao. Consumers can choose insurance covered pharmacies and drugs for our platform and enjoy 30 minutes delivery to their doorsteps. Going forward, under the guidance of local authorities, we will work closely with chain pharmacies and expand the coverage of stores and drugs that can use medical insurance payment to provide consumers with convenience and health services. Overall, the adoption of on-demand retail from more traditional brands and merchants, coupled with accelerated expansion of new supply formats further enhanced the competitive advantages of Meituan Instashopping on the supply side. It has helped enhance user experience and increase purchase frequency that builds a solid foundation for our resilient growth despite facing external challenges. In addition, the long-term sustainable development of our on-demand business depends on the continuous optimization of our delivery network and hard work of our couriers to address the challenges couriers face and launched courier-friendly communities and courier-friendly merchants. Currently, we have established courier-friendly communities in more than 20 cities nationwide. To facilitate the easy access for couriers in residential areas, we introduced a digital solution in collaboration with the various major property management companies, enhancing their delivery experience. Additionally, we worked with more than 10,000 stores of branded restaurant and healthcare services brands to provide rest stations, beverage and discounted meals for our couriers. Looking forward, under the supervision of relevant local authorities, we will continue to collaborate with the broader society, including local communities, property management companies, chain brands, and caring merchants, to accelerate the promotion of courier-friendly community access solutions, introduce more resting scenarios, and provide more discounted services to enhance courier’s sense of belongings and happiness. In the second quarter, our in-store hotel and travel business maintained a strong growth thanks to the continued digital transformation in local services, as well as consumers rising demand for diversity and value for money. Order volume increased by over 60% year-over-year. Annual transaction user increased by nearly 35% year-over-year and annual active mergers reached a new high. For our in-store business, we continue to leverage our shop based model and mega-hit products, expanding our valuable money products and services offerings for consumers. Through our shelf based model particularly by leveraging our Meituan Group Buy brand [Foreign Language], we continued to satisfy consumer demand for valuable money products. Recently, we put more efforts into the marketing campaign of Meituan Growth. We launched online and offline joint marketing events in 15 cities, especially during holiday seasons like Labour Day and Dragon Boat Festival. This strengthened the consumer mindshare of [Foreign Language] and continue to expand our user base. On top of that, we continue to promote mega-hit products by leveraging Special Deals [Foreign Language] and many other operational tactics. These measures effectively capture the consumer market demand for deep discounted deals and boost our transcending user base and order volume. We also continue to invest in lower tier markets to effectively digitize both supply and demand and help accelerate online penetration of local services in these mid-tier markets. In addition, after we upgraded our Shen Hui Yuan program, consumers can now use coupons in-store hotel and travel categories, which further strengthened the consumer mindshare in our value-for-money offerings. And Shen Hui Yuan is also widely welcomed by our merchants. In current macro environment, consumer demand for local services remain intact with the new consumption trends emerging the sudden [ph] changes in consumer preference. For in-store dining, demand has extended from normal meals to lighter meals and beverage snacks at fast food, coffee and tea, those categories are doing well. To adapt to this change, we swiftly on-boarded more light meal and beverages suppliers. Our in-store business recently promoted the pickup now service that allows consumers to buy and validate coupons online simultaneously so that they won't waste time doing validate the coupons offline, making use in a more convenient way and enhancing the user experience. We see Pickup Now service as a complement to our food delivery and in-store dining service format. Currently, Pickup Now published popular categories at coffee and tea. We have partnered with 46 chain brands and around 90,000 restaurants to offer Pickup Now and have served over 20 million users in 100 of cities. During the second quarter, we launched our 2024 Must-Eat List [Foreign Language] covering nearly 2,800 cities -- covering nearly 2,800 restaurants in over 100 cities. That's more than ever. Majority of the restaurants on our list are localized restaurants and nearly 20% are [indiscernible] Xiaoxiang. We provided online traffic support and operational guidance for the listed merchants, especially those small and medium-sized merchants, helping them enhance store exposure, online operation and efficiency. For other in-store services, there is the trend that consumers want to enjoy diversity and low price in the leisure and entertainment category. We actively captured this evolving trend, improved operation in certain popular categories, capitalizing on our advantages in supply, brand recognition and service quality. We aim to begin consumer’s top choice when they look for digital happiness, [indiscernible] for those type of consumptions. Specifically, leisure and entertainment posted strong growth with GTV and order volume growth growing over 60% year-over-year. And GTV for beauty and medical aesthetics also increased by over 50% year-over-year. For the hotel business, both our domestic room night and GTV experienced steady growth during the second quarter. We expanded efforts in branding promotion and iterated marketing strategies around the major holidays such as Labour Holiday and Dragon Boat Festival. During the 10-year anniversary celebration of our hotel business, we launched a dedicated marketing campaign effectively incentivized demand. As more and more travellers now focus on culture and experience, we continue to enhance our supply and product formats. For example, we iterated our Hotel + X packaging dues and leveraged our platform advantage to offer consumers high-quality value for money products while helping merchants cross-sell other services and accommodations. Under the current macro environment and demand for low-star hotels have increased. Our unparalleled advantage in this domain, especially on the supply side, position us well to withstand with new environment. During the quarter, we further strengthened our supply capabilities in low-star hotels. We cater to consumers' differentiated preference and expanded our value-for-money offerings. Transaction conversion and room nights have increased subsequently. On the merchant side, we provided comprehensive online solutions to address their operational needs from traffic acquisition through growth, business growth through room renovations and helping low-star hotels capture more growth opportunities. In the high-star domain, we recently launched the 2024 Must-Stay List [Foreign Language] featuring over 1,100 hotels. We further expanded our city publish and included Hong Kong and Macau in the list for the first time. In June, we held a special live streaming session to promote the Must-Stay list, setting a new GTV record in hotel live streaming. In addition, we deepened our joint membership program with high-star Hotel Group's adding exclusive discount and late checkout privilege to the member benefits. We also launched joint marketing events with high-star hotels featuring better product explosion and attracting new users to the merchants. And now let's move on to our new initiatives segment. For Meituan Select, we continue to improve its operational efficiency in the second quarter by continue enhancing our product quality and strengthening supplies collaborations. We effectively increased our price per item and price market ratio. On the procurement side, we further improved the efficiency and broad elevated experience for consumers. We also increased the proportion of orders delivered by 11 a.m., which will help us penetrate into more consumption scenarios. Moreover, we enhanced our marketing efficiency and optimized resource allocation. All these efforts led to substantial loss reduction for the business on both potential and year-over-year basis. And our Xiaoxiang Supermarket, [Foreign Language] is one of the key components of our on-demand retail strategy. It has become a convenient and reliable source for people to shop grocery online. During the second quarter, we made positive progress across various areas, including products, operations and procurement. And it's worthwhile to mention that we extended the business hours to 2 a.m. [indiscernible], allowing us to capture more night time consumption scenarios and enhance use experience. In the second quarter, growth for Xiaoxiang continuing to outpace industry peers with efficiency further improving. And the other new initiatives, including our B2B food service distribution and our restaurants brands now by sharing, shared power banks, they all posted strong performance in the second quarter. And we have not only achieved the market leadership in scale, but also improved operational efficiency. Our new initiative help strengthen the entire ecosystem, increased consumer and merchant engagement through our comprehensive offerings. And it will gradually unlock more financial value in future. And the local commerce market in China has a very big progressable [ph] market and large growth potential. And as a market leader, we are confident to navigate through the cycles facilitate industrial digital transformation. Unlocking greater value in the long-term, we will actively adapt to the changing consumption trends and tap deep into the supply chain and offer comprehensive products and services to meet diverse demand across categories. In addition, we will continue to provide the merchants with efficient marketing tools and online operational solutions. We aim to continuously enhance value for our consumers, merchants, couriers and all business partners in our ecosystem, and we want to drive high-quality development in China's local commerce industry and fulfil our mission to help people eat better, live better. With that, I will turn the call over to Shaohui for an update on financial results.
Shaohui Chen: Thank you, Xing. Hello, everyone. I will now go through our second quarter financial results. During this quarter, our businesses sustained healthy growth with our total revenue increasing by 21% year-over-year to RMB82.3 billion. Cost of revenue ratio decreased 3.8 percentage points year-over-year to 58.8%, primarily due to the improved gross margin of our food retail business and lower delivery cost percentage of revenue in our on-demand delivery business. Selling and marketing expenses ratio decreased 3.4 percentage points year-over-year to 18%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 6.5%, primarily benefiting from improved operating leverage. G&A expenses ratio was 3.3%, slightly increased on a year-over-year basis. Second quarter is usually the best quarter in terms of profitability due to seasonality in our business. In time, our dedication to pursuing quality growth and enhancing operational efficiency continued to yield positive results. Every profitability metric set new record in this quarter, marking the highest level since our leasing. Our quarterly profit surpassed RMB10 billion mark for the first time. Net profit for the period and adjusted net profit reached RMB11.4 billion and RMB13.6 billion, respectively, while the corresponding margin climbing to 13.8% and 16.5%, respectively. And to our cash position. As of June 30, 2024, we maintained our strong net cash position with our cash and cash excellent and short-term treasury investments totalling RMB133.3 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB19.1 billion. Now let's look at our second results, starting with local commerce. Firstly, our core local commerce segment increased by 18.5% year-over-year to RMB60.7 billion. We set new records for both its operating profit and operating margin in this quarter with operating profit increasing by 36.8% to RMB15.2 billion and operating margin went to 25.1%. Our on-demand delivery business followed by leadership and deliver resilient results during this quarter. On-demand order volume achieved year-over-year growth this quarter despite external challenges. And finance shopping maintained rapid growth with its year-over-year order volume growth far existing net of delivery. We converted more than 60% for delivery users to make shopping users emulate more cross sales among different categories. As a result, users project frequency of the overall on-demand delivery further increased on both year-over-year and quarter-over-quarter basis during this quarter. We are confident that the long-term growth potential of on-demand delivery remains substantial. Lastly, on August 7, peak daily order volume for on-demand delivery rose 98 million. Revenue of on-demand delivery grew faster than the order volume on a year-over-year basis, although the consumption changes continue to wait on AOV for our on-demand delivery business. The year-over-year decline in AOV started to normalize this quarter. In time, margin demand from restaurants, offline retailers and brands remain strong with the scale of advertising merchants for both food delivery and Meituan Instashopping growing by more than 20% year-over-year. Once again, on our marketing services revenue or on-demand delivery believe remarkable growth. Meanwhile, we saw more operating leverage as the business scales up. We're also managing to promote user frequency growth with enhanced subsidy efficiency. Delivery cost order is usually the lowest during the second quarter, given some weather conditions across the country. On top of that, we continue to benefit from the abundant supply of couriers and further optimize our delivery capacity structure. Meanwhile, the order contribution from Xiaoxiang [ph] increased meaningfully year-over-year this quarter. We're also able to achieve more delivery cost savings on all the business, thanks to its group delivery model. Year-over-year growth in on-demand operating profit up paid the growth in order volume and revenue, thanks to the improved advertising monetization as well as the optimization in cost and expenses which offset the decline in AOV. The economics of both food delivery and Meituan Instashopping improved year-over-year this quarter. Our In-store hotel and travel business also sustained their leadership to deliver another robust growth. GTV for in-store business continued its rapid growth strategy this quarter with both the number of transacting users and merchant base hitting new record. Our expanded suppliers, enhanced products and content refine operations and marketing strategies enable us to accurately to demand across a variety of local commerce categories. Leisure and entertainment, GTVs or BT structure experienced rapid growth in transaction volume. In time, as the scale of the lower-tier markets increase rapidly, we also saw continuous enhancements in operating efficiency in those markets. However, the GTV growth for hotel and travel significantly lagged behind the growth of in-store, given the last year's high base and also more balanced supply and demand. Talking of in-store and travel grew at a slower pace than GTV as again few revenue growth and GTV growth significantly narrowed compared to the last part. Transaction-based services revenue continued to show robust growth, and its growth was quite in line with GTV growth. The year-over-year growth of online marketing services revenue continue to trail behind mainly because of the change of our subscription service charge. Nevertheless, underlying marketing services revenue contribution, have hit an upward trend sequentially specific the expansion of the advertising merchant base for performance-based apps drove strong year-over-year growth in performance-based ad revenues this quarter. Operating profit for in-store hotel and travel business achieved a healthy year-over-year growth. Operating profit margin also continued to improve on a sequential basis, mainly attributed to the increase in online marketing services revenue contribution and the improvement in marketing and operation efficiencies. Turning to our new initiatives segment. During the quarter, revenue in this segment achieved an accelerated year-over-year growth of 28.7%, reaching RMB21.6 billion, mainly due to the development of our goods retail business, particularly from Xiaoxiang Supermarket and its [indiscernible]. This time, the segment further accelerates its loss reduction this quarter, the segment's operating loss and operating loss ratio all narrowed significantly on both quarter-over-quarter and year-over-year basis to RMB1.3 billion and 6.1%, respectively. The loss reduction was primarily attributed to the sequential efficiency improvement of Meituan Select. We continue to implement strict cost cutting and efficiency improvement measures for Meituan Select such as raising price mark-up ratio, lowering the subsidy and shutdown underperforming warehouses. In time, most of the other new initiatives continue to achieve healthy growth while improving operating efficiency, the profitability of all the other new initiatives, excluding Meituan Select, further improve our collective basis. With regards to our buyback program, we repurchased over USD2 billion worth of shares before like how it started. It represents more than 2.1% of total shares outstanding. Our Board has approved up to cancel all the repurchase shares to further reduce our share count. To conclude, we proactively adapted to evolving consumption trends and improve our operation and product across our business. Our core local commerce demonstrated resilient growth once again with improving operating profit and operating margin. And currently, our commitment to enhancing efficiency in our new initiatives has led to a significant reduction in losses. Looking ahead, we will actively seize growth opportunity across our business while striking a balance between growth and profitability. We continue to fill quality growth strategy for our business and consistently improve operating operational efficiency. We also believe that there will be more synergy among core businesses to come in future. Thank you.
Xing Wang: With that, now we are open for Q&A.
Operator: [Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs. Please go ahead.
Ronald Keung: Thank you. Xing, Shaohui, Scarlett and Wing [ph]. So I want to ask that the external environment remains quite challenging. And particularly, we've seen the consumption weakness in restaurants to the catering industry. So how should we assess the impact on Meituan's core local commerce? And what strategies does the company have in place to mitigate these macroeconomic impacts? And lastly, what's our growth expectation in the current macro setup? Thank you.
Xing Wang: Thank you, Ronald. And yes, the evolving consumption trends have indeed brought a varying degrees of challenges across the industry. Our local commerce remain vibrant and dynamic. We see consumers increasingly look for personalized and diverse experience. Our products and services are well aligned with this changing preferences. We effectively meet consumer demand in dining, leisure, entertainment and more, and we have a wider range of categories and price bands. We continue to explore new supply formats and optimize our products. So this measure allow us to better capture emerging trends, satisfy diverse demand and bring more potential for our long-term growth. In the second quarter, despite the external impact on order volume growth and our refined operation across consumption scenarios continue to drive steady growth in both user scale and purchase frequency of mid-to-higher frequency users. Also, our innovation in the new supply formats such as the Pin Hao Fan effectively meet the demand from private sensitive [ph] users. Pin Hao Fan has become the preferred choice for many people seeking value-for-money products. It has also become a new growth driver for a number of small and medium size restaurants and also branded restaurants. In this quarter, the order contribution from Pin Hao Fan continued to rise. And thanks to its efficient group delivery model, we were able to save delivery cost on order basis. And Pin Hao Fan has proven to be more efficient for both Meituan and restaurant merchants in adjusting low-price demand. So we will continue to deepen penetration in the supply chain and help merchants improve efficiency and enhance pricing capability and provide value-for-money products for more consumers. And for Meituan in-store shopping, while the change in consumption trends have impacted the average order value, the impact on order growth has been so far limited. On-demand retail still has a very significant potential in online penetration across different geography category scenarios. New supplier formats like Meituan InstaMart [Foreign Language] are well recognized because of its compatibility with on-demand retail. This new supply format not only grow rapidly in the higher densities, but also help accelerate penetration of on-demand in lower densities. We will work closely with leading offline retailer on Meituan InstaMart, and that's started to drive additional growth in the future. Additionally, as we continue to enhance supply and improve operations, we see considerable growth room in user frequency and their ARPU for Meituan in-store shopping. So we believe that on-demand retail will continue to benefit from the ongoing digital transformation process and our continuous development on both the supply and demand side. And for in-store hotel and travel, the penetration overall is still very low. Consumer demand for local services remains strong. For the consumer to become more price sensitive and want to see more value-for-money deals, all these facts present a significant long-term growth potential, especially as new categories continue to emerge. Our user base and transaction frequency in our in-store hotel and travel maintained healthy growth. Order volumes up by over 60% year-over-year. We also see continued increase in user stickiness share. In addition, our share-based business model is very resilient. We have over 200 categories to meet the diverse consumer demand, inviting stores and discounts across price band. We have also introduced live streaming Special Deals [Foreign Language] to incentivize in-house consumption and cater to consumer needs for deep discounts. Additionally, we actively penetrated into lower tier cities for more growth opportunities. As we accelerate the merchant on-boarding, optimize orders and strengthen value-for-money consumer margin, I think we are well positioned to accommodate changes in consumption -- consumer needs. And this will allow us to maintain healthy growth in both user base and frequency, thereby mitigating the adverse macro impacts. So overall, we believe our core local commerce segment can maintain steady growth. The potential for digital transformation remains essential. And we are confident in our ability to capitalize on the long-term growth opportunities brought by shift in consumer demand and structural change on the supply side. Thank you.
Ronald Keung: Thank you.
Operator: Your next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong: Hi, good evening. Thanks, management for taking my questions. As the company continues organizational restructuring, could management share with us the synergies achieved so far? Can you also provide updates on the upgraded membership program, Shen Hui Yuan? When can we see more synergies to come? Thank you.
Xing Wang: Thank you, Thomas. So since the organizational structuring, we have deepened collaborations and enhanced cross-sells among different businesses. And we have also integrated operations in core local commerce across many areas, including product development and R&D and marketing. So notably, our upgraded membership program, Shen Hui Yuan, stands out at our very first marketing schemes for integrating our marketing efforts in core local commerce. Over the past few years, our membership program has accumulated over 100 million members for our food delivery business. It has not only enhanced user frequency in on-demand delivery, but also brought substantial business growth for restaurant merchants and helped improve their marketing efficiency. Shen Hui Yuan expand candidates to more categories in our in-store hotel and travel, offering consumers a broader range of value-for-money products. Thanks to the membership benefit, some of our food delivery users have started exploring other categories such as health, loan, massage, home cleaning and accommodations. We also noticed that some low-frequency users are making transactions on our platform more frequently with more categories. On the merchant side, Shen Hui Yuan further allows us to collaborate more efficiently with a large number of merchants and doing them extensive user traffic from the Meituan platform. We also offer in-store merchant more comprehensive marketing tools to cross-sell from higher frequency food delivery to lower frequency in-store hotel and travel services. By now Shen Hui Yuan has covered over 2.5 million merchants in-store hotel and travel, and the numbers continue to increase. Many participating merchants have experienced additional growth in order volume and user scale. In addition to Shen Hui Yuan, we continue to launch new cross-selling initiatives. For example, in travel scenarios, we introduced a special room type that offers free food delivery vouchers, catering to consumers' demand for placing food delivery orders while staying in hotels. This effectively drove growth in both businesses. And generally speaking, we have a clear direction in the organizational restructuring we have begun enhancing synergies across our businesses. It's too early to quantify the results, and we will be patient and we will continue to focus on building our long-term competencies at most from the collaboration and synergies. We have confidence that these synergies will eventually yield positive financial results. Thank you.
Operator: Your next question comes from Alicia Yap with Citigroup. Please go ahead.
Alicia Yap: Hi, good evening management. Thanks for taking my questions. Congrats on the solid results. My question is on if you look at besides the macro environment, were the food delivery orders also affected by the shift to the offline consumption? So could you share that the recent performance of the food delivery and the Meituan Instashopping, how should we anticipate the growth and the profitability of the on-demand delivery in the second half of the year? Thank you.
Shaohui Chen: Thank you for the question. I'm glad you raised the question on food delivery and also on-demand delivery and also the relationship between the delivery business and our in-store business. Meituan, thanks to the one-stop shopping experience for local services. So we are very glad that we have a good combination of both delivery services and in-store business, and that can cater to consumers' different needs. The food delivery and in-store dining are two different models and on the different demand scenarios. We saw that the consumers' demand for in-store dining extended from formal meals to more light term meals, snacks and beverage, such as our food, coffee and tea and also our in-store dining business is actually capture the shifting demand through our enhanced supply, better product formats and refined marketing. We have seen that since the beginning of this year, our offerings in these new scenarios has further enriched either for dining or the pickup with very competitive pricing. As a result, transaction volume from our in-store dining business maintained strong growth momentum. We understand that this may potentially impact the delivery order volume growth in certain categories, but the impact is limited. We're still seeing very different relative position for food delivery and in-store dining, and we still believe that food delivery still has a very low online penetration and very strong value and proposition to further increase the frequency, especially with the continued expansion of our food delivery offerings and the track spend. And we also want to highlight that although food deliveries, where we start for the on-demand business, we have seen more and more categories has joined in the on-demand business, and we want to drive the attention from purely delivery business to a broad on-demand delivery business because we believe this is going to be an important growth driver for the company. We believe that more and more consumers will be converted from purely food delivery users to more cross-selling consumers in broader on-demand delivery. We will enhance operations for mid-to-high frequency users in more opportunity across this category and drive the user frequency. As mentioned earlier, we are seeing that our on-demand delivery maintained more than 3 times the growth rate of our food delivery business. And we believe its strong growth momentum will continue in the following year. Total order volume for on-demand delivery also maintained very strong growth during the summer, especially during some of the very important marketing campaigns, such as our European campaign, the Olympics and mid [indiscernible] promotions. This was achieved by expanding supplies across popular consumption categories and scenarios and optimize both operations and the market strategy. Our Pin Hao Fan business also allowed us to better serve price users more effectively and continue to drive the growth of order volume. Notably, our August 7 peak sales order volume for on-demand delivery grow 98 million, which is a very important milestone for the company. And we are very confident that next year, during similar season, we will see the peak delivery number to exceed 100 million orders. We believe that this order volume growth momentum is healthy and will continue during the rest of this year. We believe in this business, we can balance growth with profitability. We expect the year-over-year growth in operating profit to be higher than the revenue growth and order volume growth. Shift in consumption trends will continue to impact the average order value of our on-demand delivery. But the AOV decline is expected to normalize during the second half of the year. As the business scale up, we also expect to realize more operating leverage and to continue to optimize our subsidy efficiency. So we will continue this strong demand for merchants, including the advertising of our platform, and we'll continue to launch different advertising products to meet those demand, so the advertising will remain strong. And our optimized operation will also help us to improve overall delivery efficiency. So overall, we're still very confident on both the food delivery and on-demand delivery business. Thank you.
Operator: Your next question comes from Kenneth Fong with UBS. Please go ahead.
Kenneth Fong: Hi, good evening management. Thanks for taking my questions and congrats on the very strong results. I have a question on the local service. We recently heard that competitors will stick to the annual GTV target, and they even stepped up subsidies for local service in the third quarter. Could management share some insights on the recent competitive dynamics? For the second half of the year, how do we project the GTV growth, the gap between revenue growths, GTV growth as well as OP margin? Thank you.
Shaohui Chen: Thank you. For the in-store business, for competition, I would like to share a little bit more of the overall industry. As we mentioned in the earlier quarters, we are seeing the in-store business overall at a very strong and the important growth momentum in that more and more consumption are shifting from offline to online. The online penetration of the service return in China continued to rise during this quarter, and we proactively adapted to this macro trend and arterial product and operating strategy to meet this new trend. We delivered strong growth in Q2, both in our order volume and our GTV. Order volume increased by over 60% year-over-year. At the same time, our operating margin improved quarter-over-quarter. Business remains very healthy growth, and we think the online penetration will continue to improve in the following quarters. About the competition, overall, we observed that the competitive landscape will remain relatively stable in Q2, and there are a couple of points I'd like to highlight. First, the industry has experienced rapid development in the last few years. Both other players and ourselves have invested to different business models, and all of those efforts lead to growth also lead to quite different focus on category mix and merchant tiers. We have seen that on the GTV validation rate, it could be very different in different categories and also on different platforms. We have continued to see that our valuation rate for GTV is much higher than our competitor. As a result, we have gradually shifted our focus to the validated GTV market share for our core categories, which we believe is more relevant to really understand the quality of the business. Secondly, summer is usually the peak season for local services, and the merchants tend to market more marketing expenses in order to lead the rising demand for local services. We also extended our Shen Hui Yuan membership program to nationwide and launched a series of marketing campaigns and brand attachments. Based on our reservation with the competition in these core categories remain rational understated. As the industry evolves to a new stage, we believe all the participants will shift from a subsidy-driven growth strategy to a more ROI-driven growth strategy, and our strategy will continue to be centered around our own development and to fortify our long-term competitive strength. We will fully leverage our advantage in the share-based model and enhance our capability and value-for-money offerings through special deals and [indiscernible] and to continue to strengthen mindshare in Meituan as the go-to platform for finding stores and the best deals and to attract more merchants to use app as the primary platform for online operation. We will also capitalize on the synergies using the core local commerce. For example, in our upgrade Shen Hui Yuan program with direct high frequency traffic from our on-demand delivery to in-store services, thereby increasing transaction frequency and user stickiness. As we implement lower tier market strategy end of last year, we have seen notable progress across many categories. We will continue to explore ways to revitalize local consumption in the lower-tier market. Our ongoing efforts will drive further innovation on both the supply side and the demand side. We believe we will continue to lead the lifestyle changes for consumers in the long-term. And we will also benefit the most from this accelerated online concession trade. Looking ahead to the second half of this year, after our organizational restructuring, our business is now focusing more on the order growth and the user base. The strong performance of this initiative [ph] will drive the GTV growth to maintain its momentum during the rest of this year. And we will see a more normalized monetization rate in the second half this year. And the difference between rent growth and GTV growth will continue to narrow significantly. In terms of profitability, as we mentioned earlier, operating margin is not our focus as it will be impacted by the GTV contribution from different categories, different cities and the different revenue mix and also seasonality. And then, we suggest pay more attention to the operating profit dollar growth, which is a more important metric for the business team. We expect we will achieve solid year-over-year operating profit growth for our in-store hotel and travel business in the second half of 2024. Thank you.
Operator: Your next question comes from Ya Jiang with CITIC Securities. Please go ahead.
Ya Jiang: Hey good evening management. Thank you for taking my questions. We've noticed that revenue growth of new initiatives continue to accelerate this quarter. Can you please provide an update on the overall progress of new initiatives? And also Meituan Select showed significant loss reduction this quarter. How should we think about the loss of Meituan Select in the second half of the year? And how should we think about loss of new initiatives? And then lastly, after we expand food delivery in Middle East, how much will overseas expansion impact our loss reduction pace? Thank you.
Xing Wang: Thank you, Jiang. So in second quarter, revenue from our new initiatives increased by 29% year-over-year, and it's growing faster than the first quarter. And also it is growing faster than our core local commerce. So this growth was mainly driven by a very strong number from Xiaoxiang [Foreign Language]. And this quarter, our initiative segment still losing money, but losing less money. So the loss reduction is making some progress. For Meituan Select, we continue to implement efficiency improvement measures. We have been doing that since this February, and that lead to a notable sequential loss reduction. As we mentioned last quarter, now we no longer focus on the nationwide market share. Instead, our priority loss reduction and efficiency improvement this year. And going into the second half of this year, we will keep optimizing operational efficiency. And how much loss we can cut will also depend on the total business scale. So don't get too excited too quickly. And additionally, we have -- we also have expenses in cold-chain infrastructure during summer. We need to do that to ensure our product quality. And in order to achieve long-term sustainable development, we must create more value for consumers and a differentiated competitive advantage for Meituan Select. And that means that we remain optimistic about the long-term potential of the online grocery market in China. And we have been addressing this market with a few different models. Meituan Select is one of the models we are doing in online grocery, and we will stay patient. At the same time, we will also stick to our financial disciplines and dynamically assess our progress and balance resource allocation among different models. And for other new initiatives, most of them have achieved better-than-expected efficiency improvement and maintained a quite healthy growth in the first half of this year. So on a productive basis, this new initiative have achieved a modest profit this quarter. Regarding our overseas expansion. While we are still in a very early stage, we will continue to evaluate opportunities across different regions. And so we wanted that deep into the specifics about any specific markets until we have some concrete progress to share. So from a financial perspective, the budget for overseas is already included in the total new initiatives segments. So the impact on the segment of operating loss will be limited this year, and we believe overseas market is the right long-term strategy for Meituan. So we will stay patient and continue to explore while maintaining our financial discipline. That's it. Thank you.
Operator: Your next question comes from Charlene Liu with HSBC. Please go ahead.
Charlene Liu: Thank you management for taking my questions, and congratulations on a solid set of results. I would like to ask a question about shareholder return policy. Given Meituan has already repurchased USD2 billion worth of shares this year, where management considered launching an additional buyback plan. Shaohui mentioned some repurchase share has already been cancelled. Are there plans to cancel all repurchased shares? Or will they be used for other purposes? Additionally, will the company increase the annual results grants due to the buyback? And what are management's thoughts on putting in place a more systematic and continuous shareholder return policy in the future? Thank you so much.
Shaohui Chen: Thank you for the question. As we mentioned earlier, during this quarter, we repurchased over USD2 billion worth of shares before [indiscernible]. It represents more than 2.1% of our total shares outstanding. It actually reflects our confidence in our current long-term share value. Our Board has approved up to cancel all the repurchases to further reduce our share count. We have repurchased a total 3.6% of the total shares outstanding year-to-date. It's more than the stock granted from 2021 to 2023. Our average annual stock grant from 2021 to 2023 were approximately 1% of total shares. In the long run, we expect the average annual grant to be stabilized at a similar level or slightly lower. Our management team focused on enhancing long-term shareholder returns whether through our business growth or capital allocation. We will optimize our capital allocation strategy directing resources of all high our investments to ensure sustained healthy growth of our business and digitally increase free cash flow. We target to offset the dilutive effect of its brands in each year through share buyback. We will also take into consideration our investment plan, cash flow, our offshore cash reserves, debt repayment and share price, etcetera, to decide whether upsize by the plans as needed. Based on our current offshore cash reserves and the -- our understanding on the market, our Board has just approved another USD1 billion buyback plan, and this further reflect our confidence in our business development and long-term share value. We will maintain a flexible strategy and execution of future buybacks. Thank you.
Operator: Thank you. There are no further questions at this time. I'll now hand back to Ms. Scarlett for closing remarks.
Scarlett Xu: Okay. Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
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