Meituan: Confident in the face of competition? (4Q22 Conference Call Summary)
Below is a summary of the conference call for Meituan's 4Q22, please see "Wang Guo: Efficiency Remains High, But It's no Longer a 'Copper Wall and Iron Barrier'" for financial analysis.
Q: How does the management view the current competition in the food delivery industry and what impact does it have on Meituan's core competitiveness? How will management respond to the current competitive environment?
A: (1) Food delivery
Food delivery has two very important characteristics: it is based on geography and on demand, and the entry barrier is very high. Completing orders requires high efficiency, especially during peak hours, and a reliable order fulfillment system is needed.
Meituan has accumulated strong experience and capabilities in the three pillars of the food delivery business: customer base, merchant base, and delivery network. Although there are new competitors entering the market, their impact on Meituan is currently very limited.
From the consumer's perspective: Meituan's price range, cross-group coverage, and consumption scenarios are relatively wide, providing consumers with cost-effective and on-demand opportunities. In contrast, video platforms limit consumption scenarios.
From the perspective of merchants: Competitors such as short videos are more suitable for short-term needs. Considering the cost of traffic and delivery, this is not economical for small and medium-sized merchants. Moreover, the competitors' ability to fulfill orders is limited.
Overall, the food delivery market has tremendous potential for development, and the company is confident in maintaining its market leadership position.
(2) In-store
In terms of competition in the in-store service market, online penetration is still low in local commerce. Although short videos can help drive the development of this area, Meituan has unique and differentiated capabilities and advantages. Meituan has accumulated a large number of high-quality merchants, rich local product categories, a local consumer base, and a very strong consumer mindset.
Meituan provides consumers with the most comprehensive selection of products and real-time information. Meituan's business model can help merchants achieve low-cost and efficient daily operations and the ability for user repurchases.
Last year's epidemic had a significant impact on in-store business, but this year's economic activity and consumption have started to recover and rebound. Both merchants and consumers can better meet their needs by using Meituan's platform.
Meituan will also further expand its coverage and launch consumer stimulus plans. In the future, it will attract more new merchants to settle in, while improving service breadth and depth, optimizing algorithms, and helping merchants and consumers.
Q: After the epidemic control has slowed down and consumption has rebounded, the core local business has rebounded in the past two months of the year. What are the business expectations for 2023?
A: (1) Food delivery business
After reopening in December, the weakening of the epidemic's impact exceeded expectations, and the recovery speeds of different businesses were varied. Food delivery has recovered faster than in-store business. During the Spring Festival, the order volume decreased year-on-year, which was caused by high base effect due to last year's "staying put during the Spring Festival" policy, and many people returned home earlier. Numerous merchants did not reopen their businesses, especially in high-tier cities, resulting in rapid declines in supply and demand. After the Lantern Festival, people began to return to the city, and supply and demand gradually recovered. In the early February, the volume of orders returned to the normal level and achieved double-digit year-on-year growth. The recovery rate of the middle and high-end AOV was particularly fast in the first two months of this year.
In recent weeks, the growth of orders in all categories has accelerated, which will further introduce more merchants to the platform and use more effective marketing strategies to achieve diversified supply and stimulate consumer demand. The growth rate of delivery orders will return to normal in 2023.
(Meituan's) "Flash Purchase"
During the epidemic period, flash purchase demand was strong. After the epidemic, consumers began to consume offline, coupled with the effect of returning home during the Spring Festival, the daily order volume in January this year decreased month-on-month. However, as people started to return to their jobs after the Spring Festival, demand recovered. In addition, the recovery of remote travel scenarios has brought positive effects to Meituan's flash purchase. Therefore, starting from early February, the order volume returned to the high growth track, and it is expected that Meituan's flash purchase will maintain a high growth trend in 2023.
(3) In-Store Business
During the Spring Festival, family gatherings and travel brought new consumption scenarios, and multi-person dining packages increased significantly year-on-year. In addition, the Spring Festival's return home and holiday travel promoted the rapid growth of cross-city consumption scenarios. The company cooperates with high-quality local merchants to launch relevant marketing activities to stimulate people's consumption, and distributes consumption vouchers in tourist cities such as Sanya and Chengdu to promote local consumption recovery.
With the recovery of offline consumption, consumers' LBS-based search needs have grown rapidly. Therefore, the GTV growth rate in February has recovered to more than 30%, and higher growth is expected to be achieved in March. Overall, it is expected that the online penetration rate of the in-store business and the GTV will be significantly improved in 2023.
- Hotels and Tourism
After the epidemic control was relaxed, urban tourism became very popular, and the demand for inter-city tourism also surged, which in turn promoted the growth of the hotel and tourism business. Generally speaking, with the lifting of prevention and control measures and economic recovery, it is expected that the GTV of this business will rebound significantly.
Q: After the epidemic, the marketing expenses of the core local business division increased. What is the situation this year?
A: This year's fast consumption recovery, business recovery, and growth are the top priority of the core local business division. Compared with last year, marketing expenses will further increase, which will have a negative impact on the division's operating profit margin.
(1) Restaurant Takeout
In terms of take-out, Meituan will increase marketing investment and user subsidies to stimulate consumer demand, while focusing on high-quality business growth. Currently, it is trying to improve operational efficiency through the accelerated membership plan, discount packages, and optimized subsidy policies. With the growth of order volume, the operating leverage will be further released. Compared with last year, there will be more stable growth in delivery service in 2023.
(2) "Flash Purchase"
Benefiting from the hoarding behavior last year, the demand for Meituan's flash purchase increased, and it will not enjoy this dividend again in 2023 due to the high base last year. Under the scale economy and efficiency improvement, the operating profit margin of this business will remain stable year-on-year. ** (3) In-store and Travel**
2022 is special, and the supply and demand of local services have been restricted to varying degrees due to the epidemic background. In this context, the company will mainly focus on cost reduction and efficiency improvement. Due to the unusually high operating profit margin in 2022, investment, marketing, and other incentive measures will gradually be restored to in-store and travel in 2023, further strengthening market share and consumer awareness in today's competitive environment.
At the same time, we will further accelerate the process of merchant entry and expansion in lower-tier cities. For example, we will expand the business development team through the merchant incentive plan, accelerate external traffic cooperation, and speed up the development of video-related products. These measures require a certain degree of investment, and will have a significant impact on profit margins in the short term; but it can also enhance competitiveness and advantages, speed up GTV growth, and facilitate the long-term development of the platform.
In the long run, with the strengthening of competitive advantages and the stabilization of market share, the operating profit margin of in-store and travel will gradually return to normal levels.
Q: The reason for the sharp rebound of tourism business after the epidemic, and the strategic planning of high-star hotels
A: After the epidemic prevention and control was lifted, tourism demand rebounded strongly. During this year's Spring Festival, many tourist destinations, such as Sanya, Zhuhai, and Xiamen, saw a significant increase in tourists. Compared with the Spring Festival in 2020 and 2019, the domestic room nights increased by 40+%; In the first two months of 2023, the GTV of hotels increased by 60% year-on-year, and this part is mainly due to the significant increase in room night unit prices.
In 2023, we will continue to implement a high-quality growth strategy to enhance core competitiveness.
In terms of consumers, we will further closely monitor the latest consumption trends, cultivate high-quality consumer groups, promote transaction conversions, and obtain traffic offline and online.
In terms of products, we will continue to optimize and enrich product forms (including live broadcasts, short videos, packages, joint marketing, etc.), carry out joint marketing cooperation with business partners, and use holiday activities to increase brand awareness.
In terms of merchants, we will continue to optimize supply, provide better online tools and offline solutions for merchants, and help merchants improve efficiency.
In terms of high-star hotels, we will use the platform's advantages to effectively match hotel products, and use the "hotel + X" strategy to create more synergies between the hotel business and other business lines - not only will it promote the growth of room nights, but also help hotel merchants increase related services, especially for high-star hotels with a wide range of services.
Q: Meituan Flash Purchase has performed very strongly, with a single-day order volume exceeding 11 million. Can you talk about the strategy in this regard, especially the strategy for pharmaceuticals, and the expectations for the future?
A: When we went public in 2018, we emphasised the goal of reaching 100 million daily orders for food delivery. In 2018, we expected Meituan Flash Purchase to be a fast-growing sector, and the company's confidence in this business has increased in the past few years.
Expected flash sale will become a high-growth business and will be as strong as delivery service. The growth of the business is due to the short-term surge in demand during the epidemic, but this will also cultivate consumer habits and increase the company's market share.
In 2022, not only has the coverage of supermarkets and convenience stores been expanded, but significant progress has also been made in categories such as electronics, alcohol, and beverages. The company is still committed to optimizing the supply of various categories to efficiently meet the strong demand.
During the epidemic, Meituan actively responded to everyone's needs and provided online solutions for consumers. Therefore, Meituan Buy Medicine grew rapidly in 2022 and became the first choice for many people during the epidemic, and real-time delivery and online accompanying visits have become highlights and are expected to become growth points.
The peak daily orders for flower day reached 6 million, and the peak daily orders for drugs also reached 5.8 million. Considering the high performance of Meituan Flash Sale, it may also achieve UE of 1 RMB or even higher in the later period.
Q: Are the new businesses launched in 2022 not strong enough, will the losses related to them decrease in 2023; what is the reason for adjusting the shared bicycle business; which new business sector contributes the most return on investment; investment planning and future development prospects?
A: (1) New Business
The new business in 4Q22 pursues high-quality growth strategy, the operating losses have greatly narrowed year-on-year, and there is also an optimization trend month-on-month. The current new businesses including Meituan Select, Meituan Grocery Shopping, and B2B "Quick Donkey" have all grown very rapidly in 2022, and UE has improved significantly. Especially in December of last year, there was a very good growth trend in various cities nationwide.
In the past, there was not much mention of Quick Donkey and it is not a new business. It was launched in the fall of 2015 and has been in operation for 7 and a half years, investing a lot of energy and resources. Finally, in December of last year, patience and investment paid off-Quick Donkey achieved profitability in cities nationwide and ranked first in the food supply market.
In addition to Quick Donkey, other new businesses have also achieved growth and increased profitability. For example, the business of sharing charging treasure achieved profitability in 2022, and the shared bicycle business recorded positive free cash flow for the second consecutive year and continuously increased its market share.
It is emphasized here that the investment in new businesses is based on the expectation that they will achieve independent financial profitability in the medium and long term.
Once the performance of new businesses is inconsistent with judgment, or the strategic value of the business is very limited and it cannot achieve profitability in the long term, necessary adjustments will be made-Net car is an example.
Currently, it is decided to suspend resource investment and allocation in this area (including capital and human resources); switch from a platform-driven model to an integration model. Sharing bicycles will still be provided in the future, and cooperation with third-party service providers will be used to provide it as an integration service for consumers, which is a light-asset model.
(2) International Business
Regarding overseas business, Hong Kong is the first step, and there are currently no other plans. The reason for choosing Hong Kong is that it is a multi-currency, multi-language market, and has similar dining habits to the mainland, which is very suitable for the first attempt to explore the market and expand internationally. The key to success in every market lies in strong local operational abilities and a deep understanding of the local market and business model. It should be emphasized that we will be very cautious when expanding overseas, so the impact on this year's performance will be very limited.
In the long run, we will consider launching food delivery services in other markets with greater business value, but this is not the focus at present. At the same time, we will also start our business in Hong Kong as soon as possible.
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