Meituan: 3Q20 Earnings Meeting Minutes

November 30, 2020 Meituan (HKEX code: 3690) released its third quarter financial report as of September 30, 2020 on Monday. The financial report shows that Meituan's total revenue in the third quarter was RMB 35.401 billion, a year-on-year increase of 28.8%; of which catering takeaway revenue was RMB 20.69 billion, a year-on-year increase of 32.8%. Meituan Chairman and CEO Wang Xing and Senior Vice President and Chief Financial Officer Chen Shaohui attended the earnings conference call to interpret the key points of the earnings report and answer questions from analysts. The following is the meeting minutes.

Performance Exchange Minutes (Based on Public Performance Meetings)

Some additional quantitative figures from the briefing:

In the in-store and hotel and travel business, in local services, consumption upgrade-related businesses such as medical beauty and pet care have accelerated growth, up 80%. Some services for specific groups have grown by 40%. In hotel and travel services, the number of high-star hotels cooperating with the company has increased by more than 20% year-on-year.

Among the new businesses, the Food+ sector grew 46% quarter-on-quarter. Meituan's flash sales volume grew 80% year-on-year. As part of its strategy of delivering everything to your home, the company successfully expanded its product categories, with the fastest growth in GTV for flowers and medicines, up 230% and 160% year-on-year respectively. As of the end of the third quarter, the company had more than 100,000 pharmacies and medical merchants on its platform.

Q&A:

Q: Regarding new business areas such as daily groceries and Meituan Youxuan, what are the company’s future plans and views on competitors?

A: Meituan Youxuan is a new project launched in July, which is reflected in the Q3 financial report. The company has invested a lot of manpower and resources in this area, and it is also the focus of the company's work. In addition to catering and food delivery, the company has found that many users also have the need to purchase daily necessities, and this market is huge. For this, the company has adopted several models, hoping to find effective models for the target group and increase market penetration. These sub-sectors are developing very rapidly, and we don't know who will be the winner yet.

In general, we don’t want to give people the impression that we can answer all questions. We can be sure that the company will iterate products at the fastest speed and keep learning. We hope to expand daily groceries to 1,000 counties and cities across the country by the end of this year, and use the company’s resources to achieve a win-win situation. The company has several advantages in developing related businesses: the company understands how online and offline businesses should develop, is familiar with ground promotion, and has accumulated rich experience in related businesses (such as Meituan Maicai and B2B Kuailu). Based on the above advantages, the company has the ability to develop relevant platforms and systems, continue to increase investment in infrastructure, technology, supply chain, etc., and is willing to accept challenges and competition. The company will try to turn some items in the income statement from negative growth to positive growth, so that related businesses can create value in the long term and strategically, and bring returns to consumers, shareholders and society.

Q: Regarding the various business models in the new business, how does the company view the prospects of these models? For example, will there be only one model in a region in the future or will there be multiple models coexisting? Can you further talk about the detailed data of Meituan Youxuan's growth?

A: The market penetration rate of community group buying business has increased significantly. I think there will be multiple business models coexisting in the future. The company has three relevant business models: Meituan Best Selection, Meituan Flash Purchase, and self-operated model (Meituan Grocery, Meituan Daily Grocery).

Meituan Youxuan focuses on price and targets price-sensitive users. Some cities and regions are relatively remote, and it is not easy for the company to achieve next-day delivery. Therefore, the SKU is limited, and the focus will be on price-based adjustments to create value for users; Meituan Flash Purchase is launched in both high-tier and low-tier cities, with a wide range of categories and online timely delivery services. The in-store business will also benefit, with flowers and medicines developing rapidly in Q3; in the self-operated model, we will emphasize supply chain capabilities, such as delivery within 30 minutes. In the above model, the company continues to strengthen its warehousing capabilities, with more than 100 open warehousing platforms, and the company will continue to increase investment in supply chain, technology and other aspects.

Meituan Youxuan has just started, and its GMV data has not been audited. If the conclusions change after the audit, the company will communicate in a timely manner.

Q: The company’s MAU has reached a new high. How do you view its development in the next year?

A: In Q3, food delivery has been recovering since July, with DAU, MAU, and transaction users all hitting new highs in Q3. The company is optimistic about the development of the industry and there is still room for improvement in penetration. The epidemic has brought structural change opportunities to the consumer and supply sides of the industry. The company hopes that the frequency of consumer transactions will grow steadily in the long term. The company will also diversify its categories and development models, cooperate with different restaurants, provide different solutions, and continue to make progress in smart push and membership business.

Q: With the resumption of in-store and hotel and tourism business, how do you view the competitive environment, development trends and the company's future strategy in this industry?

Answer: The company hopes to continue to maintain its leading position in the hotel travel market. In Q3, the company became the world's largest online hotel travel booking platform (evaluated from the perspective of hotel operating volume (may also mean cooperation volume)). Domestic travel has recovered quickly, and the long-term travel demand in some regions will continue to increase. The company hopes that the market penetration rate will continue to grow. The low-end hotel market has great potential, and the company will continue to pay attention to its development. In terms of high-end hotels, five-star and four-star hotels have recovered significantly in the summer. The company allocated more resources to high-star hotels in Q3. Many high-star hotels strongly hope to cooperate with the company because the company has a wide range of users and strong traffic generation capabilities. In the past few quarters, the company's service capabilities in high-end hotels have continued to improve, and the number and quality of hotels will continue to increase.

Q: How does the company view antitrust regulation?

A: In the past decade, Chinese Internet companies have developed rapidly, and the company is optimistic about this. The company respects the relevant policies formulated by relevant departments. The company hopes that development can be win-win for all parties, continue to promote the transparency and openness of the platform, promote the company's product innovation, and achieve a balance between bringing value to shareholders and achieving innovation.

Q: In the in-store business, some categories have achieved good growth. How do you view the future growth of different categories of business? The operating profit of the in-store business has reached a new high. How do you view the future profit situation?

A: In-store business recovered significantly in Q3, especially in the categories of medical and household products, where consumers showed strong demand. In terms of in-store dining, transaction volume and order volume increased significantly. In the future, the company will innovate products, continue to encourage merchants to provide better services, and identify the needs of merchants in different businesses. The company will also continue to pay attention to consumers' daily needs in all aspects.

In terms of finance, quarterly development is due to the growth of GTV and the healthy development of merchants. In-store sales is a good business model, but the focus is not on profitability. Profitability is the result of natural development. The company is more concerned about long-term development. The company hopes to provide different solutions for different merchants and consumers, expand service categories, and optimize the cost structure. The company hopes that this business can not only create profits, but also bring good cash flow.

Q: What are the company's future development plans for shared bicycle and electric motorcycle businesses? For example, how will this business synergize with other businesses and what will be the revenue share?

Answer: The company invested 4 billion yuan in Q3 and achieved a good growth of 30%. More urban consumers have a demand for low-cost commuting. As far as motorcycles are concerned, many consumers are willing to pay a premium for convenience, and motorcycles can also be a good alternative to some public transportation. In terms of profitability, economies of scale will be helpful. The company will invest more resources in motorcycles in the future and increase investment, but it remains cautious about whether it can achieve good cash flow. Regarding these businesses, the company will also pay attention to consumer experience, brand recognition, market share and other aspects. It will take some time for consumers to get used to the company's cross-selling strategy, so that consumers can buy more categories on the platform and bring more value to the platform. The company will continue to leverage its advantages in catering delivery, and will be more cautious in investing in some new businesses.

via Futu NiuNiu