Meituan Q2: Huge improvement in EBITDA, More buyback plan?

After the Hong Kong stock market closed on August 28th, $Meituan-W (03690)$ announced its 24Q2 earnings report.There were big fluctuations in Meituan's share price in the first two quarters of this year, but it has been stable since the Q1 earnings report.On one hand, the whole HK stock trading volume shows contraction, on the other hand, more performance indicators are needed to guide. $Meituan ADR (MPNGY)$ $Meituan-WR (83690)$

Q2 industry is clearly better than expected, several points that the market is concerned about: competitive in-store dynamics, slowdown in consumption, all performed well, while the loss reduction in the new business has become the biggest highlight, which also improves the company's overall profitability and cash flow and creates a foundation for the company's further buybacks.

In the overall economic environment, especially the sluggish consumer industry, it is a very good achievement for Meituan to be able to increase revenue and more profit.

Takeaways

1. Overall revenue slightly exceeded expectations, especially margins and cash flow both greatly exceeded expectations;

2. Takeaway growth slowed down, delivery unit volume growth still exceeded expectations, and single tickets continued to improve;

3. The growth rate of the arrival business declined, but the competitive retreat continued to be maintained, and the hotel business also remained stable, and the general environment continued to retreat;

4. New business loss reduction exceeded expectations, boosting overall profit;

5. EBITDA exceeded expectations, with a thickened cash flow base, and is expected to further increase buybacks.

Investment highlights

1. Overall 82.25 billion yuan, an increase of 20% year-on-year, is also higher than the market expected billion.Because of last quarter's takeout and to the store are relatively strong performance, market expectations should be raised.In terms of segmentation, both takeaways and commissioned services were a bit worse than consensus expectations, while new business strongly exceeded expectations.

2. Overall core local business revenue grew steadily, up 18.5% year-on-year to RMB60.7 billion, higher than the expected RMB59.9 billion, while operating profit was RMB15.234 billion, up 36.8% year-on-year and higher than the expected RMB12.3 billion.Operating profit margin improved by 3.3 percentage points to 25.1%.

   1. The number of instant delivery transactions reached 6.167 billion, a year-on-year growth of 14.2%, which is comparable to the 28% growth rate in the previous quarter, but from a higher base in Q2.Meituan's flash sales were the main growth driver, and innovations were made in new product formats such as "Pink Meal" to increase supply in the low-priced segment.

   2. Delivery revenue increased 13% year-on-year to RMB 23.021 billion, mainly due to an increase in the number of transactions.Delivery revenue continued to grow at a slower rate than unit volume, though the gap continued to narrow from the previous quarter.The efficiency of delivery, which Meituan is improving through more activities, will also improve UE further.

3. Competition in the store-to-store business did not affect overall growth, and the macro environment may also be an important influence.

   1. Starting from last quarter, the easing of competition between Meituan's in-store business and Jieyin has been recognized by more investors, and the growth rate of commission revenue (20.14%) and advertisement revenue (19.71%) in Q2 beat the growth rate of takeaway revenue, even though both of them were worse than the market expectation.Among them, the advertising growth rate fell, or by the overall consumer macro-environment.

4. New business greatly exceeded expectations, with loss reduction being the biggest highlight.

   1. New business revenue grew by 28.7% year-on-year to RMB21.57 billion, mainly from the strong performance of merchandise retail businesses (e.g. Meituan Preferred).Meanwhile, operating profit loss narrowed significantly by 74.7% year-over-year to 1.3 billion yuan.

   2. Meituan Preferred (a community group-buying business) achieved significant improvement in operational efficiency during the quarter by enhancing product quality, optimizing the supply chain and improving fulfillment efficiency, deepening supply chain management, and optimizing marketing strategies, which not only increased the markup rate of goods, but also increased the overall average piece price.In addition, Little Elephant Supermarket and other new businesses (e.g. B2B F&B supply chain, bike sharing, etc.) also achieved healthy growth.

   3. It is worth mentioning that other service revenue, including interest income, amounted to RMB32,894.84 million, representing a year-on-year increase of 51.0%.The growth of this part of revenue was mainly attributable to the expansion of financial services and value-added services.

5. Cash flow is further enriched with repurchase ramp-up on the horizon.

   1. Q2 Adjusted EBITDA was $15 billion, up 95.2% year-over-year, and net cash flow from operating activities was $19.1 billion.

   2. Watch further for the company to mention buybacks on the call.