To The Moon

Q&A（Question-and-Answer Session）is a session after the company's prepared remarks where institutional investors and analysts ask management questions. In this dialogue, you may find some valuable information that might affect the stock price in the following weeks.

Now let's look at some key points from Meituan Q1 2023 Q&A Session Transcript $Meituan(03690)$

Q:Can management [indiscernible] the recent performance of the business, including the order volume recovery and the growth? And how should we think about the order volume and the unit economics for the second quarter? Thank you.

A:We [indiscernible] growth on food delivery, since March. March order volume growth exceeded 20% year-over-year. And in April, we see the daily order volume growth continue to rise in the market [on a month basis] (ph). Thanks to the economy recovery and our continued support in merchants' online operations and new store opening, we actually saw 25% year-over-year growth in new store openings in April, [indiscernible] and high-quality merchants who were quicker to react to the consumption recovery, and then tap their supply. Small and medium-sized merchants also started to catch up in terms of new store opening.

Therefore, supply recovered strongly across all price bands. To further intensify demand, we also [indiscernible] in certain scenarios and time periods [indiscernible]. For example, we intensified late-night net orders and [indiscernible] orders especially in popular tourist cities during holidays. We further streamlined and function through live streaming and [pop-up format] (ph), which has brought up additional traffic and order volume growth. Since April, demand from lower [indiscernible], low-frequency users, and low AOV orders continue to recover as well. Overall, we believe that food delivery will achieve high order volume growth on a year-over-year basis in the second quarter. And we also continue to believe that food delivery will benefit from the overall economic recovery and we continue to believe 100 million transaction orders target remain our mid-to-long-term goal.

On the unit economic side, starting from second quarter, we have extended our marketing efforts to increase user [indiscernible] during some marketing events such as Shen Qiang Shou and the Shen Quan Jie to incentivize consumption and help merchants sell mega-hit products. In addition, as I mentioned, demand for low AOV orders continue [to rise] (ph). So, we are going to direct marketing [related] (ph) to these areas, although [cost per user] (ph) increase compared to the same period last year, order volume growth will bring economy of scale on a cost structure.

From a seasonality perspective, usually second quarter [indiscernible] unit economics thanks to favorable weather, and we expect the quarterly supply will continue to be favorable in Q2. [Indiscernible] I just mentioned we have offset the increase in subsidy overall. We will continue to invest to incentivize consumption demand while focusing on high-quality growth and operating efficiency.

Q:It looks like the transaction users have picked out in late last year. Now that you guys have discontinued to disclose annual transacting user anymore, it will be great to hear management view on how we plan to further grow users and improve user retention? Thank you.

A:In 2022, both demand and supply of the local service industry were negatively net impacted by the Pandemic, in response will drastically reduce our user extension budget. Some of our existing users did not make transactions on our platform during last year because of the pandemic control measures and the weak consumption demand. Due to those reasons, the HEV growth annual transaction user growth was negatively impacted but when the pandemic was over, we saw strong discount in consumer demand for local service, so we already improved our user incentives to further stimulate consumption recovery impact, EAU active users on both our Meituan and BMT apps reached a new highs in February for the first time, and they broke records for a second time in late April before the Labor Day holiday.

Also, our company label MTU monthly transacting users achieved positive year-over-year growth by far with improving user engagement and user fitness. We also expect a healthy growth in ATU this year as the local service market in China further recovers. In addition, local service market holds great long-term potential, especially in lower tier cities, which will further flat the growth of our user base in the medium to long-term.

In the vast lower tier market, we have good opportunity to deepen user penetration as we continue to enrich supply and benefit from consumption upgrades. Going forward, transaction frequency will be the more important growth driver. We are encouraged to see that annual transition frequency per ATU has increased sequentially for the past 11 consecutive quarters. This is mainly due to our continuous improvement in platform supply, cross selling capability and brand awareness. In the past few years, we have established unique consumer mind share and delivering everything to consumer's doorstep and have become the go to platform for consumers to find stores and value for money, products and services.

Now, our goal is to further enhance the synergy and cross sale opportunity among various businesses to really build Meituan brand as a brand for everything now. We will further strengthen the consumer mind share in not only the ease and convenience also value for money. This will help improve user thickness and frequency. Our cohort data showed users who stay with us longer have higher transaction frequency and the longer they stay with us, the further increase their frequency becomes. Consumer will also cross purchase more category on our platform when they stay longer with us. For example, for users we acquired in 2015, annual frequency increased from six times in the first year to 60 times in the eighth year, 10 times growth. The average consumption category also increased from one to two in the first year to more than four categories in the eighth year, and we noticed that new users increase transaction frequency at a faster speed than earlier cohort users. Generally speaking, we are very confident in our ability to continue increase our transaction user scale and transaction frequency and users total lifetime value in the immediate long-term.

Q:Could you please share some more information on the latest technology changes, such as AI, like, what's our progress to it or what impact it will bring to the whole industry? Does Meituan have any plans to participate in the AI area and how it's going to affect our business model? For example like were you considered to integrate any AI generated content, if there's any good model available?

A:I think by now, there should be no doubt that AI is real and coming. And in the past seven decades, since the first of the term artificial intelligence, there have been several waves of highs and lows, but this time, it's different. It appears larger language model has finally cracked the problem of mastery in human language, which is arguably the essence of human intelligence. And now, literally every week, or almost every day, there comes some exciting news about AI.

Here at Meituan, we are very excited about AI. We believe AI is going to change almost everything. It's definitely bigger than iPhone or Internet, and that's saying a lot. There are so many ways we can use AI. Or more specifically, generative AI, GenAI, and AI feature, it's just one of them. AI, this is going to change how people produce and generate content, and it will have an impact on our business. But in my opinion, what's even more important or more exciting the new interaction paradigm and the conversational AI. And this is the value with smartphone or iPads, multi-touch is now the most natural way to interact with other people. So, it's only natural for people to want to order food or book a hotel or [indiscernible] by just talking, I think that is the most natural way.

The demand has always been there. The challenge in the past is in the supply of the right technology. Now, with a larger language model, it's being to, yes, finally get there. And also, AI is going to have a huge impact on robotics. In the past four years, we have both in-house development and outside investment in robotics. And now, it seems robots are going to be much smarter. Actually, they may even get so smart that they become scary. So, AI is going to have such a huge impact in both the digital and the physical world. The regulators globally should get moving and get ready to do their job in working with science and business communities, the move to AI is a good thing, and for the whole society, and the human race.

And at Meituan, we are open to both external collaborations and [impactful] (ph) opportunities. And we have an internal team working on getting our own [transition] (ph) models and its applications. And at the moment we don't have anything to show. Honestly speaking, we are still playing catch-up. But I think the message should be clear enough, we are very committed to building our AI capabilities, and apply it to our use cases. Here we have the use cases; we have accumulated a massive amount of proprietary data. And we have the engineering and human resources, but we didn't have it. Of course, the more the better, so that's why we will be very actively investing in this, building our capability and use AI to the benefit of all people and in fulfilling our mission we have people eat better and live better.

The above Q&A are highlights that are edited for brevity. Click here for the full Meituan Q1 2023 Earnings Call Transcript.​​​​​​​​​​​​​​​

If you want to know more details, you can click here to re-watch the Meituan Q1 2023 Earnings Conference Call