Earnings call: Meituan Reports Solid Q3 2023 Growth, Expresses Confidence in Long-Term Prospects

Chinese e-commerce giant Meituan reported robust growth for the third quarter of 2023, with total revenue increasing by 22.1% YoY to RMB 76.5 billion. The company’s adjusted net profit also saw a significant rise, growing by 62.4% YoY to RMB 5.7 billion. Key growth drivers included accelerated growth in annual transaction users, active merchants, and user purchase frequency. The company’s food delivery business maintained strong growth, with peak daily order volume reaching a record high of 78 million.

Key takeaways from the earnings call:

• Meituan experienced resilient growth in core businesses, including food delivery, in-store shopping, and hotel and travel businesses.
• The company introduced new initiatives such as Meituan Select and Meituan Grocery, both of which experienced rapid growth.
• The cost of revenue ratio decreased by 5.7 percentage points YoY to 64.7%, primarily due to improved gross margins and increased contribution from online marketing services.
• Meituan reported a strong net cash position of RMB 133.6 billion and generated RMB 11.2 billion in cash from operating activities in Q3.
• The company anticipates that demand and order growth for food delivery and Meituan Instashopping may be affected by the current macroenvironment and consumer sentiment but remains confident in their long-term growth potential.

Meituan’s management expressed confidence in the long-term growth potential of its businesses, particularly the food delivery and specialty offerings. They highlighted the success of their Meituan InstaMart service and the potential for online penetration in retail. Despite acknowledging challenges in new initiatives such as ride-sharing and Meituan Select, the company remains committed to their long-term growth potential.

Xing Wang, during the earnings call, addressed concerns about the revenue growth and operating loss of the company’s new initiatives segment. He explained that the slowdown in Q2 and Q3 was due to a change in revenue mix. However, he expressed confidence in achieving standalone profitability for most of the new initiatives.

The company reported positive earnings before interest and taxes (EBIT) for its bike-sharing business for two consecutive quarters. It also mentioned the possibility of share buybacks, with the board authorizing a share buyback plan of up to US $1 billion, depending on factors such as investment opportunities, cash flow, cash position, and stock price. The company believes that its stock is undervalued and expressed confidence in its long-term growth and value.

InvestingPro Insights

In light of Meituan’s recent earnings report, InvestingPro provides additional insights that could be crucial for investors considering the company’s stock. According to real-time data, Meituan has a Market Cap of approximately $69.93 billion and is trading at a high P/E Ratio of 60.25, which adjusts to 111.18 when looking at the last twelve months as of Q2 2023. Despite this high valuation, the company’s Revenue Growth over the same period was a robust 27.5%.

InvestingPro Tips suggest that Meituan’s revenue growth has been accelerating, which aligns with the reported 22.1% YoY increase in total revenue for Q3 2023. Moreover, Meituan holds more cash than debt on its balance sheet, providing financial stability and flexibility. This is consistent with the company’s strong net cash position reported in the earnings call. Another positive indicator for investors is the expectation of net income growth this year.

Nevertheless, the stock has experienced significant volatility, taking a considerable hit over the past week. For those looking for potential entry points, Meituan is currently trading near its 52-week low, which could be an attractive opportunity for long-term investors. However, it’s crucial to note that the stock is trading at a high earnings multiple, which suggests that it’s priced generously in terms of its earnings potential.

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Full transcript – Meituan Dianping OTC (OTC:) Q3 2023:

Operator: Thank you for standing by, and welcome to the Meituan Third Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to 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 Third Quarter 2023 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 third quarter 2023 results, and then conduct a 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 from actual results in the future. This presentation also contains unaudited non-IFRS 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. For a detailed discussion of risk factors and non-IFRS measures, please refer to the disclosure documents in the IR section of our website. Now I will turn the call over to Xing. Please go ahead.

Xing Wang: Thank you. And good evening, everyone. In the third quarter, our total revenue increased by 22.1% year-over-year to RMB 65.5 billion. And our adjusted net profit increased to RMB 5.7 billion, and representing 62.4% year-over-year growth. Meanwhile, our annual transaction users and annual active merchants, both experience accelerated growth and achieve the record highs. Furthermore, user purchase frequency also reached a new great peak. We continue to innovate by introducing Everything Now Lifestyle to consumers and further facilitate the industrial digital transformation. And we have expanded the service scope that a consumer can enjoy on our platform and further diversified our product formats. Through years of business operations, we have reached a point where we are helping over 10 million merchants generate more income while also creating job opportunities for millions of couriers. Going forward, we will continue to implement our retail plus technology strategy and provide more diverse local services to Chinese consumers, including our mission that we help people, eat better, live better. During the quarter, our food delivery business maintained its robust growth momentum, especially its peak daily order volume, which renewed a record high to 78 million in the summer, about that level of three years ago. To capture more opportunities from the consumption recovery and further unlock consumption potential, we further enhanced our understanding of consumer needs across different income levels and different consumption scenarios are empowering merchants to digitize their operations. The scale of our medium and high frequency user base, along with their purchase frequency, continued to grow rapidly. And user stickiness also improved. We iterated our membership program, offering coupon packages of different sizes, which effectively boosted user transaction frequency. In addition, we continue to enhance consumer mindshare for high growth consumption scenario. For instance, during this year’s milk tea marketing campaign, Shen Qiang Shou, on the first day of autumn, over 21 million milk tea orders were made in a single day, showing a large potential of the afternoon tea category. Order growth for late-night snacks was also particularly strong in the summer, thanks to our effective marketing and subsidy strategy. During the National Day holiday, we also witnessed strong growth from travel scenarios, like at hotels, airports, and train stations. In addition, the value of in-house has become increasingly evident as more and more high-quality selections at affordable prices emerge, in-house allowed us to effectively cater to the food delivery needs at a low price band. Moreover, campaigns and events that promote net hit products, such as Shen Qiang Shou, help cultivate consumer behavior in viewing live streaming and shopping on Meituan and further enhance their transaction frequency. At the same time, they also help merchants accumulate customers, improve operation efficiencies, and enhance brand image. In September, Shen Qiang Shou launched a special live streaming session for Time-Honored Brands at Laozihao to celebrate the Mid-Autumn Festival in Beijing, Shanghai, Shenzhen, and Xi’an. The session was intended to both facilitate the digital transformation for Time-Honored Brands and find a new growth opportunity in the food delivery for them. We also offer the merchants new tools for customer management, which will help them grow their customer base and revenue. Through these efforts, we further expanded the diversity and improved the quality of our platform’s supply. Meituan in-store shopping once again grew strongly in the third quarter with order volume merchant-based and user-based all increasing notably, which further promoted the integration of online and offline retail and facilitated the rapid growth of on-demand retail. To better adapt to the evolving consumption trends, the retail industry is actively embracing the new on-demand model, which meets the needs of live now, business now, and service now. [Foreign Language]. In fact, the Everything Now shopping style has emerged as a new norm among younger generations. Even against the backdrop of last year’s high base, Meituan in-store shopping order volume continued to achieve strong growth, reaching a peak of over 30 million daily orders on Chinese Valentine’s Day in August. We further expanded our user base across the city tiers. The consumers from lower tier cities grow at a faster rate than average. Users’ transaction frequency has further accelerated, particularly among users aged 18 to 25. Young people have emerged as the primary consumer force of Meituan Instashopping. Moreover, people have started to use Meituan Instashopping in a wider variety of timeframes and consumption scenarios. For example, order mix from late night snacks has further increased. Notably, during the third quarter, our annual active merchants grew by 30% year-over-year. We have not only empowered the digital transformation of small brick and mortar retailers but have also established a partnership with nearly 400 brands. In addition, the number of our Meituan InstaMart now exceeded 5,000, complementing traditional offline supply. Evolving consumer demands are also driving changes on the supply side. We see retailers and brands constantly diversifying their SKU offerings to align with the on-demand retail channel. During the third quarter, non-food categories such as electronics, home appliances, and beauty products remained as key growth drivers. Categories such as freshly cut food, and iced beer, have also emerged, catering to consumers’ diverse demands for quality products. We believe that on-demand retail will continue to drive consumption expansion and transform the offline retail in the future. And we are very confident that Meituan Instashopping will remain its robust growth as a leading on-demand retail platform. And our in-store hotel and travel business maintained its strong growth momentum since the beginning of this year, with the GTV increasing by over 90% year-over-year in the third quarter. Quarterly active merchants grew by over 50% compared to the same period of last year. And quarterly transacting users also increased substantially. Throughout this period, we further solidified our competitive advantages in a shelf-based model and leverage short-form videos and live streaming to promote the mega-hit products. Our efforts have effectively revitalized the growth for our offline merchants, facilitated transactions on our platform, and provided the consumers with a better quality, more cost-effective products and services. Our in-store business grew robustly during this summer, achieving a new record in monthly GTV in August. Throughout the third quarter, we continued to iterate and refine our live streaming and special deals. And we introduced the Must-Eat Festival this year for the first time, offering consumers cost-effective products and engaging content. By leveraging our in-depth understanding of consumer behavior and LBS features, coupled with improvement in our product capabilities, our live streaming session can effectively bring in nearby consumers with specific consumption needs. We also see the opportunities during the Mid-Autumn Festival and National Day holiday peak seasons. Optimizing our Meituan platform live streaming, X-Plan [Fanzibo], we showcase special events cater to beauty experts, [Meibohui], and the wedding experts, the [Humbohui], and more. With the Meituan platform, live streaming now covering more than 200 cities, the number of live streaming sessions has increased 10 times sequentially, and their GTV contribution has grown substantially. We also enhanced our service offerings and boosted our AI capabilities to reduce the entry barrier for merchants to engage in live streaming on Meituan. Furthermore, to refine our operations and optimize the user traffic allocation for special deals at, reinforcing consumer’s mindshare at the Go-to platform for value for money purchases. These initiatives also motivated more merchants to offer high-quality, cost-effective products, without increasing transaction volumes on our platform. During the summer holidays and the National Day, Golden Week, we proactively launched a number of marketing events and theme-based promotions to drive growth. For example, we jointly launched the first online beauty expert, Shen Qiang Shou in collaboration with over 30 brands. We introduced over 150 mega hits products covering a broad range of services including facial treatment, hair salons, manicures, dental care, and medical aesthetics. And these initiatives sparked significant consumer interest in terms of consumption. During the quarter, we collaborated with 20,000 merchants and launched the first ever Must-Eat Festival. During the festival, we encouraged merchants to offer consumers Must-Eat Set Meals, at affordable prices. In addition, we introduced the Must-Eat Festival markets, an offline event that allows consumers to sample dishes from various restaurants featured on our must-eat list. This initiative has boosted in-store dining consumption and nearby shopping centers. Our hotels and travel business continue its strong growth trajectory in the third quarter, with both GTV and revenue growing robustly compared to both the third quarter of 2022 and 2019. We successfully captured the summer peak season, closely tracked the evolving consumption trends, and further diversified our products offering. For example, we introduced a greater number of discounted deals and increased the frequency of live streaming sessions on our platform. We also expanded the quality supply and optimized the price competitiveness to meet the increasingly diverse needs from consumers. After launching the Stay For More brand, last quarter, we further enriched our Hotel + X package deals and enhanced our consumer mindshare through promotions, marketing campaigns, and live streaming events. In August, we unveiled the Must-Stay List for 2023, featuring a selection of over 900 hotels. We expanded our promotional efforts through live streaming and joined the marketing collaborations with the high star hotel chain. For small and medium-sized hotel merchants, we made our best effort to understand their different operational needs and pain points. We help them improve traffic acquisition, provide room renovation solutions, and broaden promotional channel, all aimed at boosting their earnings. Room nights for alternative accommodation also continue to grow rapidly during the third quarter. We enhanced our platform to self-service capabilities help consumers make more efficient and better informed choices and enhanced the host’s operational efficiency. Now turning to our new initiative segment. First, Meituan Select maintained its market position in the third quarter with enhanced operating efficiency. We reinforced our product and pricing capabilities to provide more value for money selections. We also continually refined our logistic network and increased density of high-quality pickup stations. Elevating the overall fulfillment experience for consumers. We continue to expand the Meituan Select user base and have accumulated 490 million transacting users at the end of September. Meanwhile, we have been helping farmers increase income, facilitating the circulation of agricultural products and boosting the earnings for small business owners. At Meituan Grocery is able to further strong growth. The GTV growing rapidly in the third quarter. And we are pleased to see that Meituan Grocery has increasingly become the preferred choice for consumers with its user base, purchase frequency, and average order value all increasing steadily. During the quarter, we solidified our pricing advantage, optimized our logistic network and improved operational efficiency across the entire supply chain. In addition, we enhance the breadth and depth of our products offerings and leverage the holiday promotions to satisfy consumers’ diverse needs and strengthen consumer mindshare. For example, sales of mooncakes and seafood experienced high growth during the holiday season. Moreover, our continuous improvement of private label products ensure that our consumers can access a wider range of high-quality items with a guaranteed supply. Since the beginning of the year, a number of macro policies aimed to promote economic growth and consumption have been unveiled and we believe consumer demand will gradually recover next year. And we will adapt to the evolving consumption trends and iterate our products and operational strategies and provide consumers with a more cost-effective use and services. We intend to play an active role in enhancing the industry ecosystem and create more job opportunities and help stimulate consumption. Looking ahead, we will continue to focus on our retail plus technology strategy to help people eat better, live better. So with that I’ll turn over to Shaohui who will update on our latest financial results.

Shaohui Chen: Thank you, Xing. Hello, everyone. I will now go through our third quarter financial results. During this quarter, our businesses delivered resilient growth, with our total revenue increasing by 22.1% year-over-year to RMB 76.5 billion. Cost of revenue ratio decreased 5.7 percentage points year-over-year to 64.7% primarily due to the improved gross margin of our food delivery, Meituan Instashopping and goods retail businesses as well as the increased contribution of online marketing service revenue. Selling and marketing expense ratio increased 4.7 percentage points year-over-year to 22.1% mainly due to our increased promotions, advertising, user incentives and employee benefits to stimulate consumption and solidify our competitive advantage. And the expense ratio and G&A expense ratio both decreased year-over-year to 7% and 3.3% respectively, primarily benefiting from improved operating leverage. Our focus on stimulating high-quality growth and improving operating efficiency drove substantial year-over-year growth in total segment operating profit and operating margin. Total segment operating profit increased from RMB 2.5 billion to RMB 5 billion. And the operating margin increased from 4.1% to 6.5%. On a consolidated basis, our adjusted net profit increased significantly year-over-year reaching RMB 5.7 billion this quarter. Turning to our cash position, as of September 30th, 2023, we maintain our strong net cash position with our cash and cash equivalent and short-term treasury investment, totaling RMB 133.6 billion. In the third quarter, cash generated from operating activities improved significantly year-over-year to RMB 11.2 billion. Now let’s look at our segment results. Starting with the Core Local Commerce, our Core Local Commerce segment’s revenue increased by 24.5% year-over-year to RMB 57.7 billion. Operating profit increased year-over-year to RMB 10.1 billion. Operating margin was 17.5% this quarter. During the third quarter, our on-demand delivery delivered resilient growth with order volume growing 23% year-over-year. For food delivery, we saw steady growth in both monthly transacting users and their average purchase frequency. Order volume two year CAGR slightly increased as compared to the second quarter despite the external challenges and the negative impact of spring weather. On the unit number side, average order value decline year-over-year against last year’s high base. The decline was also a natural result of the recovery of small and medium sized restaurants. At the same time, our strength and marketing efforts to stimulate consumer demand and acquire new users led to a year-over-year increase in subsidy spending. However, we continue to benefit from abundant supply of couriers, orders volume growth also drove economic of scale on the cost side. Meanwhile, the increase in marketing demand from merchants drove the strong growth in online market service revenue this quarter. These favorable factors help to offset the increase in subsidy and lower AOV. Notably, operating profit per order continued to increase on year-over-year basis. From Meituan Instashopping, order volume grew robustly with steady average order volume reaching 7.6 million this quarter. Importantly, the year-over-year growth rate of order volume continue to accelerate from the second quarter even again, that’s year’s high base. It further demonstrates in user mindshare to drive growth, and ramp up marketing initiatives for holiday promotions and marketing category, with investments we had positive results, but also the scale of transaction users and their purchase frequency grow rapidly. At the same time, we saw that offline retailers and brands were increasingly willing to allocate marketing budgets to our platform. As a result, online marketing services revenue achieved a remarkable year-over-year growth of about 120%. Again, while in Meituan Instashopping revenue growth outpace order volume growth this quarter. Economic improved compared to the same period of last year driven by heightened advertising monetization, abundant courier supply and enhanced economies of scale. Now let’s turn to our in-store hotel and travel business. With a quarter with peak season follow consolidates, we strategically increased investment to support merchants and incentivize consumers. At the same time, we allocated sufficient resources to marketing and promotional events to successfully drive growth. It is important in-store hotel and travel achieved very robust growth and revenue grew at a slower pace than GTV. Notably, the transition basics of its revenue growth for our in-store hotel and travel business was very strong year-over-year. We have seen an accelerated iteration of various local service industry, the consumer demand for services like PayTV, [inaudible], along with other leisure and entertainment services was particularly high. Our hotel and travel business maintains its robust growth in both revenue scale and ADR this quarter. [Inaudible] revenue growth was slower compared to commission revenue, as subscription base revenue remained flat compared to the same period last year, due to the adjustment of annual fee in certain categories and lower tier cities. However, we are pleased to see that merchants’ revenue to Meituan online revenue recovered, the trend is reflecting fast growth in both the number of merchants and their spending on placing performance to best path, which has led to rapid recovery and performance advertising revenue. Operating profit remained relatively stable compared to the second quarter. The sequential decline in operating profit margin was mainly due to our increased marketing efforts to capture peak season opportunities and strengthened our competitive advantages. Nevertheless, we remain confident in the long-term profitability potential of the in-store hotel and travel business. Turning to our new initiatives. During this quarter, revenue in this segment increased by 15.3% year-over-year to RMB 18.8 billion mainly due to the development of our goods repair business and partially offset by the contraction of our self-operated ride sharing business model. The segments operating loss ratio further narrowed to 27.2% from 31% in the second quarter of this year. For Meituan Select, the third quarter is traditionally the investment season for grocery, in fact we can increase the subsidy for seasonal summer products and roll out more seasonal promotion. We also maintain a significant condition on cold chain and logistic to handle the challenges posed by high temperatures. This might be factors, improve business operating efficiencies led to a narrowing of the quarterly operating loss ratio on a sequential basis. Meanwhile many of our other new initiatives continue to make good progress enhancing the operating efficiency. In summary, despite external challenges, our core business once again grew resilient, setting new record across multiple performance metric, we’re actively exploring more effective measures to navigate changes in the external environment. Our confidence in the long-term potential for our core business remains intact. This business has proven their resilient and strong adaptability over the past decade. We believe our experience and the strong execution capability will equip us to confront challenges, strengthen our competitive mode and capitalize on new opportunities in the future. Meanwhile, we will continue to pursue high growth strategy for our new initiatives and continues to improve operating efficiency. With that, [inaudible] Q&A.

Operator: [Operator Instructions] The first question today comes from Gary Yu with Morgan Stanley.

Gary Yu: Hi, thank you for the opportunity to ask question. In light of the current macroenvironment and consumer sentiment, just want to see how will the demand and order growth of food delivery be affected? And also will the medium and long-term growth target for food delivery still be intact? And also have you seen any impact on Meituan Instashopping? Thank you.

Xing Wang: Thank you, Gary for the questions. Fortunately, as you mentioned, despite external challenges our on-demand deliver business, we have posted high growth rate in other consumption relate sectors, as order volume grew by 23% year-over-year, order volume of food delivery peaked at 78 million during this summer above from three years ago. Meituan Instashopping also maintain rapid growth, peaking at 13 million orders on Chinese Valentine’s Day, a new record. That said, consumers tend to be more cautious and prefer value for money selections. The demand growth for food delivery in work scenarios was affected. We proactively adapted to these changes. For example, we tended to supply in more low ticket size and high quality selection. We will also accelerate our strategy and efficiency in Pin Hao Fan so that we can better meet consumers evolving demand through more efficient delivery format. In addition, for those who prefer high quality of food, meals, we also provide value for money high quality selection through Shen Qiang Shou. We partner with high quality restaurants leverage live streaming to stimulate consumers now instant demand. We also optimize our membership program and cultivate into a mindshare and looking for value for money views on Meituan helping its transaction frequency. Meanwhile, we are continuously installing other effective ways to cope with the changing consumption trends. For Meituan, it is shocking, its order volume two year CAGR was around 50% for the past three quarters. On-demand retail is a natural extension of food delivery and has lots of potential for online penetration across geography, across category and across consumption scenarios. Innovative supply formats such as Meituan InstaMart, are specifically tailored to cope with the on-demand channel. It generates incremental growth for our business. Consumer mindshare in on-demand retail has increasingly deepen post pandemic. Demand has improved across different scenarios in the third quarter, especially during night time and in travel scenarios. It has shown that Meituan Instashopping user order food delivery much more frequently compared to non-Meituan Instashopping users. They represent our high quality user base who have shown their purchasing power and loyalty to our platform with acute upside in a transition frequency and approval for these whole users as we continue to enhance supply. In immediate long term, we believe microeconomics in China we have steadily recovered. We have strong confidence in long-term growth potential for food delivery and for Meituan specialty with our competitive mode and execution record, we believe that we can capture the growth opportunity. We remain confident on this business and outlook of the long-term growth capital remain unchanged. Thank you.

Operator: The next question comes from Thomas Chong from Jefferies.

Thomas Chong: Hi, good evening. Thanks, management for taking my questions. Could management share about what you are seeing input delivery and may plan Instashopping basically, how should we expect the order growth and financial for these two business as we head into Q4? Thank you.

Xing Wang: Okay, I will further take these questions to explain our outlook for the Q4. We think two year CAGR of our order volume in Q4 will be similar except for the first six — first nine months this year. There are several factors affecting the order volume growth. First, the impact from current macroenvironment order volume growth, especially in workplace scenarios. Second, this year’s weather is pretty warm in October and November. One weather pattern helps to deliver on the growth in winter season. So more people return to offline consumption as compared to last year. So negatively impact the deliveries order volume growth. Yes, we try our best and supply optimize operations and improve efficiency. We think in Q4 its efforts will help drive consumption frequency among high quality users and better satisfy demand and low ticket price meals for more mass market consumers. On Meituan Instashopping, with I having a high faith in Q4 last year, the recent order volume is still growing healthy. We will continue to provide better supply for this category and enhance consumer mindshare. We expect the two year CAGR of order volume in Q4 to be around 45% notably outpacing the growth in broader ecommerce space. On financial outlook, we think in Q4 revenue year-over-year gross profit delivery will be slightly lower than the Q3 growth rate. Q4 revenue growth from Meituan Instashopping will be similar as that of the order volume. So we think there will be a decline compared to the last Q4 of both businesses. For the food delivery business, large ticket size and orders and long distance orders contribute much higher percentage in Q4 last year, it will probably, meanwhile I mean time many SME merchants suspended operation in Q4 last year. This reason leads to an extremely high pace for AOE in last Q4. The full recovery of SME merchants and the consumption we have achieved this year lead to the meaningful decline in AOE in Q4 for delivery. For Meituan Instashopping, consumer demand to stockpile daily necessities and magazines are still high in Q4 last year. So AOE in Q4 last year was also an extremely high base. In addition, with a less in marketing and subsidy last year due to the strong demand. In this Q4, we are stepping up our marketing efforts to stimulate demand under the current consumption environment. High capacity, we are also helping revenue. On profit side, the cost of savings from the efficient quality supplier improved economies of scale will be offset by decrease in AOE, at the same time such order will increase quite meaningfully in in Q4. On year-over-year basis to stimulate month. Thank you.

Operator: The next question comes from Kenneth Fong with UBS.

Kenneth Fong: Hi. Good evening, management. Thank you for taking my questions. For many categories in in-store hotel and the travel sector usually benefit from the consumption upgrade. Given the reason macro headwinds, how should we think about the impact of our in-store hotel and travel business? And how should we forecast this GTV growth in the next one to two years? Thank you.

Xing Wang: Thank you for this question. In the first three quarters, we noticed that the service retail grew by 18.9% year-over-year in China much higher than the total retail sales of food delivery growth. This shows that demand for service retail is still very strong. And thanks to our decade long experience in this sector, and the rapid growth in online penetration, our in-store hotel and travel business maintain very high growth in Q3. In this environment, more and more consumer actually prefer value for money selections online. They are more price sensitive and usually compare prices among different channels before they make purchase decision. On a plan, we offer a broad range of coupons and package deals in more affordable prices and apply walk-in prices. Through our regular operation we have gained strong consumer mindshare in finding stores and discount platform which can help us adapt to the changing consumption trend. In addition, we have still knowhow and the pricing of package deals in LP and so we can help merchants design popular package deals that match consumer demand. We also help merchants with traffic acquisition so that the merchants can effectively attract consumers, encourage more consumers to complete transaction online. We are glad to see our quarterly active merchants and quarterly transacting users both reach record high and they scale large room for further online penetration. Now merchants and consumers pay more attention to the value that my platform offers. [Inaudible] also start merge. For example, self-service tea house, are becoming popular among young people. Co-branding and beverage, timely and post concept time also grow increasing popularity. We keep up with the latest consumption trends and innovate our offerings and services to meet consumers demand. We not only adhere with our existing share based model also enhance our special deals to adapt on both sections to promote low price. In addition, we use live streaming to help merchants sell [inaudible] value for money package deals, and incentivize consumers to stop [inaudible] GTV contribution from live streaming radically increased in the past quarter. With all these measures, we are better positioned to meet the changing consumption trends meet demand, all in one place. Looking ahead, service retail will continue to be a key growth engine of China’s economy, online penetration of service retail, the weight high record goods retail, so we believe there is still a lot of room to grow. Also, consumer demand and service retailing are becoming more diverse. We are confident that our in-store hotel and travel business will continue to benefit from the progress. And considering the competitive landscape, we are going to roll out a series of measures kept to the growing market and strengthen our market position. While it measures might impact the short term amortization rate, the profit margin, we expect this business to maintain a high growth rate over the next few years even accelerate in penetration.

Operator: The next question comes from Ya Jiang with CITIC Security Company.

Ya Jiang: Hi, good evening. Thank you for taking my question. My question is also about in-store hotel and travel business. Can you please provide some color on the performance during mid-autumn festival and the National Day holiday? And how should we anticipate Q4 growth in the competition? And if the competition becomes more intense, will Q4 OPN be lower than Q3. Thank you.

Xing Wang: Yes, we have continued to enhance our live streaming capability in the last two quarters as a result of live streaming section specifically satisfy consumer demand during the holidays, the average number of livestream sections a day during the September increased by 300% from June. GTV, even surged by over 40 times. During the National Day Golden Week, we also launched a variety of holiday themed promotions that in both value transaction value of in-store hotel and travel increased by over 150% versus 2019. For the hotel business, many tourist destinations experienced with greater popularity even had hotel room shop page during the Golden Week, and the income niche especially tourist cities, revenue increased versus 2019. This year we further enhance internal traffic for the patient and cross selling on our platform. We also expanded external marketing channels, these measures help strengthen consumer mindshare in our state for more brand user one, in addition, we set up our marketing efforts to help merchants on our Must-Stay List. We organize dedicated live streaming section for these merchants. As a result, merchants on our Must-Stay List experienced 120% increase number of bookings compared to the pre-holiday period. During the summer holiday and National Day Golden Week, we see strong growth momentum in service retailing. We refi and diversify our marketing strategy, which generate positive results, will also strengthen consumer mindshare, enhance our content capability and offer more marketing tools for merchants. In Q4, we just handle a double 11 campaign, we will launch more promotions and activities for the year and shopping festival. The market is still at a high growth stage. Particularly, there’s large potential for online penetration in lower capacity in a lot of new categories. We want to further enhance the existing users mindshare and to penetrate deeper into lower tier markets. So in Q4, we will make more targeted investment and dynamically adjust our marketing strategy to drive growth. We estimate to further up our marketing expenses on sequential basis, and significantly expand our local business development team in Q4 in the lower tier cities, which will impact profitability. We are confident that our business scale should continue to grow rapidly during this investment. As for competition, we always view it from a positive perspective, there are still a lot of potential for online penetration in local service industry. We believe competition helps accelerate this process and it benefit both consumer merchants, it also pushes it harder to make more innovations and positive changes. We need to make short term investments to develop new markets or to optimize our products. And these may impact near term profitability. And these investments are necessary. It’s not just about the current competitive environment. But we also believe this will help us maintain long-term sustainable growth. Looking ahead, we will dynamically assess our investment, our AI and allocate resources. Accordingly, we intention our credibility in content operation, as well as consumer and merchant mindshare. We remain confident in the long-term growth and long-term profitability, for in-store hotel and travel business.

Operator: Next question comes from Alex Yao with JP Morgan.

Alex Yao: Good evening, management. Thank you for taking my question. Based on the recent two quarters financials, there seems to be challenges to the last reduction of the new initiative segments. In addition, the segment of growth is much slower than the core business. Given the loss mainly came from a [inaudible] do you plan to make any strategic changes or an adjustment to make [inaudible]. How should we expect the revenue growth and operating loss going forward? Do you have a sense of the breakeven point for [inaudible] and lastly, any update for all the other new initiatives? How should we think about their long term financial returns? Thank you.

Xing Wang: Thank you, Alex. I will take this question. So, I typically understand many shareholders may be quite concerned about the revenue growth of our new initiative segment. So first, allow me to clarify. Our new initiatives segment consists of not one business, a bunch of different businesses and they have different accounting treatments and revenue recognition ways which would may impact revenue growth. So revenue growth of our new initiative segment slowed down in Q2 and Q3 mainly due to revenue mix change. So first for ride sharing and we shut down the self-operating model in March so Q3 revenue of ride sharing declined sharply year-over-year and second our B2B foodservice distribution business has no expiry recorded a faster growth for its marketplace model than 3P service. But so 3P service revenue on a net basis compared to the 1P service which can be booked on cost basis. So the 3P, 1P exchange, negatively impacted its revenue growth, actually the quality of the case is growing very nicely with just a different accounting treatment. So if you — if we exclude these two factors, growth of this segment is actually quite similar as to growth of core segment in Q3. And Q4, we will face more pressure from new industries revenue growth, impacts growth in ride sharing and scale back is getting back, and [inaudible] revenue mix change will still be there, it will persist. In addition, those are made on Meituan Select at the high — very high base in Q4 last year, and due to COVID surge at that time. Then, yes, as you probably know, a lot of the third big chunk of the loss is from the Meituan Select. So I will address to, and put the recent macro headwinds and offline consumption recovery, the growth of the Meituan Select slowed down a little bit. And we need more time to integrate our operations. But, first, what I probably need to elaborate on how we look at the Meituan Select business. So this way, it’s part of our growth strategy. Remember that the mission of the company to help people eat better, live better. We are very serious about our mission. So I believe in future as has been proven in the past several years. In future more and more people will use food delivery, they don’t have to cook for themselves. They are still external people who prefer for whatever reason to cook for themselves, and they need to buy grocery. So that means grocery is particularly important. And particularly category of retail. It’s big, it’s important, but it’s particularly difficult. So in the past 20 years, either in the US or in China, people have tried in many ways to make online grocery work. So far, it hasn’t been very successful. Because groceries are such an important category of retail. And also along the way, if you can make online grocery work, you might have created a problem of a building different type of logistic network. And on top of that, they’ll just work. That’s a huge potential for other general merchandise. So I think that’s why online grocery in general, or Meituan Select, in particular is, I believe they have bigger potentials, but it’s very difficult, because it requires the platform to build a different type of procurement network. So that’s why we have been trying trial and error for the past three years have passed. So that’s the first strategic value of Meituan Select, because of course itself [inaudible]. And second, our maintenance rapidness effectively helping — help us bring new users and increase the user prudency and create cross sell opportunities. So plugin value. As I said, it’s quite difficult because for all the reasons, so, if you look at the numbers is growing and the growth has slowed down a little bit, we are looking into the regions, and I think we have identified the regions and we have to devise a new revival strategy to improve the operation. So, put it this way, we are very focused on building and improving the business and we will make adjustment in strategy and operations. But not that kind of a strategic investment you are talking about. So I think we are going to improve the business. So for this past quarter and in the coming quarters, I think the revenue will keep growing, operating loss, in the past quarter operating losses remain sort of flat on sequential base because the product size is bigger. So that means the loss margin keeps narrowing down sequentially. So I think that’s a good sign. Of course, we are trying our best to improve faster, I think it will take some time. So going forward, we will keep focusing on high quality growth and improve efficiency in all branch, and we expect that the loss will now significantly in the next few years. In the long run, I always still believe it can achieve profitability and create a bigger value. So that’s my take on Meituan Select. And for other new initiatives, I think we have a more good news efficiency continues to improve, and their path to profitability is clear. For example, our proprietary and our restaurant SaaS business have both become the number one player in China and efficiently improved [inaudible] during the past two years. They help increase merchant stickiness with our platform. And also our bike-sharing business has achieved positive EBIT for two consecutive quarters. And also our electric moped sharing business also improved and realize a positive cash flow. And last year, our shared the power bank witnessed already become profitable. And this year, we further improved the operating efficiency. So overall, we remain quite confident to be able to achieve standalone profitability for most of our new initiatives, not to mention that tremendous, specific value they may bring to us. On the other hand, I think that we are the rational company. So if we realize we came to the realization that any of the new initiatives had very limited chance to make ended on significant profit in the long run, we will adjust our strategy. And also accordingly, we will adjust the resource allocation. I think that’s the rationale. Thank you.

Operator: The next question comes from Ronald Keung with Goldman Sachs.

Ronald Keung: Thank you. Thank you, Xing, Shaohui and Scarlett. So we’ve seen that the operating cash flow has significantly improved this year and has become more stable. So when the company has sufficient net cash, and as the core business generates stable profits, just what is management plan for capital allocation? And do we have a buyback plan as we see share price upside from a long term perspective? Thank you.

Xing Wang: Thank you, Ron. And yes, we have noticed a number. A lot of companies are doing share buybacks lately. We understand it’s a good way to allocate capital for those companies, particularly those companies with mature and stable businesses, and strong cash reserves. Especially if our price is significantly lower below companies, so called intrinsic values. So it would benefit both the company itself and its shareholders for longer term. So for us, I think, first we need to make sure we have enough cash. So given the current interest rate of the US dollars, I think we need to make sure we have enough cash overseas, not just enough overseas. We pay our bonds in a coming future. So I think that’s an open line. On the business side, I think our new initiatives are still at the investment stage. We are also exploring overseas opportunities that we believe investing resources into our businesses and help us better capture market opportunities. Also, they will allow us to participate more in the industry transformation process and solidify our competitive most. At the same time, from a longer term perspective, of course, I believe our company is undervalued at the current share price. So we are confident about the long-term growth and the long-term value of our company. So we think that the tighter the share price, only reflect value of the one business [inaudible]. But we have had a very serious discussion about share buyback at our board, last board meeting, and the board has discussed and authorized us to do a share buyback up to US $1 billion. Of course, we will take into consideration, as we mentioned investment opportunities in our businesses and our cash flow and cash position with onshore and offshore and our stock price. I think that’s the answer you want to hear. Thank you.

Operator: There are no further questions at this time. I’ll now hand the call back over to Scarlett Xu for closing remarks.

Scarlett Xu: Okay, thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.

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