Meituan

HKEX:3690

Earnings Call Analysis

Meituan's Q1 2024 Delivers Robust Revenue and Profit Growth Amidst Commerce Sector Rebound

In Q1 2024, Meituan's revenue surged 25% year-over-year to RMB 73.3 billion, while adjusted net profit rose 36.4% to RMB 7.5 billion. The company's user base and merchant base have seen growth for four consecutive quarters, highlighting their leading position in the digital transformation of China's local commerce. The on-demand delivery business performed strongly, supported by initiatives like Branded Satellite Stores. Additionally, significant efficiency improvements were made in their core local commerce segment and their Meituan Select initiatives. Despite macroeconomic challenges, the company remains optimistic, projecting a healthy increase in operating profit and continued synergies across business units.

Introduction and Key Financial Metrics

Since the beginning of 2024, Meituan has demonstrated robust performance, capturing the rebound in China's local commerce industry. The company’s total revenue increased by 25% year-over-year to RMB 73.3 billion, while adjusted net profit increased by 36.4% year-over-year to RMB 7.5 billion .

On-Demand Delivery and Meituan Instashopping

The on-demand delivery segment saw continued healthy growth with notable performance in food delivery and Meituan Instashopping. The volume of orders for on-demand delivery rose by 28.1% year-over-year, with daily average order volume for Meituan Instashopping reaching RMB 8.4 million . Despite a decline in average order value (AOV) due to a high base in Q1 last year, improvements in marketing monetization and operational efficiency helped the segment maintain profitability .

Core Local Commerce

Meituan's core local commerce segment reported a revenue increase of 27.4% year-over-year to RMB 54.6 billion. Operating profit for this segment also surged to RMB 9.7 billion, with an operating margin of 17.8% . These gains were driven by enhanced marketing strategies and operational efficiencies, along with the expansion of the Pin Hao Fan model which helped engage less frequent users .

In-Store, Hotel, and Travel Business

In this segment, Meituan experienced strong growth driven by holidays and weekends, with GTV for in-store business showing rapid quarter-over-quarter growth . Despite revenue growing at a slower pace compared to GTV due to increased merchant incentives and lower subscription charges, the transaction-based service revenue maintained robust momentum .

New Initiatives and Strategic Investments

Revenue from new initiatives grew by 18.5% year-over-year to RMB 18.7 billion, particularly due to the development of goods retail businesses like Meituan Select . Efforts to optimize warehouse operations and improve procurement costs resulted in a significant reduction of operating losses for Meituan Select . Additionally, the company extended its strategic focus in lower-tier markets and explored potential growth opportunities overseas, including the Middle East and other Asian markets .

Future Outlook and Strategic Focus

Looking ahead, Meituan aims to enhance synergy among different business units, particularly by integrating operations between on-demand delivery and in-store hotel and travel segments. The company plans to further refine its product offerings and operational strategies to meet consumer demands and support long-term market competitiveness .

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by, and welcome to the Meituan's First Quarter 2024 Earnings Conference Call. [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, executive]

Thank you, operator. Good evening, and good morning, everyone. Welcome to our First Quarter of 2024 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 first quarter of 2024 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 accounting standards 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 accounting standards.

For a detailed discussion of risk factors and non-IFRS accounting standard measures, please refer to the disclosure documents in the IR section of our website.

Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing.

[Xing Wang, executive]

Thank you. Hello, everyone. And since the beginning of 2024, China’s local commerce industry continued to grow steadily, along with the consumption improvement during spring festival. We effectively captured the industry rebound and invigorated local consumptions, leading to our robust performance in the first quarter.

During the first quarter, our total revenue increased by 25% year-over-year to RMB 73.3 billion. Adjusted net profit increased by 36.4% year-over-year to RMB 7.5 billion. Growth of our user base, the merchant base accelerated for 4 consecutive quarters and both their reached new highs, annual transaction frequency, annual Transacting User also increased steadily to over 50x.

The development of local commerce has broader changes to the livelihood and consumption habits of the Chinese people. As an industry leader, Meituan continually led the digital transformation process and innovation of the industry. Thanks to years of refined operations and strong execution, we continue to cultivate the Everything Now lifestyle through on-demand retail and satisfied diverse consumption needs across consumption categories and scenarios through our in-store business.

In addition, we streamlined and optimized our organizational structure for the core local commerce segment at the beginning of this year. This will drive further synergies between on-demand delivery and in-store hotel and travel and improve the overall efficiency of our platform. We will continue to work closely with all the participants in our ecosystem, create more job opportunities, realize more social value and fulfill our mission to help people eat better and live better.

Now let me walk you through each business in more detail. First, our on-demand delivery business posted another healthy growth in the first quarter. As we face new macro environment and shifting consumer habits, we see both opportunities and challenges in 2024. For food delivery amid the changing consumer preference, many merchants face challenges in balancing consumer demand with cost cutting. We work closely with the manager and merchants and brands penetrate deeper into the industry value chain and actively explore innovative business models. We launched Branded Satellite Stores [Foreign Language], a new model that focuses on efficiency for well-known chain restaurants.

The Branded Satellite Stores, merchants do not offer in-store dining but rather they only provide high-quality and value-for-money food delivery services. Through this model, merchants can not only leverage their existing brand value, but also benefit from a better cost structure of food delivery. Thanks to the cost advantage, merchants can offer a significantly lower price than in-store dining while ensuring meal quality and bring consumer high-quality options at affordable prices. We also provided a chat support, an AI-empowered services for the participating merchants and help the merchants quickly ramp up their business of the new store openings.

For Pin Hao Fan, we expanded coverage to broader cities during the quarter. In addition, we elevated the consumer experience in Pin Hao Fan with an ROI-oriented approach and continue to improve our order dispatching system and operational capability. As a result, peak daily order volume from Pin Hao Fan reached a new high in the first quarter. For the Shen Qiang Shou program, we improved our supply quality and variety and introduce more popular SKUs from chain restaurant. We further refined our subsidy strategy to encourage consumers or the premium quality meal for Shen Qiang Shou.

Moreover, we enhanced our marketing solutions to satisfy the growing needs from restaurant merchants and help them acquire customers with higher efficiency. Subsequently, the number of annual advertising merchants posted robust growth, increasing by more than 20% year-over-year. On the consumer side, we launched various marketing campaigns with a high-quality restaurant to stimulate demand during holidays such as the Spring Festival, New Years' Day, and international consumption scenario, including weekends, cross-city travel and late night snacks. We also offer a wide selection of coupon packages and discounts for mega-hit products.

This initiative help us further strengthen consumer mindshare in our low-price offering while incentivizing demand for premium quality and discretionary consumption. Annual active users of food delivery also continued to grow to almost 500 million and transaction frequency increased notably as well. Nowadays, more and more high-quality users for our food delivery have converted into Meituan Instashopping users. In the first quarter of 2024, annual active users of Meituan Instashopping posted a heightened year-over-year growth and transaction we can see increased even more notably. We precisely captured increasing needs from consumers for diversity and quality and we find our operational strategy.

Which started by consumers surging demand for holiday gifting and traveling. During Spring Festival, an increasing number of consumers for their holiday products and gift via our on-demand retail channel. GTV from categories such as liquor and beverage, holiday gifts and daily necessities experienced remarkable growth bringing higher revenue to offline retailer, especially for many AA merchants. We worked with the high-quality brands and merchants during our Womens' day marketing campaign. Both from flowers, beauty products and mom-and-child products were particularly high.

We also collaborated with many top-tier brands in electronics and apparels and jointly launched super brand day promotion [indiscernible]. The participating merchants have had a significant GDP growth from the on-demand retail channel and they have become more willing to advertise on our platform. In addition, we continue to expand the coverage of our new supply format. By the end of the first quarter, we had around 7,000 Meituan InstaMarts, and its order contribution further increased. Meituan InstaMarts accelerated an online penetration in lower tier markets, bringing diversity and competitive pricing of our platform and effectively elevated consumer shopping experience in on-demand with retail.

Additionally, categories offered by Meituan InstaMarts continue to expand. Beside convenience store, Meituan InstaMarts also specialized in categories such as beauty projects and FMCG. These categories posted a rapid growth during the first quarter. Over the past years, our continuous acceleration on the supply side has brought a digital improvement in user experience and purchase frequency. We firmly believe that there are substantial growth opportunities across both product categories in the on-demand retail market, which we will explore selectively with our business partners and thanks to holiday consumption peak, as New Year's day and Spring festival, our in-store hotel and travel business experienced a strong year-over-year growth.

In the first quarter, GTV grew by over 60% year-over-year. Annual Transacting Users grew by over 37% year-over-year and annual Active Merchants reached record high. As consumers increasingly favor value for money, we further iterated our products, improved our marketing ability to promote negative products and enhanced our pricing competitiveness. For live streaming, we leveraged the major holiday marketing windows at New Years' Day, Spring Festival, Women's Day, and launched a dedicated live streaming campaigns. We extended our Meituan platform live streaming [Foreign Language] to broader regions and continue to increase its frequency.

During the first quarter, more than 400,000 merchants from over 200 cities participated in the Meituan platform live streaming. For merchant live streaming, we stepped up our merchant support measures and launch their own online/offline joint promotion to help them attract the user traffic for live streaming. As a result, a number of participating merchants increased rapidly, we offer a special deals [Foreign Language] which is extended from our traditional shelf-based model aiming to promote mega-hit products. After continuous iterations for the past year, we have accumulated a strong know-hows in deep discount offerings. On the one hand, special deals help deepened consumer mindshare in our value-for-money offerings.

On the other hand, merchants' willingness to offer a deep discount on our platform also increased. For special deals, we iterated our product selection criteria, enhance the product control standards and improve our algorithm to capture consumer -- stratified the consumption demand. These measures allowed us to offer merchants tailored operational recommendations and product tractions and pricing, thereby helping the participating merchants significantly boost the sales.

In the first quarter, we continued to refine our operational strategies to capitalize on major consumption scenarios such as holiday outings, family reunion, and group gatherings. Subsequently, business volume during holidays and weekends grew rapidly. During Spring Festival, we collaborated with over 10,000 restaurants from tourist attraction areas, all the restaurants from our [indiscernible], a nearly 6,000 high-quality merchants in the lower tier markets. Utilizing such deals that ongoing, upstreaming and same promotions, we offer to consumers wider selections of combo deals.

In addition, we launched a variety of marketing programs to promote the high-growth in-store categories such as spa and massage, KTV, pet care and escape room, et cetera. Additionally, after implementing our direct operation model nationwide, we were able to better these opportunities from both online penetration and strong consumption potential in the vast lower-tier markets. In those low-tier markets, we accelerated the merchant onboarding process and provided a broad selections of products and deals, which has satisfied both daily needs for local residence and the diverse demand from tourists and homecoming people during holiday seasons.

In the first quarter, people's willingness to travel remained high. Despite a strong base in the same period of last year, we achieved the robust year-over-year growth in both domestic hotel room nights and GTV are exceeding the pre-pandemic level. We continue to enhance our platform supply pricing, product capabilities and marketing strategies and solidified our competitive advantages. Recently, consumer preference for travel destinations has greatly evolved with the niche destinations such as some smaller towns and lower-tier cities becoming increasingly popular. We still swiftly adapted to this consumption change, thanks to our first-mover advantage in penetrating into lower-tier cities and their continuous operational durations.

Our growth in both niche travel destinations is notably higher than the industry average. On the product side, we leveraged our unique edge to satisfy one-stop consumption need for travel and local services, including where to stay, when to visit once a month and provided recommendations on local food, drinks and entertainment deals. On the marketing side, we stepped up branding promotion around New Year's Day, Spring Festival and Ching Ming festival to strengthen customer mindset. In addition, we leveraged popular IPs and launched a dedicated live streaming sessions. During these sessions, the number of user bases GDP from hotels products and deals and mix from new users or hit new highs.

In the first quarter, we continued to experience fast growth in high-star hotels where further solidified our marketing share in the lower star domain. For low-star hotels, we talked to all merchant services enhancing their customer acquisition ability and offering them diversified room renovation solutions to help them improve overall operational efficiency.

Moving on to our new initiatives segment now. For Meituan Select, we defined our business strategy and focus more on operational enhancement and high quality growth in the first quarter. Q1 is usually the peak seasons for Meituan Select because of the Spring Festival.

We stepped up our price markup ratio and improved fulfillment experience for consumers. We also optimized our warehouse operations in selected brand provinces, leading to further improvement in the average procurement cost per item. In addition, we enhanced the resource allocation and achieve the higher marketing efficiency. Thanks to all these measures, operating loss narrowed significantly from a quarter-over-quarter and year-over-year basis. For the rest of the year, we are determined to further improve efficiency for Meituan Select while building our core competence in product selections and procurement because Meituan Select, most of our other new initiatives have made healthy progress during the first quarter, including quarterly, IMS and back-sharing power bank and et cetera.

We have only achieved a market leadership in forms of business scale, also enhanced the operational efficiency. These new initiatives impact strategy value and synergies with the core local commerce segment, and we will be able to gradually unlock more financial value in the future. Amid the current macro environment, we have been proactively adapting to the latest trends and consumption habits to strengthen our competitive modes. We will continue to refine our product offerings and operational strategies and provide merchants with adverse marketing tools and effective online operational solutions.

And concurrently, we will continue to enrich consumer experience by offering wider selection of our value-for-money products and services. With our organizational restructuring, we will further iterate our growth model, strengthen collaborations among different business units and integrate our operation in the core local commerce segment more cohesively.

These measures will enable us to provide a better experience for both our merchants and consumers and fulfill our company's mission to help people eat better and live better. With that, I will turn the call over to Shaohui for an update on financial results.

[Shaohui Chen, executive]

Thank you, Xing. Hello, everyone. I will now go through our first quarter financial results. During the quarter, our businesses sustained healthy growth with our total revenue increasing by 25% year-over-year to RMB 73.3 billion. Cost of revenue ratio decreased 1.3 percentage points year-over-year to 64.9% primarily due to the improved gross margin of our food retail businesses, partially offset by the higher delivery cost as a percentage of revenue in our on-demand delivery business as a result of the decrease in average order value.

Selling and marketing expenses ratio slightly increased 1.2 percentage points year-over-year to 19%, mainly due to our increased promotions and employee benefits. R&D expenses ratio decreased year-over-year to 6.8%, primarily benefiting from improved operating leverage. G&A expenses ratio was 3.1%, remaining stable on a year-over-year basis. Our focus on stimulating 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 4.4 billion to RMB 6.9 billion, and operating margin increased from 6.1% to 7.1%.

On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 7.5 billion this quarter. Turning to our cash position. As of March 31, 2024, we maintained our strong net cash position with our cash and cash equivalents and short-term treasury investments totaling RMB 138.6 billion given the high base of operating cash inflows as a result of the reopening impact from last Q1, cash generated from operating activities declined year-over-year to RMB 6 billion this quarter.

Now let's look at our segment results, starting with core local commerce. Our core local commerce segment revenue increased by 27.4% year-over-year to RMB 54.6 billion. Operating profit increased year-over-year to RMB 9.7 billion. Operating margin was 17.8% this quarter. Our on-demand delivery businesses further solidify their leadership and delivered healthy results during the quarter. On-demand order volume growth achieved 28.1% year-over-year this quarter of food delivery, thanks to our continuous acceleration on the supply side and a refined marketing strategy, transaction frequency of mid-to high frequency users further increased year-over-year.

Meantime, the further expansion of Pin Hao Fan has allowed us to better meet the needs of more mass market consumers on low digitized meals, thereby promoting the engagement of less frequent users. Meituan Instashopping delivered a fast growth than food delivery with its year-over-year order volume growth rate more than doubling net of food delivery. Daily average order volume reached RMB 8.4 million this quarter. On-demand revenue growth lagged behind the order volume growth on a year-over-year basis, given the substantially high AOV, average order value in Q1 last year and changes in consumption trend, AOV or both food delivery and the Meituan Instashopping declined year-over-year.

However, we addressed strong marketing demand from restaurants, traditional offline retailers and top brands during the quarter. The expansion of both advertising, merchant base and the increase in their app resulted in a remarkable year-over-year growth in online marketing services revenue for both food delivery and Meituan Instashopping. On demand, operating profit achieved about 20% year-over-year growth this quarter exclude the improved advertising monetization and enhanced economy of scale, which helped partially offset the decline in LV. We are pleased to see that Meituan Instashopping has demonstrated its enormous flexibility with UE trending positive this quarter.

Apart from the improved advertising monetization and operating leverage, the improvement in UE was also driven by the optimized subsidy efficiency and increase in the proportion of orders for high-margin category, such as flowers during holiday seasons. However, in the short term, we still prioritize its growth over profitability. We aim to further enhance the synergy between Meituan Instashopping and food delivery in terms of user scale, matching efficiency and delivery network.

Now let's turn to our in-store, hotel and travel business. Growth momentum in service retail remained strong during this quarter. We persistently supported merchants, enhance product and content capabilities and penetrate into lower tier cities to capture growth opportunity. Meanwhile, our refined marketing strategy allow us to actually cater to peak demand, facilitating rapid business growth during holidays and weekends. GTV for in-store business continued its rapid growth category quarter, we boost the number of transition users and merchant base keeping new records. Our hotel and travel business also achieved healthy growth in both room night scale and ATR this quarter.

Revenue of in-store, hotel and travel grew at a slower pace than GTV, mainly due to the increased merchant incentives and lower subscription-based service charge but merchant on a year-over-year basis, however, revenue growth and GTV growth significantly narrowed compared to the last quarter. The year-over-year growth momentum of transaction-based service revenue remained robust, driven by high consumption demand and accelerate its position of various local service industries. Growth of online marketing services revenue lag the high commission revenue growth. However, the rapid expansion of advertising merchant base of performance-based ads drove strong year-over-year growth on a net revenue this quarter.

Despite our strategic investment in lower-tier cities throughout Q1, or enhanced marketing efficiency led to a sequential increase in operating profit margin. We will continue to evaluate and adjust our investment efficiency to optimize ROI.

Turning to our new initiatives segment. During this quarter, revenue in this segment increased at 18.5% year-over-year to RMB 18.7 billion mainly due to the development of our goods retail businesses, particularly from [indiscernible] supermarket. The segment's operating loss and operating loss ratio narrowed significantly on both quarter-over-quarter and year-over-year basis to RMB 2.8 billion and 14.8%, respectively. The loss reduction was primarily attributable to the substantial efficiency improvement on Meituan Select.

Starting from February, we have implemented several efficiency improvement measures for Meituan Select. Such as rating price markup ratio, lowering user subsidy and closing underperforming warehouses. Meanwhile, many of our other new initiatives continue to make good progress enhancing their operating efficiency.

To conclude, our core business once again grew resiliently setting new records across market-performance metrics. Meanwhile, our dedication towards efficiency enhancement in our new initiatives result in a significant reduction of its remarkable improvement in adjusted EBITDA this quarter.

As we move forward, we will proactively accelerate our core business to enhance long-term model. We will focus on quality growth and balanced growth with profitability. We believe there will be more synergy among core business to come in future. We will also give you positive results in revenue for our new initiatives and continuously improve our core efficiency. Our confidence in our business fundamentals and the long-term growth potential remains intact.

With that, we are now open for Q&A.

[Operator]

[Operator Instructions] Your first question comes from Ronald Keung from Goldman Sachs.

[Ronald Keung, analyst]

And so on your recent reorganizational restructuring, I just want to hear, are there any operational changes for the on-demand delivery and in-store hotels and travel segment that you can share any operational changes there? And when do we expect to see these synergies from this reorganization? And specifically, how will these synergies be reflected on the top line revenue profit margins for the core local commerce segment. Could you give us some pointers on how to quantify that synergies?

[Xing Wang, executive]

Thank you, Ronald. We are still in the process of [ organizational and restructuring ] our structure and to better support and integrate our core local commerce segment. And as we move forward, we will gradually roll out more operational change. And like I mentioned in the last quarter, we hope to cover all categories and scenarios of local services and we want to provide a close group solution from demand recovery to a service procurement. And we want to ensure high quality and comprehensive experience for each and every service we provide. So our organizational restructuring is not only about putting on-demand delivery and in-store, hotel, travel together, they are both on the supply side.

What's more important is that we -- the change will allow our Meituan platform and our infrastructure platform to work better with our quarterly business, that is to put our demand side and supply side together. And in vision, we will review business performance and operational strategy and product development and resource allocation of our whole core local commerce from an integrated perspective. We hope to empower each business with effective and traffic support from our Meituan platform and [indiscernible] and across deeper collaborations and synergies across different business units.

And we hope to better align our consumer needs and our platform supply, reshape our brand information in the local services industry. And for example, we are exploring integrated marketing solutions and comprehensive operation solutions for merchants to broaden their marketing and customer acquisition channel. And this will help them generate higher operational efficiency and transaction conversion on our platform. What's more? We are also exploring a more structured approach in subsidies for promotions to better capture user demand in different consumption scenarios. And starting from mid-May, we upgraded our [indiscernible] membership in a few pilot cities.

We extended our membership benefit from on-demand array only to also cover in-store, hotel and travel. We intend to introduce this enriched membership program to broader regions progressively. And over the past few years, we have accumulated over 100 million members through our on-demand delivery membership program and it has not only enhanced user transaction frequency for our on-demand delivery, also brought a substantial growth for restaurant merchants to help them improve marketing efficiency. As we continue to integrate marketing initiatives, membership program across different businesses, we expect to strengthen our collaborations with an expanded network of merchants.

And subsequently, our members will have access to more diverse selection of value-for-money products services across all the consumption categories in the local commerce domain to conclude all the business units in core local commerce, together with our Meituan platform, we will work together for innovative approach to create the synergies and our continuous iteration on product services will bring a well-rounded experience for every category to both merchants and consumers. We believe the synergy can help enhance our revenue growth and profitability in future. I will take a few more quarters to unlock the potential, so it is still too early to quantify end stage.

[Operator]

The next question is from Thomas Chong from Jefferies.

[Thomas Chong, analyst]

I have a question about on-demand delivery. Could management share some color about the latest development of food delivery and Meituan Instashopping? In light of the current macro environment and consumer sentiment, how should we project order growth and financial performance for these 2 businesses in Q2 and also throughout 2024?

[Shaohui Chen, executive]

Thank you, Thomas, for your question on on-demand delivery. As mentioned, on demand continued to grow healthily in the recent months despite the impact from macro environment on the demand side. However, as we enter Q2, we do no not benefit from a low order base of last year. So the year-over-year order volume growth rate in Q2 is expected to trend down to a normal level, which will reflect the current consumption environment.

For food delivery, we will continuously refine our operations to cope with different consumption areas which should lead to a steady increase in the base of medium to high-frequency users in their purchase frequency. In Q1, orders from million to high-frequency users continue to grow faster than the average. In addition, our acceleration on Pin Hao Fan model will enable us to make satisfy demand from practice to users with higher efficiency. Pin Hao Fan has steadily expanded over the past few quarters. Both use base and purchase frequency increased rapidly and the unit economics continue to improve.

We will continue to improve supply, innovate our business model and restart operations to capture demand across auction scenarios. For Meituan Instashopping, we expected order volume growth in Q2 and for the full year to be much higher than food delivery, possibly more than double. We believe on-demand retail will continue to benefit from digital transformation.

On the supply side, we will partner with more premium brands and offline retailers and reaching the quality and variety across product categories. It will allow us to better meet consumer demand in certain scenarios such as urgent needs, travel and more. Moreover, we will continue to broaden selection in long-tail categories. On the consumer side, we will convert more high frequency for delivery goods from Meituan Instashopping users and boost their frequency during efficiency promotions and enhance platform supply. The macro environment will continue to waive on AOV for our on-demand delivery business. However, we think that year-over-year change in AOV should gradually normalize in the second half of the year. We have confidence that we can balance growth with profitability in this business. We expect a healthy increase in operating profit for both Q2 and the full year, we see stronger appetite for advertising from restaurants, offline retailers and brands. So we believe there is further potential for ad and monetization. Additionally, we will continue to optimize our subsidy strategy, and we see more operating leverage as the business scales up. Thank you.

[Operator]

The next question is from Kenneth Fong from UBS.

[Kenneth Fong, analyst]

Congrats on the strong set of results. I have several questions for in-store hotel and travel business. First, would consumption downgrade impact for the growth of our in-store business going forward? Can we maintain high GTV growth over the next few years? And I noticed that [indiscernible] has recently adjusted their organization structure in local service, would Meituan made any strategic changes as well? And how should we project the OP margin of the in-store hotel and travel business in 2024 as well as the medium and longer term?

[Shaohui Chen, executive]

Thank you, Ken, for your question on in-store. Under the current macro environment, consumers have become more price sensitive. As a result, AOV of our in-store hotel travel business declined year-over-year in each vertical category. However, consumer demand across local service categories remain strong. In fact, some young people are willing to allocate more budget for experience and travel. Even people are price sensitive. They are more eager to find stores in discounts from online channels as helping to deepen online penetration in in-store and boost industry growth. Our platform offers over 200 in-store categories so that we can effectively meet diverse consumer demand across categories and price ends for our traditional share-based model, we will continually spend our merchant base to enhance price competitiveness and introduce more diverse packaged deals to meet consumer demand. We also launched live streaming and special deals to incentivize impulse purchase and to satisfy consumer needs for big discounts. Meanwhile, we changed our agent model, direct operation model to our Insta business to better capture the growing demand in lower-tier cities. Overall, online penetration for In-store business is still at an early stage. We believe that as the leading player in this space. Our user base, transaction frequency and GTV, we will continue to maintain healthy growth in the next few years. As industry competition evolves to a certain stage. We think major players will gradually shift from a subsidy-driven growth strategy to a rational ROI-driven growth strategy. Although we do keep close watch on our competitors. Our strategy is centered on fortifying our long-term competitive advantage rather than market share.

On the merchant side, we increasingly focused on the ROI of their online promotion and customer acquisition spending. Merchants prefer platforms that can provide integrated solutions and that we can fulfill such demand throughout their entire business cycle. We continue to enhance our capability to serve merchants across different tiers and offer customized marketing solutions to address their diverse operational needs from daily operation to short-term promotions. In addition, we will actively explore collaborative marketing strategy between food delivery and in-store dining, integrate transactional allocation, enhance supply quality and improve operating efficiency. On the consumer side, we started to test our integrated membership program, [indiscernible] we also improved our intelligent recognitions on products and services in a more customized manner to satisfy consumers' diverse needs and enhance the subsidy efficiency. Going forward, we will continue to refine our operating strategy, strengthen synergy with core local commerce and enhance our recommendation based algorithm for the in-store hotel and travel business. The change in competitive landscape has accelerated the industry online penetration in '23. We have strengthened our competitive edge and capture more incremental growth. We are confident in maintaining a strong GTV growth in 2024. GTV growth in the mid- to long term may be higher than our original expectation as we continue to launch new products and strategies and accelerate our penetration, especially in lower-tier cities. We did face some profit fluctuation in the last few quarters due to the seasonality and the implementation of our direct operation model in lower-tier cities. In Q2, the gap between revenue growth and GTV growth were narrow due to a more normalized base of [ monetization ] rate. For the full year of 2024, we expect healthy growth in operating profit of in-store, hotel and travel and operational efficiency to gradually improve. Thus, we remain confident in the longer-term revenue and profitability potential of this business.

[Operator]

The next question is from Alex Yao from JPMorgan.

[Unknown Analyst]

So our hotel and travel business, it's been fairly robust recently, but at the same time, we also noticed that the competitors have experienced a rapid growth recently as well. How do you guys think about competition in this business? What are our strategies in response to the competition? And also considering the recent macro environment and the consumption change. Will we have growth pressure in room nights and GTV in this year?

[Xing Wang, executive]

Yes, we agree with you that there is a very big growth potential of the hotel and travel business as a whole, especially we see consumers growing demand for all exponential consumption. Hotel and travel being a key category in this space to benefit from growing trade. More and more consumers are willing to allocate a larger portion of their budget to travel, and their demand is not only growing, but also becoming more diverse, which brings substantial opportunity for us. In terms of the competition, other OTA peers and us have quite different value propositions and different competitive advantages. For example, we are strong in lower tier-cities mid to low-star hotel market and local accommodation. We continually enhance our supply offerings, pricing capabilities and service quality to provide consumers with high-quality selections across all price bands in such scenarios. We're also satisfying their need for personalized recommendation and travel experience. Thanks to our strategic focus in the low-star hotel, we have established a parallel mode in low-star hotels of and continue to promote the digital [indiscernible]. I mean the shift in consumption environment, consumers now prefer value for money products and services. This is particularly evident when they book hotels to make travel arrangements in response to the evolving trend, we have large set of measures on the supply side. For example, we provide merchants with efficient marketing tools on like operational solutions help in acquire user traffic and hence improve their cost structure and operational efficiency. Additionally, we offer room renovation solutions for the merchants to pay per the consumer demand for quality and diversity. On the high start front, we leveraged our unique platform advantage in local commerce by continually enriching our Hotel+X package offering. We not only meet consumers' rising demand for one-stop travel experience that includes accommodation, dining, entertainment and more, also deepen our collaboration with high-star merchants as we help them generate additional revenue beyond accommodation. Looking ahead, we believe there is still substantial room for further [indiscernible] transformation in low-star hotel market. We will focus on both the supply side and demand side to solidify our competitive edge low-star market. Meanwhile, we will explore growth opportunities in high-star hotels through ROI-oriented investment. For full-year 2024 transition before, we have confidence in the health growth momentum of this industry and our ability to capture on such opportunities. We think growth should normalize because of last year's high base as well as more balanced supply and demand. Regardless, we remain optimistic about both growth and profitability in our hotel and travel business for 2024 for longer term. Thank you.

[Operator]

The next question is from Ya Jiang from Citic Securities.

[Ya Jiang, analyst]

My question is about Meituan Select. How has Meituan Select business growth trended since the business streamlining and however will we reassess the strategy of investment scale for this business at this initial phase of [indiscernible] and in quarter 1, Meituan Select post multiple loss reduction. How should we project the pace in the next few quarters?

[Xing Wang, executive]

Thank you. So it seems each time before I answer a question about Meituan Select. I would like to emphasize two points. The first, it's an online growth rate is very important to Meituan, and the second is on our online growth rate, it's very difficult to get like. And we are going to keep working on that. So to your question, since the year beginning on competition in community e-commerce has become more rational. For Meituan Select, we strictly focused on efficiency improvements and implemented a series of measures in February. And as a result, operating loss has narrowed significantly quarter-over-quarter and year-over-year and has contributed positively to our financial performance of the new initiatives segment. And in Q1, we raised an average price per item and reduced subsidies and shut down some underperforming, well out these pickup stations. Although this measure inevitably brought a short-term impact to the scale, but we are now more focused on natural retention and growing proportion of our core users and that will benefit us in the long term. Regarding the loss reduction base, as I mentioned, we adhere to a high-quality growth strategy and we will implement a loss reduction and efficiency improvement measures throughout the whole year. And we expect a loss to further trend down in Q2 on a quarter-over-quarter basis. An operating loss of Meituan Select will continue to narrow significantly in the second half of this year.

How much cost reduction we can realize in the second half still depends on further iterations of the business strategy and the sales volume. And in the long run, I still believe online growth is the areas that potentially invest in because we -- it's a very big market. It aligns very well with our corporate mission to help to grow EBITDA be better. And we currently explore this market through a few business models and Meituan Select is one of them. And we will adjust our resource application among these different levels based on each business performance and ROI and [indiscernible] to that, we will dynamically evaluate its progress, and we will maintain profitability when iterating our strategies and strengthen our core competence and continue to improve our [indiscernible] peers. Thank you.

[Operator]

The next one is from Alicia Yap from Citigroup.

[Alicis a Yap, analyst]

Also congrats on the solid quarter. My question is on the new initiatives as related to your overseas expansion. We noticed that the company has recently entered the Middle East market. Could management share some thoughts on the development plans of the food delivery business in Middle East? In addition, how should we think about expanding into other regions? And what's our assessments and strategies when selecting other regions to explore? How should we view the investment scale of the overseas business this year and the impact on the operating loss for the new initiative?

[Xing Wang, executive]

Thank you, Alicia. So yes, we launched KeeTa in Hong Kong last May. So now it's slightly over 1 year old. So in the past year, we have made pretty good progress in Hong Kong. And it makes us more confident that we have the ability to build the food delivery business from scratch in overseas markets or in markets other than Mainland China. And we are already the leading food delivery platform in Mainland China and that the market distinguished by quite unique attributes and validates advantages on both supply side and demand side. So the new food delivery is not limited to China or Mainland China. And there's also a greater need in Hong Kong and many other countries. So in the long run, our goal is to bring our products and services to -- because global audience and operating managed services and adherence to both consumers and merchants probably. And to this end, we are actively evaluating many different markets. Middle East or the Gulf countries is one of them. But to be honest, it kind of surprised me that we received a media coverage of Middle East operations so early, so we haven't really launched anything there. We are just doing some preparation.

And also, we are looking into some other markets, including some European countries and also Southeast Asian countries. And our selection for potential new entry region is based on a thorough analysis of multiple criterias because in most -- not every country, food delivery market is not wide open. There are already players there. So we need to be very careful to evaluate both the addressable market and the penetration rate. Right now the potential for penetration rate in the future and also the competitive landscape and the average order value and cost structure and so on.

And so I must emphasize that we are still at the very early stage for the underground research, and we have not reached any definitive conclusions. But there's no doubt that global retention is going to be a very important direction for Meituan's long term growth. We will approach the global retention with a very rapid pace. So from a financial perspective, we'll be very cautious in assessing opportunities, and we will maintain financial discipline and be more oriented when we deploy the capital. That's it.

[Operator]

There are no further questions at this time. I'll now hand back to Scarlett for closing remarks.

[Scarlett Xu, executive]

Okay. Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.

[Operator]

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