Meituan

HKEX:3690

Earnings Call Analysis

Meituan's Q2 2024: Strong Growth and Increased Profitability

In Q2 2024, Meituan achieved a 21% year-over-year revenue increase to RMB 82.3 billion, with adjusted net profit surging by 77.6% to RMB 13.6 billion and a net profit margin of 16.5%. The company reported robust growth in Annual Transacting Users and Annual Active Merchants, reaching 753 million and 13 million respectively. Cost efficiency improved across food retail and delivery segments, contributing to profit gains. New initiatives, including Meituan Select, showed significant loss reduction. Looking ahead, Meituan remains focused on enhancing operational efficiencies and leveraging synergies across its core local commerce and new initiatives to sustain growth and profitability.

Revenue and Profit Growth

In the second quarter of 2024, Meituan experienced solid growth as it adapted to the latest consumption environment. Total revenue surged by 21% year-over-year to RMB 82.3 billion. Moreover, the adjusted net profit soared by 77.6% to RMB 13.6 billion, with the adjusted net profit margin reaching 16.5%, reflecting significant improvements both year-over-year and quarter-over-quarter. This impressive growth is attributed to strong operational efficiencies and the effective alignment of consumer demand with their platform's supply .

Growth in User and Merchant Base

The number of Annual Transacting Users and Annual Active Merchants on Meituan’s platform continued to rise, achieving new highs of 753 million and 13 million, respectively. This marks the 15th consecutive quarter of sequential growth in average purchase frequency per annual transacting user since mid-2020. These metrics indicate robust engagement and loyalty among both consumers and merchants .

Local Commerce Strategy and Operational Efficiency

Meituan's comprehensive product offerings and on-demand delivery have been central to satisfying local consumer demand in China. The company has focused on integrating its core local commerce segment, enhancing operational efficiency, and fostering synergies between its on-demand delivery, in-store hotel, and travel businesses. This holistic approach aims to create more cross-sales opportunities and strengthen brand awareness .

New Initiatives and Market Leadership

Meituan's dedication to innovation is evident in its new initiatives, which include Meituan Select and Xiaoxiang Supermarket. The company has made strides in improving product quality, supplier collaborations, marketing efficiency, and operational efficiency. For instance, Xiaoxiang Supermarket extended business hours to 2 a.m. to capture more night-time consumption. Such measures have positioned Meituan as a leader in various market segments, further demonstrating the company's potential for long-term growth in China’s local commerce market .

Financial Performance and Profitability Metrics

The quarter set new records in profitability metrics since Meituan's listing. The cost of revenue ratio decreased by 3.8 percentage points year-over-year to 58.8% due to improved gross margins in the food retail business and lower delivery costs. Selling and marketing expenses ratio dropped by 3.4 percentage points to 18%, while R&D expenses ratio decreased to 6.5%, showcasing enhanced operating leverage. G&A expenses ratio slightly increased to 3.3% .

Segment Performance and Future Outlook

Revenue from Meituan's core local commerce segment grew by 18.5% year-over-year to RMB 60.7 billion. The on-demand delivery business achieved continuous year-over-year order volume growth, underscoring its market leadership. Additionally, Meituan Instashopping maintained rapid growth, converting over 60% of delivery users into Instashopping users, which supports more cross-sales and higher purchase frequency. The company remains confident in the long-term growth potential of on-demand delivery and is optimistic about the future of its in-store hotel and travel business despite macroeconomic challenges .

Commitment to Shareholder Returns

During the quarter, Meituan repurchased over USD 2 billion worth of shares, representing more than 2.1% of the total shares outstanding. The company's Board has approved the cancellation of all repurchased shares to further reduce share count. This move reflects management’s confidence in the long-term value of Meituan’s shares and commitment to enhancing shareholder returns. Going forward, the company plans to continue buyback strategies depending on investment plans, cash flow, and market conditions .

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to the Meituan Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Scarlett Xu, VP and Head of Capital Markets.

[Scarlett Xu, executive]

Thank you, operator. Good evening, and good morning, everyone. Welcome to our Second Quarter of 2024 Earnings Conference Call. Joining us today are Mr. Xing Wang, Chairman and the CEO; and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our second 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 standard 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, Scarlett. Hello, everyone. In the second quarter, we adapted to the latest consumption environment and we actively iterated our projects and operations and achieved solid results. During the second quarter, our total revenue increased by 21% year-over-year to RMB 28.3 billion (sic) [ RMB 82.3 billion ]. Adjusted net profit increased by 77.6% to RMB 13.6 billion. And adjusted net profit margin improved significantly, both year-on-year and quarter over quarter to 16.5%.

And our Annual Transacting Users and Annual Active Merchants maintained a strong growth momentum and reached the new highs to 753 million and 13 million respectively. Also average purchase frequency per annual transact user increased, marking the 15th consecutive quarter of sequential growth since mid-2020.

At a one-stop local commerce platform in China, we effectively satisfied consumer demand for local services through our comprehensive product offerings and on-demand delivery. We support the local merchants throughout their operation cycle across various marketing scenarios. Compared to other sectors, the local commerce industry in China still has a significant growth potential from digital transformation. We will continue to implement our retail technology strategy. We use technology to promote industry growth and fulfill our mission to help people eat better and live better.

In the second quarter, we continued to integrate the core local commerce segment and improve its operational efficiency. The goal of our recent organizational restructuring is not only to integrate the on-demand delivery in-store hotel and travel businesses, what's more important is to better align consumer demand with our platform supply. And subsequently, Meituan platform -- Meituan infrastructure platform and its business unit in core local commerce will better develop and realize more synergies. We view core local commerce as a whole when it comes to long-term business planning, operational strategy and resource allocation and product integration. We hope to empower each business with effective traffic support from Meituan platform and foster closer collaborations, create synergies that realize more cross sales. This will bring further integration between the demand side and the supply side and further strengthen our brand awareness.

For example, our “Shen Hui Yuan membership program, which we expanded nationwide in July, is our very first marketing scheme that covers all categories across on-demand delivery and in-store hotel and travel. “Shen Hui Yuan evolved from the membership program for our own demand business, effectively enhance the user transaction frequency of on-demand delivery and also brought incremental sales to restaurant merchants and help them operate more efficiently.

Through this newly integrated membership program, we can deepen collaborations with an expanded network of merchants with a higher efficiency, allowing merchants to benefit from user traffic. Meanwhile, our members will have access to more diverse selections of value-for-money products and services across all categories in the local commerce domain. In addition, we recently introduced a new brand, Meituan Group Buy [Foreign Language]. It covers all local services category including in-store dining, leisure and entertainment, attraction, ticketing, duty services and more. Going forward, we will focus on this new brand and enhance consumer mind share in Meituan Group Buy more stores, more savings [Foreign Language]. Overall, we will continue to explore collaborations within core local commerce with the Meituan platforms, iterate our products and services offerings and provide the best-in-class experience for both merchants and consumers. And now let's walk through on each business in our core local commerce.

In the second quarter, on-demand delivery maintained steady growth for food delivery, thanks to years of business integrations, we have successfully activated strong consumer mind share in speed and variety. While we are focused on improving operations and marketing our shop-based model, we further enhanced our consumer mind share in value-for-money offerings to adapt to the evolving consumption trends. We deep dived into each consumption category and scenario such as the travel, weekend and late night snacks to incentivize demand. During the quarter, average order grew by almost 40% year-over-year and orders from late night snacks grew much faster than the average. Our refined operation and marketing strategies have led to improvement in user stickiness as well as steady growth in user scale and purchase frequency of mid to high frequency users. On the supply side, we actively explored new product formats to capture different consumption -- consumer demand, especially in the low-price band, Pin Hao Fan, exceptionally well this quarter, the order volume drove 8 million, setting a new record.

This quarter, we worked closely with the branded restaurant to introduce more high-quality value for money offering within Pin Hao Fan and further improved our products and user experience. Subsequently, both user retention and frequency were largely enhanced.

As the consumers increasingly recognized Pin Hao Fan's high quality value for money features, the demand also expanded from lunch and dinner to other discretionary categories like beverage and late night snacks. After our consumers iteration in the Pin Hao Fan model, it has now become a new growth driver for many small- and medium-sized restaurants. It also helps branded the restaurant improve single store productivity and attracting young consumers.

Through Pin Hao Fan, merchants can effectively manage mega-hit products of low price in exchange for high order volume. This allow merchants to unleash more economies of scale. In addition, merchants can pass cost and enhance efficiency by using our platform's rapid procurement and group delivery. Therefore, merchants can pass savings to consumers through lower price.

Going forward, we will continue to help merchant optimize efficiency, help them improve SKU selections and broaden their price bands to attract more price-sensitive consumers. For branded restaurant, last quarter, we launched the Branded Satellite Stores [Foreign Language]. This quarter, we worked with more brands such as [indiscernible] to help them open more satellite stores, thus bringing more quality production and low price for our consumers.

Looking ahead, we will continue to innovate our supply formats, penetrate deeper into the supply chain, help merchant improve efficiency and pricing ability and consistently provide the value for money products for consumers.

Meituan Instashopping posted another robust growth and on-demand retail has become a significant growth driver for local retailers. It is also a reliable shopping channel for consumers. We see steady increase in Meituan Instashopping's annual transacting user base and even faster growth in order frequency in this quarter [indiscernible] the capture the latest trend in diversity and personalized consumptions and continue to refine our operations and marketing strategies. Through these measures, we effectively cater to consumer demands across various scenarios, such as holiday gifting, travel and camping activities. During the quarter, we deepened our collaborations with the leading brands in FMCG, apparel, liquor and beverage and more, on-boarded many branded stores to our platform. In addition, we provided various merchant support measures, such as we refine the marketing strategy to increase transaction conversion rate and bring incremental sales to these branded merchants.

Those categories, I just mentioned, achieved a steady order growth in the second quarter. To better cope with the on-demand retail, we proactively penetrate deeper into the industry value chain and expanding Meituan InstaMart [Foreign Language] to broad regions. In higher tier cities, we increased the density of Meituan InstaMart. In lower tier cities, we also deepened the penetration to drive strong order volume growth.

Meituan InstaMart is a marketplace model where merchants rent and operate brand distribution warehouses, and we have merchants with online planning operations operating traffic support, product selection recommendations and pricing strategy and et cetera. And this new supply format effectively matches supply with demand for on-demand retail.

The value of our Meituan InstaMart is gradually recognized by offline retailers. An increasing number of leading offline brands chose to work with us. They can fully capitalize their advantages in the supply chain, while leveraging our location-based marketing strategy online solutions and efficiency -- and efficient network to offer consumers value-for-money products through on-demand retail.

For certain categories, we penetrated deeper into the supply chain and adopted in-house procurement. For example, we have self-operated brand, Wai Ma Song Jiu, in the liquid beverage category and continue to expand in scale. Wai Ma Song Jiu has integrated self-operated supply chain, plus brand distribution warehouses, plus self-operated delivery. This model effectively meets consumers' instant consumption needs. In the second quarter, Wai Ma achieved a record high GTV.

For the medicine category, we further strengthened consumer mind share with stronger capacity to satisfy seasonal demand and enhanced our product ability in health supplements. In July, we rolled out online medical insurance payment channel for most OTC products in a few cities, including Beijing, Shanghai and Qingdao. Consumers can choose insurance covered pharmacies and drugs for our platform and enjoy 30 minutes delivery to their doorsteps.

Going forward, under the guidance of local authorities, we will work closely with chain pharmacies expand to the coverage of stores and drugs, back-end use medical insurance payment to provide consumers with convenience and health services.

Overall, the adoption of on-demand retail from more traditional brands and merchants coupled with accelerated expansion of new supply formats will enhance the competitive advantages of Meituan Instashopping on the supply side. It has helped enhance user experience and increase purchase frequency that gives a solid foundation for our resilient growth despite facing external challenges.

In addition, the long-term sustainable development of our on-demand business depends on the continuous optimization of our delivery network and hard work of our couriers. To address the challenges couriers face, we've launched courier-friendly communities and courier-friendly merchants. Currently, we have established courier-friendly communities in more than 20 cities nationwide.

To facilitate easy access for couriers in residential areas, we introduced a digital solution in collaboration with the various major property management companies, enhancing their delivery experience. Additionally, we worked with more than 10,000 stores of branded restaurant and health care services brands to provide rest stations, beverage and discounted meals for our couriers.

Looking forward, under the supervision of relevant local authorities, we will continue to collaborate with the broader society, including local community, property management companies, chain brands and caring merchants to accelerate the promotion of courier-friendly community access solutions, introduce more resting scenarios and provide a more discounted service to enhance great sense of belonging and happiness.

In the second quarter, our in-store hotel and travel business maintained a strong growth as to the continued digital transformation in local services as well as consumers' rising demand or diversity and value for money. Order volume increased by over 60% year-over-year. Annual transaction users increased by nearly 35% year-over-year and annual active merchants reached a new high.

For our in-store business, we continue to leverage our shop-based model and mega-hit products, expanding our value-for-money products and services offerings for consumers. Through our shop-based model, particularly by leveraging our Meituan Group Buy brand [Foreign Language], we continue to satisfy consumer demand for value-for-money products.

Recently, we put more efforts into the marketing campaign of [indiscernible]. We launched online and offline joint marketing events in 15 cities, especially during holiday seasons like Labor Day and Dragon Boat Festival. This strengthened the consumer mind share of [indiscernible] and continue to expand our user base.

On top of that, we continue to promote mega-hit products by leveraging Special Deals [Foreign Language] and many other operational tactics. These measures effectively captured the consumer demand for deep-discounted deals and boosted our transacting user base and order volume. We also continue to invest in lower tier markets to effectively digitize both supply and demand and help accelerate online penetration of local services in these markets.

In addition, after we upgraded our Shen Hui Yuan program, consumers can now use coupons in in-store, hotel and travel categories, which further strengthened the consumer mind share in our value-for-money offerings. And Shen Hui Yuan is also widely welcomed by our merchants.

In current macro environment, consumer demand for local services remain intact with the new consumption trends emerging the subtle changes in consumer preference. For in-store dining, demand has extended from normal meals to lighter meals and beverage, snacks such as fast food, coffee and tea, those categories are doing well.

To adapt to this change, we swiftly on-boarded more lighter meal and beverages suppliers. Our in-store business recently promoted the Pickup Now service [Foreign Language] that, allows consumers to buy and validate coupons online simultaneously so that they won't waste time queuing and validate the coupons offline, making use in a more convenient way and enhancing the user experience.

This Pickup Now service has a complement to our food delivery and in-store dining service format. Currently, Pickup Now covers popular categories such as coffee and tea. We have partnered with 46 chain brands and around 90,000 restaurants to offer Pickup Now and have served over 20 million users in 100 of cities.

During the second quarter, we launched our 2024 Must-Eat List participant covering nearly 2,800 cities -- covering nearly 2,800 restaurants in over 100 cities. That's more than ever. Majority of the restaurants on our list are localized restaurants and nearly 20% [indiscernible]. We provided online traffic support and operational guidance for the listed merchants, especially those small and medium-sized merchants, helping them enhance store exposure, online operation and efficiency.

For other in-store services, there is a trend that consumers want to enjoy diversity and low price in the leisure and entertainment category. We actively captured this evolving trend, improved operation in certain popular categories, capitalizing on our advantages in supply, brand recognition and service quality. We aim to begin consumers top choice when they look for happiness [Foreign Language] for those type of consumptions.

Specifically, leisure and entertainment posted strong growth with GTV and order volume growth growing over 60% year-over-year. And GTV on beauty and medical aesthetics also increased by over 50% year-over-year. For the hotel business, both our domestic room night and GTV experienced steady growth during the second quarter.

We expanded efforts in branding promotion and iterated marketing strategies around the major holidays such as Labor Day holiday and Dragon Boat Festival. During the 10-year anniversary celebration of our hotel business, we launched a dedicated marketing campaign effectively incentivized demand. As more and more travelers now focus on culture and experience, we continue to enhance our brand and product formats.

For example, we iterated our Hotel+X packaged deals and leveraged our platform advantage to offer consumers high-quality value-for-money products, while helping merchants cross-sell other services and accommodations. Under the current macro environment and demand for low-star hotels have increased. Our unparalleled advantage in this domain, especially on the supply side, position us well to withstand with new environment.

During the quarter, we further strengthened our supply capabilities in low-star hotels. We cater to consumers' differentiated preference and expanded our value-for-money offerings. Transaction conversion and room nights have increased subsequently. On the merchant side, we provided comprehensive online solutions to address their operational needs from traffic acquisition to growth -- business growth, to room renovations and helping low-star hotels capture more growth opportunities.

In the high-star domain, we recently launched the 2024 Must-Stay List [Foreign Language], featuring over 1,100 hotels. We further expanded our city coverage and included Hong Kong and Macau in the list for the first time.

In June, we held a special live streaming session to promote the Must-Stay List, setting a new GTV record in hotel live streaming. In addition, we deepened our joint membership program with high-star hotel groups adding exclusive discount and late checkout privilege to the member benefits. We also launched joint marketing events with high-star hotels featuring better product exposure and attracting new users to the merchants. And now let's move on to our new initiative segment.

From Meituan Select, we continue to improve operational efficiency in the second quarter by continually enhancing our product quality and strengthening supplier collaborations, which effectively increased our price per item and price markup ratio. On the fulfillment side, we further improved efficiency and broad aggravated experience for consumers. We also increased the proportion of orders delivered by 11 a.m., which will help us penetrate into more consumption scenarios.

Moreover, we enhanced our marketing efficiency and optimized resource allocation. All these efforts led to substantial loss reduction for the business on both potential and year-over-year basis.

And our Xiaoxiang Supermarket [Foreign Language] is one of the key components of our on-demand retail strategy. It has become a convenient and reliable source for people to shop grocery online. During the second quarter, we made positive progress across various areas, including products, operations and procurements. And it's worthwhile to mention that we extended the business hours to 2 a.m., the exact locations allowing us to capture more night time consumption scenarios and enhance use experience.

In the second quarter, growth for Xiaoxiang [Foreign Language] continuing to outpace industry peers with efficiency further improving. And the other new initiatives, including our B2B food service distribution and our restaurant stack, now bike sharing, shared power banks, they all posted strong performance in the second quarter. And we have not only achieved the market leadership in scale, but also improved operational efficiency.

Our new initiative help strengthen the entire ecosystem, increased consumer and merchant engagement through our comprehensive offerings. And it will gradually unlock more financial value in future. And the local commerce market in China has a very big digital market and large growth potential. And as a market leader, we are confident to navigate through the cycles facilitate industrial digital transformation, unlocking greater value in the long term. We will actively adapt to the changing consumption trends and tap deep into the supply chain and offer comprehensive products and services to meet diverse demand across categories.

In addition, we will continue to provide the merchants with efficient marketing tools and online operational solutions. We aim to continuously enhance value for our consumers, merchants, couriers and all business partners in our ecosystem, and we want to drive high-quality development in China's local commerce industry and fulfill our mission to help people eat better, 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 second quarter financial results. During this quarter, our businesses sustained healthy growth with our total revenue increasing by 21% year-over-year to RMB 82.3 billion.

Cost of revenue ratio decreased 3.8 percentage points year-over-year to 58.8%, primarily due to improved gross margin of our food retail business and lower delivery cost as percentage of revenue in our on-demand delivery business.

Selling and marketing expenses ratio decreased 3.4 percentage points year-over-year to 18%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 6.5%, primarily benefiting from improved operating leverage.

G&A expenses ratio was 3.3%, slightly increased on a year-over-year basis. Second quarter is usually the best quarter in terms of profitability due to seasonality in our business. In time, our dedication to pursuing quality growth and enhancing operational efficiency continued to yield positive results.

Every profitability metric set new record in this quarter, marking the highest level since our listing. Our quarterly profit surpassed RMB 10 billion mark for the first time. Net profit for the period, adjusted net profit reached RMB [ 11.3 ] billion and RMB 13.6 billion, respectively, while the corresponding margin climbing to 13.8% and 16.5%, respectively.

And to our cash position. As of June 30, 2024, we maintained our strong net cash position with our cash and cash equivalents and short-term treasury investments totaling RMB 133.3 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB 19.1 billion. Now let's look at our segment results, starting with core local commerce.

Firstly, our core local commerce segment increased by 18.5% year-over-year to RMB 60.7 billion. We set new records for both its operating profit and operating margin in this quarter with operating profit increasing by 36.8% to RMB 15.2 billion and operating margin went to 25.1%.

Our on-demand delivery business further solidify leadership and delivered healthy results during the quarter. On-demand order volume growth achieved continuous year-over-year growth this quarter despite external challenges. Meituan Instashopping maintained rapid growth with its year-over-year order volume growth far existing net of delivery. We converted more than 60% for delivery users to Meituan Instashopping users simulate more cross sales among different categories.

As a result, users purchase frequency of the overall on-demand delivery further increased on both year-over-year and quarter-over-quarter basis during this quarter. We are confident that the long-term growth potential of on-demand delivery remains substantial.

[indiscernible] order volume for on-demand delivery rose 98 million. Revenue of on-demand delivery grew faster than the order volume on a year-over-year basis, although the consumption changes continue to waive on AOV for our on-demand delivery business. The year-over-year decline in AOV started to normalize in this quarter.

In time, market demand from restaurants, offline retailers and brands remain strong with the scale of advertising merchants for both food delivery and Meituan Instashopping growing by more than 20% year-over-year. Once again, on our marketing services revenue our on-demand delivery led a remarkable growth. Meanwhile, we saw more operating leverage as the business scales up.

We're also managing to promote user frequency growth with enhanced subsidy efficiency. Delivery cost order is usually the lowest during the second quarter, given favorable weather conditions across the country. On top of that, we continue to benefit from the abundant supply of couriers and further optimize our delivery capacity structure. Meanwhile, the order contribution from Pin Hao Fan increased meaningfully year-over-year this quarter. We're also able to achieve more delivery cost savings on all the business, thanks to its group delivery model.

Year-over-year growth in on-demand operating profit outpaced the growth in order volume and revenue, thanks to the improved advertising monetization as well as the optimization in cost and expenses which offset the decline in AOV. Unit economics of both food delivery and Meituan Instashopping improved year-over-year this quarter.

Our in-store hotel and travel business also sustained their leadership to deliver another robust growth. GTV for in-store business continued its rapid growth category strategy this quarter with both the number of transaction users and merchant base keeping new record. Our expanded suppliers, enhanced products and content refine operations and marketing strategies enable us to accurately cater to demand across a variety of local commerce categories.

Leisure and entertainment [indiscernible] structure experienced rapid growth in transaction volume. In time, as the scale of the lower-tier markets increase rapidly, we also saw continuous enhancements in operating efficiency in those markets. However, the GTV growth for hotel and travel significantly lagged behind the growth of in-store, given the last year's high base and also more balanced supply and demand.

Revenue of in-store, hotel and travel grew at a slower pace than GTV and a gap between revenue growth and GTV growth significantly narrowed compared to the last quarter. Transaction-based services revenue continued to show robust growth, and its growth was quite in line with GTV growth. The year-over-year growth of online marketing services revenue continue to trail behind mainly because of the change of our subscription service charge.

Nevertheless, underlying marketing services revenue contribution [indiscernible] upward trend sequentially. Specifically, the expansion of the advertising merchant base for performance-based apps drove strong year-over-year growth in performance-based at revenue this quarter. Operating profit for in-store hotel and travel business achieved a healthy year-over-year growth. Operating profit margin also continued to improve on a sequential basis, mainly attributed to the increase in online marketing services to revenue contribution and the improvement in marketing and operation efficiencies.

Turning to our new initiative segment. During the quarter, revenue in this segment achieved an accelerated year-over-year growth of 28.7%, reaching RMB 21.6 billion, mainly due to the development of our goods retail business, particularly from Xiaoxiang Supermarket and [indiscernible]. This time, the segment further accelerates its loss reduction this quarter. The segment's operating loss ratio also narrowed significantly on both quarter-over-quarter and year-over-year basis to RMB 1.3 billion and 6.1%, respectively.

The loss reduction was primarily attributed to the sequential efficiency improvement of Meituan Select. We continue to implement strict cost cutting and efficiency improvement measures for Meituan Select such as raising price markup ratio, lowering the subsidy and shutdown underperforming warehouses.

In time, most of the other new initiatives continue to achieve healthy growth, while improving operating efficiency, the profitability of all the other new initiatives, excluding Meituan Select, further improve on a collective basis. With regards to our buyback program, we repurchased over USD 2 billion worth of shares before [indiscernible]. It represents more than 2.1% of total shares outstanding.

Our Board has approved to cancel all the repurchase shares to further reduce our share count. To conclude, we proactively adapted to evolving consumption trends and improve our operation and product across our business. Our core local commerce demonstrate resilient growth once again with improving operating profit and operating margin.

And currently, our commitment to enhancing efficiency in our new initiatives has led to a significant reduction in losses. Looking ahead, we will actively seize growth opportunity across our business while striking a balance between growth and profitability.

We will continue to pursue quality growth strategy for our business and consistently improve operating operational efficiency. We also believe that there will be more synergy among core businesses to come in future. Thank you.

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

[Operator]

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

[Ronald Keung, analyst]

So I want to ask that the external environment remains quite challenging. And particularly, we've seen the consumption weakness in restaurants to the catering industry. So how should we assess the impact on Meituan's core local commerce? And what strategies does the company have in place to mitigate these macroeconomic impacts? And lastly, what's our growth expectation in the current macro setup?

[Xing Wang, executive]

Thank you, Ronald. And yes, the evolving consumption trends have indeed brought a varying degrees of challenges across the industry. Our local commerce remain vibrant and dynamic. We see consumers increasingly look for personalized and diverse experience. Our products and services are well aligned with this changing preferences. We effectively meet consumer demand in dining, leisure, entertainment and more. And we have a wider range of categories and price bands and continue to explore new supply formats and optimize our products. So these measures allow us to better capture emerging trends, satisfy diverse demand and bring more potential for our long-term growth. In the second quarter, despite the external impact on all the volume growth and our refined operation across consumption scenarios continue to drive steady growth in both user scale and purchase frequency of mid- to higher frequency users. Also, our innovation in the new supply formats such as the Pin Hao Fan and effectively meet the demand from private sensitive users. Pin Hao Fan has become the preferred choice for many people seeking value-for-money products. It has also become a new growth driver for a number of small and medium size restaurants and also branded restaurants. In this quarter, the order contribution from Pin Hao Fan continue to rise. And thanks to its efficient group delivery model, we were able to save a [indiscernible] cost on order basis. And Pin Hao Fan has proven to be more efficient for both Meituan and restaurant merchants in adjusting low-price demand. So we will continue to deepen penetration in the supply chain and help merchants improve efficiency and enhance pricing capability and provide value-for-money products for more consumers. And for Meituan Instashopping, while the change in consumption trends have impacted the average order value, the impact on all the growth has been so far limited. On-demand retail still has a very significant potential in online penetration across different geography category scenarios. New supplier formats like Meituan InstaMart and [indiscernible] are well recognized because of its compatibility with on-demand retail. This new supply format not only grow rapidly in the higher densities, but also help accelerate penetration of on-demand in lower densities. We will work closely with leading offline retailer on Meituan InstaMart, and that's started to drive additional growth in the future. Additionally, as we continue to enhance supply and improve operations, we see considerable growth room in user frequency and their ARPU for Meituan Instashopping. So we believe that on-demand retail will continue to benefit from the ongoing digital transformation process and our continuous development on both the supply and demand side. And for in-store hotel and travel, the penetration overall is still very low. Consumer demand for local services remains strong. For the consumer to become more price sensitive and want to seek more value-for-money deals. All these facts present a significant long-term growth potential, especially as new categories continue to emerge. Our user base and transaction frequency in our in-store hotel and travel maintained healthy growth. Order volumes up by over 60% year-over-year. We also see continued increase in user stickiness awarding share. In addition, our share-based business model is very resilient. We have over 200 categories to meet the diverse consumer demand, inviting stores and discounts across price band. We have also introduced live streaming [indiscernible] to incentivize in-house consumption and cater to consumer needs for deep discounts. Additionally, we actively penetrated into lower densities for more growth opportunities. As we accelerate the merchant on-boarding, optimize orders and strengthen value-for-money consumer margin, I think we are well positioned to accommodate changes in consumption -- consumer needs. And this will allow us to maintain healthy growth in both user base and frequency, thereby mitigating the adverse macro impacts. So overall, we believe our core local commerce segment can maintain steady growth. The potential for digital transformation remains essential. And we are confident in our ability to capitalize on the long-term growth opportunities brought by shift in consumer demand and structural change on the supply side. Thank you.

[Operator]

Your next question comes from Thomas Chong with Jefferies.

[Thomas Chong, analyst]

As the company continues organizational restructuring, could management share with us the synergies achieved so far? Can you also provide updates on the upgraded membership program, Shen Hui Yuan? When can we see more synergies to come?

[Xing Wang, executive]

Thank you, Thomas. So since the organizational structuring, we have deepened collaborations and enhanced cross-sells among different businesses. And we have also integrated operations in core local commerce across many areas, including product development and R&D and marketing. So notably, our upgraded membership program, Shen Hui Yuan stands out at our very first marketing schemes for integrating our marketing efforts in core local commerce. Over the past few years, our membership program has accumulated over 100 million members for our food delivery business. It has not only enhanced user frequency in on-demand delivery, but also brought substantial business growth for restaurant merchants and helped improve their marketing efficiency. Shen Hui Yuan expand benefits to more categories in our in-store hotel and travel, offering consumers a broader range of value-for-money products. Thanks to the membership benefit, some of our food delivery users have started exploring other categories such as hair salon, massage, home cleaning and accommodations. We also noticed that some low-frequency users are making transactions on our platform more frequently with more categories. On the merchant side, Shen Hui Yuan further allows us to collaborate more efficiently with a large number of merchants and doing them extensive user traffic from the Meituan platform. We also offer in-store merchant more comprehensive marketing tools to cross-sell from higher frequency food delivery to lower frequency in-store hotel and travel services. By now Shen Hui Yuan has covered over 2.5 million merchants in-store hotel and travel, and the numbers continue to increase. Many participating merchants have experienced additional growth in order volume and user scale. In addition to Shen Hui Yuan, we continue to launch new cross-selling initiatives. For example, in travel scenarios, we introduced a special room type that offers free food delivery vouchers, catering to consumers' demand for placing food delivery orders while staying in hotels. This effectively drove growth in both businesses. And generally speaking, we have a clear direction in the organizational restructuring. We have begun enhancing synergies across our businesses. It's too early to quantify the results, and we will be patient and we will continue to focus on building our long-term competencies at most from the collaboration and synergies. We have confidence that these synergies will eventually yield positive financial results. Thank you.

[Operator]

Your next question comes from Alicia Yap with Citigroup.

[Alicis a Yap, analyst]

Congrats on the solid results. My question is on if you look at besides the macro environment, were the food delivery orders also affected by the shift to the offline consumption? So could you share that the recent performance of the food delivery and the Meituan Instashopping, how should we anticipate the growth and the profitability of the on-demand delivery in the second half of the year?

[Shaohui Chen, executive]

Thank you for the question. I'm glad you raised the question on food delivery and also on-demand delivery and also the relationship between the delivery business and our in-store business. Meituan aims to be a one-stop shopping experience for local services. So we are very glad that we have a good combination of both the delivery services and in-store business, and that can cater to consumers' different needs. The food delivery and in-store dining are 2 different models and on the different demand scenarios. We saw that the consumers' demand for in-store dining extended from formal meals to more lighter meals, snacks and beverage, such as fast food, coffee and tea. And also our in-store dining business effectively capture the shifting demand through our enhanced supply, better product formats and refined marketing. We have seen that since the beginning of this year, our offerings in these new scenarios has further enriched either for dining or the pickup with very competitive pricing. As a result, transaction volume from our in-store dining business maintained strong growth momentum. We understand that this may potentially impact the food delivery order volume growth in certain categories, but the impact is limited. We're still seeing very different [indiscernible] for food delivery and in-store dining, and we still believe that food delivery still has a very low online penetration and very strong value proposition to further increase the frequency, especially with the continued expansion of our food delivery offerings and price bands. And we also want to highlight that although food deliveries, where we start for the on-demand business, we have seen more and more categories has joined in the on-demand business, and we want to drive the attention from purely food delivery business to a broad on-demand delivery business, because we believe this is going to be an important growth driver for the company. We believe that more and more consumers will be converted from purely food delivery users to more cross-selling consumers in broader on-demand delivery. We will enhance operations for mid- to high frequency users and encourage more cross-selling opportunity across this category and drive the user frequency. As mentioned earlier, we are seeing that our on-demand delivery maintained more than 3x the growth rate of our food delivery business. And we believe its strong growth momentum will continue in the following year. Total order volume for end demand delivery also maintained very strong growth during the summer, especially during some of the very important marketing campaigns, such as our European campaign, the Olympics and [indiscernible] promotions. This was achieved by expanding supplies across popular consumption categories and scenarios and optimize both operations and the market strategy. Our Pin Hao Fan business also allowed us to better [indiscernible], users more effectively and continue to drive the growth of order volume. Notably, our August 7 peak sales order volume for on-demand delivery grow 98 million, which is a very important milestone for the company. And we are very confident that next year, during similar season, we will see the peak delivery number to exceed 100 million orders. We believe that this order volume growth momentum is healthy and will continue during the rest of this year. We believe in this business, we can balance growth with profitability. We expect the year-over-year growth in operating profit to be higher than the revenue growth and order volume growth. Shift in consumption trends will continue to impact the average order value of our on-demand delivery. But the AOV decline is expected to be normalized during the second half of the year. As the business scale up, we also expect to realize more operating leverage and to continue to optimize our subsidy efficiency. So we will continue this strong demand for merchants, including the advertising of our platform, and we'll continue to launch different advertising products to meet those demand, so the advertising revenue will remain strong. And our optimized operation will also help us to improve overall delivery efficiency. So overall, we're still very confident on both the food delivery and on-demand delivery business. Thank you.

[Operator]

Your next question comes from Kenneth Fong with UBS.

[Kenneth Fong, analyst]

Congrats on the very strong results. I have a question on the local service. We recently heard that competitors will stick to the annual GTV target, and they even stepped up subsidies for local service in the third quarter. Could management share some insights on the recent competitive dynamics? For the second half of the year, how do we project the GTV growth, the gap between revenue growth, GTV growth as well as OP margin?

[Shaohui Chen, executive]

Thank you. For the in-store business, for competition, I would like to share a little bit more of the overall industry. As we mentioned in the earlier quarters, we are seeing the in-store business overall at a very strong and the important growth momentum in that more and more consumption are shifting from offline to online. The online penetration of the service return in China continued to rise during this quarter, and we proactively adapted to this macro trend and [indiscernible] product and operating strategy to meet this new trend. We delivered strong growth in Q2, both in our order volume and our GTV. Order volume increased by over 60% year-over-year. At the same time, our operating margin improved quarter-over-quarter. Business remains very healthy growth, and we think the online penetration will continue to improve in the following quarters. About the competition, overall, we observed that the competitive landscape will remain relatively stable in Q2, and there are a couple of points I'd like to highlight. First, the industry has experienced rapid development in the last 2 years. Both other players and ourselves have invested into different business models, and all of those efforts lead to such growth also lead to quite different focus on category mix and merchant tiers. We have seen that on the GTV validation rate, it could be very different in different categories and also on different platforms. We have continued to see that our valuation rate for GTV is much higher than our competitor. As a result, we have gradually shifted our focus to the validated GTV market share for our core categories, which we believe is more relevant to really understand the quality of the business. Secondly, summer is usually the peak season for local services, and the merchants tend to market more marketing expenses in order to meet the rising demand for local services. We also extended our Shen Hui Yuan membership program to nationwide and launched a series of marketing campaigns and brand attachments. Based on our reservation with the competition in these core categories remain rational and stable. As the industry evolves to a new stage, we believe all the participants will shift from a subsidy-driven growth strategy to a more ROI-driven growth strategy, and our strategy will continue to be centered around our own development and to fortify our long-term competitive strength. We will fully leverage our advantage in the share-based model and enhance our capability and value-for-money offerings through Special Deals and [indiscernible] and to continue to strengthen clear mindshare in Meituan as the go-to platform for finding stores and the best deals and to attract more merchants to use app as the primary platform for online operation. We will also capitalize on the synergies within the core local commerce. For example, in our upgraded Shen Hui Yuan membership program with direct [indiscernible] traffic from our on-demand delivery to in-store services, thereby increasing transaction frequency and user stickiness. As we implement lower tier market strategy end of last year, we have seen notable progress across many categories. We will continue to explore ways to revitalize local consumption in the lower-tier market. Our ongoing efforts will drive further innovation on both the supply side and the demand side. We believe we will continue to lead the lifestyle changes for consumers in the long term. And we will also benefit the most from this accelerated online concession trade. Looking ahead to the second half of this year, after our organizational restructuring, our business is now focusing more on the order growth and the user base. The strong performance of these initiatives will drive the GTV growth to maintain its momentum during the rest of this year. And we will see a more normalized monetization rate in the second half of this year. And the difference between revenue growth and GTV growth will continue to narrow significantly. In terms of profitability, as we mentioned earlier, operating margin is not our focus as it will be impacted by the GTV contribution from different categories, different cities and the different revenue mix and also seasonality. And thus, we suggest pay more attention to the operating profit dollar growth, which is a more important metric for the business team. We expect we will achieve solid year-over-year operating profit growth for our in-store hotel and travel business in the second half of 2024. Thank you.

[Operator]

Your next question comes from Ya Jiang with CITIC Securities.

[Ya Jiang, analyst]

We've noticed that revenue growth of new initiatives continue to accelerate this quarter. Can you please provide an update on the overall progress of your new initiatives? And also Meituan Select showed significant loss reduction this quarter. How should we think about the loss of Meituan Select in the second half of the year? And how should we think about loss of new initiatives? And lastly, after we expand food delivery in Middle East, how much will overseas expansion impact our loss reduction pace?

[Xing Wang, executive]

Thank you, Jiang. So in second quarter, revenue from our new initiatives increased by 29% year-over-year, and it's growing faster than the first quarter. And also it is growing faster than our core local commerce. So this growth was mainly driven by a very strong number from [indiscernible]. And this quarter, our initiative segment still losing money, but losing less money. So the loss reduction is making some progress. For Meituan Select, we continue to implement efficiency improvement measures. We have been doing that since this February, and that lead to a notable sequential loss reduction. As we mentioned last quarter, now we no longer focus on the nationwide market share. Instead, our priority loss reduction and efficiency improvement this year. And going into the second half of this year, we will keep optimizing operational efficiency. And how much loss we can cut will also depend on the total business scale. So don't get too excited too quickly. And additionally, we have -- we also have expenses in [indiscernible] infrastructure during summer. We need to do that to ensure our product quality. And in order to achieve long-term sustainable development, we must create more value for consumers and with differentiated competitive advantage for Meituan Select. And that means that we remain optimistic about the long-term potential of the online grocery market in China. And we have been addressing this market with a few different models. Meituan Select is one of the business models we are doing in online grocery, and we must stay patient. At the same time, we will also stick to our financial disciplines and dynamically assess our progress and balance resource allocation among different models. And for other new initiatives, most of them have achieved better-than-expected efficiency improvement and maintained a quite healthy growth in the first half of this year. So on a productive basis, this new initiative have achieved a modest profit this quarter. Regarding our overseas expansion. While we are still in a very early stage. We will continue to evaluate opportunities across different regions. And so we wanted that deep into the specifics about any specific markets until we have some concrete progress to share. So from a financial perspective, the budget for overseas is already included in the total new initiatives segments. So the impact on the segment of operating loss will be limited this year. And we believe overseas market is the right long-term strategy for Meituan. So we will stay patient and continue to explore while maintaining our financial discipline. That's it. Thank you.

[Operator]

Your next question comes from Charlene Liu with HSBC.

[Charlene Liu, analyst]

Congratulations on a solid set of results. I would like to ask a question about shareholder return policy. Given Meituan has already repurchased USD 3 billion worth of shares this year, where management considered launching an additional buyback plan. Shaohui mentioned some repurchase share has already been canceled. Are there plans to cancel all repurchased shares? Or will they be used for other purposes? Additionally, will the company increase the annual results grants due to the buyback? And what are management's thoughts on putting in place a more systematic and continuous shareholder return policy in the future?

[Shaohui Chen, executive]

Thank you for the question. As we mentioned earlier, during this quarter, we repurchased over USD 2 billion worth of shares before [indiscernible] started. It represents more than 2.1% of our total shares outstanding. It actually reflects our confidence in our current long-term share value. Our Board has approved to cancel all the repurchased shares to further reduce our share count. We have repurchased a total 3.6% of the total shares outstanding year-to-date. It's more than the stock granted from 2021 to 2023. Our average annual stock grant from 2021 to 2023 were approximately 1% of total shares. In the long run, we expect the average annual grant to be stabilized at a similar level or slightly lower. Our management team focused on enhancing long-term shareholder returns whether through our business growth or capital allocation. We will optimize our capital allocation strategy directing [indiscernible] of all high our investments to ensure sustained healthy growth of our business and consistently increase free cash flow. We target to offset the dilutive effect of its grants in each year through share buyback. We will also take into consideration our investment plan, cash flow, our offshore cash reserves, debt repayment and share price, et cetera, to decide whether upsize buyback plans as needed. Based on our current offshore cash reserves and the -- our understanding on the market, our Board has just approved another USD 1 billion buyback plan, and this further reflect our confidence in our business development and long-term share value. We will maintain a flexible strategy and execution of future buybacks. Thank you.

[Operator]

There are no further questions at this time. I'll now hand back to Ms. Scarlett Xu 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]

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