Dingdong (Cayman) Ltd
NYSE:DDL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.08
4.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Dingdong (Cayman) Ltd
You don't have any saved screeners yet
Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Dingdong Limited Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that this event is being recorded.
I will now turn the conference over to the first speaker today, [Mickey Zing], Director of Investor Relations. Please go ahead.
Thank you. Hello, everyone, and welcome to Dingdong fourth quarter 2022 earnings call. With us today are Mr. Changlin Liang, our Founder and CEO; and Ms. Le Yu, our CSO.
You can refer to our fourth quarter 2022 financial results on our IR website at ir.100.me. You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion.
For today's call, management will provide their prepared remarks first, and then we will be hosting a question-and-answer session.
Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that our numbers stated in this following management's prepared remarks are in RMB terms. And we will discuss non-GAAP measures today, which are more solidly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC.
I will now turn the call to your first speaker today, the Founder and the CEO of Dingdong, Mr. Liang.
[Foreign Language] Thank you, everyone, and welcome to Dingdong's fourth quarter 2022 earnings conference call.
Let's first review the quarter's operational results. Our revenue of RMB6.2 billion reflected 13.1% year-over-year growth. We recorded GAAP net profit for the first time of RMB49.88 million with non-GAAP net profit of RMB116 million. Within 1.5 years, we grew from a net loss margin of 37.2% to a net profit margin of 1.9%. It is a result of our dedication and validates the strategy of efficiency first with due consideration of scale.
Meanwhile, our operating net cash inflow in Q4 was RMB0.68 billion. We also achieved positive operating cash flow for the full year of 2022. As of 12/31/2022, our cash and cash equivalents were RMB1.86 billion and short term investment were RMB4.64 billion. We believe that this strong cash position speaks volumes about our resilience in adversity. We also firmly believe that we will be able to realize our vision and mission, create value for our consumers and society, and create long term and sustainable value for our shareholders.
In addition, we also advanced our product development capability through direct sourcing, contract farming, in-house R&D and production and private labels, forming a flywheel effect. In 2022, we kept growing existing strong categories such as prepared foods and children's foods, i.e. Mom's Choice, forming a number of differentiated Dingdong exclusive products with monthly sales of over RMB3 million each.
Moreover perceiving the clean labeling trend in the food industry, we created about 320 quality products with clean labeling attributes. We refined our customer profiling according to consumption scenarios and built the Xinyan page for younger user cohorts to meet the increasingly precise needs of the millennials and Gen Cs in body management, nutrition and health.
Next, I'd like to share with you my thoughts and ideas. Dingdong is a startup that is dedicated to providing safe, healthy and delicious food while innovating to improve people's lives. We firmly believe in building a better life and creating value for consumers and society instead of engaging in a zero-sum game with our peers for users and market share.
As the seed theory suggests, an infinite number of small things combined to create the universe. Therefore, we dream big and start small while remaining resilient to counteract vulnerability and entropy. During this process, we stay true to our roots and remain disciplined while keeping an easy mind. These beliefs and convictions go beyond profitability. They are what fuel our passion and drive us forward, guaranteeing our achievements today and in the future.
I would like to also discuss our plans for 2023. In early January, the company held its annual management meeting where we summarize the experience and lessons we have learned since our inception and made plans for the longer term future. We also agreed that we would hold course on our current development strategy while remaining innovative.
Specifically speaking, we'll deepen our penetration into existing markets and continuously tap into our users' needs to achieve profitability. At the same time, we'll emphasize innovation, particularly in food products to develop and launch new food products caring to a broader range of users.
In 2023, given the increased demand for healthier food products post pandemic, we plan to promote product innovations across several areas to address the changing needs. These areas include the increased use of clean labeling, nutritional upgrades and customizing health food products for specific demographics. Specifically speaking, we'll first develop healthier prepared food that is not only delicious, but cooked with little or no oil and are low in calories, salt and sodium. We'll take a lead in promoting products with clean labels.
Second, we'll improve the nutritional value of food and beverages. For example, we'll bring out low GI, rice and pasta, low carb bakery products, low carb beer, high fiber beverages and low fat and low sodium seasonings. Third, will develop powerful functional foods and nutrition products for children, middle aged and senior citizens. Finally, for Millennials' and Genesis who are weight and health conscious, we have launched the Xinyan Planet page that can quickly generate a healthy diet plan that matches individual needs with calculated and archived calorie data.
Another one of our goals for 2023 is to strengthen our strategic cooperation with our suppliers. In late February, we will hold a supplier conference to command our product developers, suppliers and service providers for their excellent products. We're highly aware that it takes a large number of exceptional companies to meet the ever changing needs of consumers in a market as vast as China.
Dingdong is willing to be an enabler that connects great companies to create value for consumers and society. 2023 marks the end of three years of the pandemic. We expect drastic changes in consumer demand. Nonetheless, we'll respond proactively and strengthen our capabilities in product development, service provision and supply chain building. Based on our current operating situation, we expect to maintain non-GAAP profitability for both Q1 and the full year of 2023.
Today is February 13, and spring has come. Everything is sprouting and growing despite the cold weather. Just like the situation in China. We're fully confident in the recovery and growth potential of the post pandemic economy in our country and in our course.
This concludes my speech. Next, I would like to invite Ms. Le Yu, CSO of the company to introduce the financial results. Thank you all.
Thank you, Mr. Liang, and hello everyone.
Before I walk you through our detailed financial results, please note that all numbers stating the following remarks are in RMB terms. Product development capability has become Dingdong's cautious and the primary growth driver since we implemented a strategy of efficiency first with dual consideration of scale in Q3, 2021.
As a result, we maintained quality growth in 2022 with annual revenue of RMB24.22 billion, up 20.4% year-over-year meanwhile we significantly optimized our operating efficiency, gross margin and net loss margin. The conversion rate from GMV to revenue was 92.3% increasing by 3.7 percentage points from a year ago.
Non-GAAP net loss margin was 2.4% a substantial improvement of 28 percentage points year-over-year. We also achieved positive operating cash flow for the full year of 2022. Looking ahead to 2023, we are confident that we can achieve a full year non-GAAP breakeven.
Now let's look at the financial results of Q4, 2022. Our revenue reached RMB6.2 billion up 13.1% year-over-year. We are also pleased to report a record positive net margin of 0.8% under GAAP. And a non-GAAP net margin of 1.9% both significantly exceeding the forecast made in Q3.
Since we shifted our strategic focus to efficiency first in Q3, 2021, our non-GAAP net margin has improved by 33.8 percentage points from a net loss of 31.9% to a net profit of 1.9% percent which was achieved in less than a year and a half. Such as rapid and a significant optimization is a testament to the vitality and the profitability of the frontline fulfillment grid model in fresh grocery e-commerce.
It also shows effectiveness of deeply developing and engaging our supply chain and centering on product development capability. We expect to stand by these challenges for a long time to come. In Q4, the gross margin was 32.9% up 5.2 percentage points from a year ago, and the gross profit was RMB2.04 billion up 34.2% year-over-year we deepened our partnerships with many upstream producers to advance our fresh grocery products.
For the non-fresh groceries, we focused on building private labels in-house R&D and self-production and processing in our assembly lines. We also offer the door-to-door delivery service, capturing higher downstream margins such extensive coverage of the whole supply chain generated a stable gross profit margin for the company.
The fulfillment expense ratio in Q4 was 24.1% down 8.5 percentage points year-over-year, reflecting Dingdong's higher operational efficiency in Q4. The sales and marketing expense ratio in Q4 was 1.5% down 5.1 percentage points driven by our product development capability that generated continuous organic traffic.
Consumers can and state for the differentiated Dingdong exclusive products, which also lower the acquisition cost of a new transacting user by 47.7% year-over-year and 26.1% quarter-over-quarter.
G&A expense ratio remained stable at 2.4% compared to the same quarter last year, benefiting from the scary effect we optimized the R&D expense ratio to 4.2% from 5.2% year-over-year. As always, we will keep investing in the infrastructure R&D, such as food development, agriculture technology and technical data algorithms, which will afford a greater advantage for the company.
In Q4, we achieved a positive GAAP net margin of 0.8% for the first time optimized by 20.8 percentage points from a year ago and a non-GAAP net margin of 1.9% optimized by 20.7 percentage points year-over-year significantly exceeding the forecast. Additionally, COVID-19 had only mildly impact on our covered cities and regions in October and November, and our Q4 entered a trajectory of profitability in October.
To break it down monthly, we achieved a positive non-GAAP net profit in October and a positive GAAP net profit in November and December. It's been five years since Dingdong was founded in 2017, and we are pleased to see our efforts payoff and our business model proven.
The operating cash inflow in Q4 was RMB682 million and the actual operating cash inflow was increased to RMB906 million through the introduction of supply chain finance. As of the end of Q4, the balance of cash, cash equivalents, restricted cash and short term investments was RMB6.5 billion.
According to CIC, the size of China's food and other grocery market was RMB 11.9 trillion in 2021. Let's take Shanghai as an example. With the residential population of about 25 million Shanghai's annual food consumption expenditure is about 10,000 per capita. In 2022, our GMV in Shanghai was over RMB12 billion. That translated to a 5% penetration rate in Shanghai's food consumption markets. We are confident of doubling that number in the long term, generating annual revenue of over RMB20 billion in the city alone.
In addition, the total consumption of our current cities and regions is about 5x ahead of Shanghai which in the long term would create RMB100 billion in annual revenue. That is why Dingdong has a higher growth selling.
As we move ahead to 2023, we would like to discuss our outlook. Q1s are typically affected by seasonality. According to our track record with lower revenue and profitability, in Q1 2023 we expect a slow season for urban fresh grocery consumption due to the pent-up urge to return home and travel during the Chinese New Year. Nevertheless, despite the seasonality impact and extra frontline labor costs on holidays, we are confident of achieving non-GAAP breakeven for both Q1 and the whole year of 2023.
This concludes our prepared remarks for today. Operator, we are now ready to take questions.
[Operator Instructions] And our first question will come from Joyce of Bank of America Securities. Please go ahead.
[Foreign Language] Good evening, management. Congrats on the profit making this quarter. As we all know, in the past couple of months, there are actually a lot of constrain in terms of social activities because of the pandemic. Just trying to understand, to what extent the profitability this quarter was because of the pandemic control. How should we expect the profitability outlook for this year or going forward? Is this going to be at the same trend of profit making? Thanks a lot.
Ms. Le Yu, please take the question.
Thank you, Joyce, for your question. First of all, since Q3 in 2021, Dingdong has been committed to efficiency firmly moving towards profitability step by step. Our gross profit margin in Q4 of 2022 was up nearly 15 percentage points compared with Q3 in 2021, which was achieved within 1.5 years. More than 13 percentage points have been optimized in the fulfillment expense ratio and over 5 percentage points in the marketing spending ratio.
As mentioned in the prepared remarks, our non-GAAP net profit margin went up more than 33 percentage points. The ability to optimize the P&L so efficiently has validated the vitality and profitability of Dingdong's business model.
Now let's look at the Q4 results. In Q4, over 80% of our entered cities achieved positive operating profit at the city level. On a monthly basis, in November 2022, when the pandemic had a mild impact on our covered cities and regions, we achieved a GAAP net profit of more than RMB10 million. Moreover, we expect this profitability to be sustainable and stable allowing us to achieve non-GAAP breakeven in Q1 of 2023 and even the whole year of 2023.
Now if we look at the structure of our P&L, gross profit margin and fulfillment expense ratio are few key elements. Their optimization is because we have been committed to the construction of the supply chain and our product development capability for a long time to build our strength. Such long time investment has objectively improved our gross profit margin over time. Meanwhile, within 1.5 years, the delivery rider's efficiency has increased by more than 25%.
The frontline warehouse staff efficiency has grown by more than 40% with utility bills down by more than 20% year-over-year, which in turn led to the rapid optimization of our fulfillment expense ratio. These are the fundamental driver of our P&L optimization. Regarding the pandemic as an impetus to the business, it was more on the overall online penetration rate because during the pandemic, the insufficient supply in the traditional market gave users a good opportunity to experience Dingdong's differentiated products in-depth.
On the other hand, our operation experienced many challenges in the face of the pandemic control such as the unsmooth supply chain relatively difficult recruitment, restricted order fulfillment and some additional expenses incurred for pandemic prevention. These difficulties will be resolved when the pandemic control loses out. In summary, the above mentioned results have validated that Dingdong's business model is welcome in the market and can generate value for users and society. Therefore, our profitability is sustainable. Thank you.
The next question comes from Ashley Xu of Credit Suisse. Please go ahead.
We have seen - it's reported that Dingdong [Gui] has been developing and manufacturing food products. Would management share more color on this? Thank you.
Thank you for your question. Dingdong is a strata committed to providing healthy, delicious and innovative food products to improve people's lives. We firmly believe that product development capability is our core strength. Therefore, in addition to jointly developing quality and differentiated foods with partners, Dingdong is also innovating, developing and producing processed food products. This is what Dingdong Gui is doing.
Currently, Gui's sales accounted for 11.4% Dingdong's GMV. For the past two years, Gui' has created many popular brands such as Daily Fresh, Dingdong [indiscernible], Boxing Crayfish, Black Diamond Family and Bausbakery. Product quality has always been a priority in Gui. In 2022, the moderate or bad reviews on Gui's products were 40% less than the whole company. Gui's products also had a 100% passing rate for inspection.
In December 2022, Gui had 80 SKUs with monthly GMV exceeding 1 million each. Compared with 2021, Gui GMV has more than doubled in 2022. Gui is growing rapidly and is expected to have higher revenue, which will add greater value to the company's product development capability. Thank you.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
Thanks management for taking my questions. Just in the prepared remarks, management talk about and summarize the experiences and lessons that we learned since we started business. Can management share about these experiences and lessons? Thank you.
Thank you for your question. At the management meeting in January, we summarized our experience of the past six years and realized that the times and environment were changing. Dingdong has also entered a different stage of development. We must learn from the past practices to avoid future mistakes.
We have the following three conclusions: first, we have achieved a scale of sales resulting from our previous hard work by leveraging the scale we can serve and understand our customers better. With a deeper understanding of the consumers, we can also develop and innovate food while enabling our partners to create value for consumers and society with us together.
Second, unlike our peers, we have never been indecisive regarding specific business models. While out peers constantly doubted their existing model, switching things up and trying to find the optimal solution, we knew that the essence of our business was serve consumers more conveniently with better products, so we adopted the simplest and most convenient frontline fulfillment grid model. Sometimes the best way is the most straightforward, not the strangers on the most surprising one.
Third, based on the understanding of our business model, we have been deeply engaging the supply chain. These efforts include direct sourcing, contract farming, food R&D and processing, building regional centers, establishing a quality control mechanism and so on. The construction of the supply chain is time consuming and the investment is relatively large, so it may not be able to produce outcomes immediately. However, in the long run, it will allow us to serve consumers better and form a competitive mode.
At the same time, we have also summed up the mistakes to avoid, which were borne out of an aggressive user base and scale expansion by using low prices and excessive marketing to attract bargain hunters. These activities brought false prosperity to the company that didn't last. Haste makes waste. The business we are engaged in is very grounded and requires us to be more patient. We need to cultivate the supply chain and product development capability for the longer run without haste.
The next question comes from Robin Leung of Daiwa. Please go ahead.
Thanks management for taking my question. Management mentioned in the prepared remarks that I think they will strengthen the collaboration with our partners. Could management share more on these partnerships? Thank you.
In the huge market with ever changing consumer needs, we need to expand our partnership to create value for users. Therefore, we will break through the traditional party A and party B relationships between suppliers and retailers and support each other in-depth.
Regarding the business model, we will allow joint operation on certain categories with our partners to leverage everyone's strengths. On the technology side, we'll actively contribute to big data and IT technology to improve cooperation, efficiency and the partnership. Furthermore, we'll develop and innovate supply chain finance more vigorously at a financial level to support our partners.
At the same time, we'll proactively consider investing in certain excellent partners. In addition, Dingdong itself is a startup that has always been innovative. That's why we plan to support actively innovating partners in areas such as user surveys, testing, initial product iterations, and marketing among others.
In the nearly six years of Dingdong's operation, we have also established very good corporative relationships with many excellent companies. This is because we share similar values, mutual trust, support and responsibility. Especially during these three years of the pandemic, we overcame many difficulties together to fulfill the promise to consumers.
These excellent partners are a reliable guarantee for Dingdong's continuous progress and they are also valuable resources that we have accumulated in the past six years. In 2023, we'll partner with more exceptional companies around the world. Thank you.
As there are no further questions at this time, I'd like to hand the conference back to our management for closing remarks.
Okay. Thank you for joining our call today. If you have any further questions, please feel free to contact us or request us through our website. We look forward to speaking with everyone in our next earnings call. Have a good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.