Earnings Call: Q4 2019

Mar 30, 2020

Ladies and gentlemen, thank you for standing by. Welcome to Meituan-Dianping fourth quarter and full year 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Ms. Scarlett Xu, Vice President and Head of Capital Market. Thank you. Please go ahead. Hi, operator. It seems that Matt, his line is dropped. Can you call him right now, please? Everyone needs to wait for him to come back to the call. Thank you. Okay, sure. Okay, everyone, I'll be placing you all in music hold for 1 moment, please. Excuse me, everyone. Xing Wang is now back. Continue. Hello. Hi, Xing. Yeah. Operator, we can start right now, right? Yes, ma'am. You are already in the room with the participants. Okay. Thank you. Thank you, operator. Thank you, everyone. Welcome to our fourth quarter and fiscal year 2019 earnings conference call. Joining us today are Mr. Xing Wang, Chairman and CEO, and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan-Dianping. For today's call, management will first provide a review of our fourth quarter and fiscal year 2019 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 is based on our management accounts, which have not been audited or reviewed by our auditor. This presentation also contains unaudited non-IFRS financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to the disclosure documents in the IR section of our website. Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing. Sure. I am pleased to announce that we experienced solid growth in our core business and achieved a positive net income for the full year 2019. During the full year of 2019, our GTV increased by 32.3% year-over-year to RMB 682.1 billion. Total revenue increased by 49.5% to RMB 97.5 billion. Gross profit increased by 114% to RMB 32.3 billion. Adjusted EBITDA and adjusted net profit improved significantly to a positive RMB 7.3 billion and a positive RMB 4.7 billion. By the end of 2019, annual transacting users for our platform had increased to 450.5 million, while the number of annual active merchants increased to 6.2 million. The average number of transactions per transacting user increased to 27.4 times in 2019 from 23.6 times in 2018. We maintain a long-term perspective when developing and executing our strategies. Our 2019 performance was a testament to our strategy and determination to build China's leading e-commerce platform for services. It strengthened our clear leadership in food-related local services and continued to penetrate both the demand and supply sides of the broader local services. We have used technology to change people's daily lives and shape small merchants' operations. Now, let me give you an overview of our performance in each business segment for the full 2019. Our CFO, Xiaowei, will talk about our Q4 performance in more details. I will start with our food delivery business. In 2019, the total GTV of our food delivery business increased by 38.9% to RMB 392.7 billion, while the daily average number of food delivery transactions increased by 36.4% to 23.9 million. We further solidified food delivery business leadership in terms of consumer base, merchant base, and delivery network. As we grow the business, our unit economics have also continued to improve on a year basis in the past four quarters due to our increasing economies of scale and improved operations. Our performance in 2019 is a testament to both our execution in path to profitability, as well as the sustainability of food delivery business. As mentioned in previous earnings call, both the demand and supply sides of the food delivery business in China have entered a new stage of development. On the lower-tier cities continue to grow alongside the rising level of consumption. Thanks to our early and aggressive expansion into these markets, we currently hold a significant first-move advantage and stand to benefit from this ongoing trend. Lower-tier cities made a larger contribution and experienced higher growth in terms of GDV during the first quarter and full year 2019. The GDV from lower-tier cities grew by around 45% year-over-year. By the end of our food delivery business, the majority of the new from third-tier and lower-tier cities. Consumers' demand during continued to grow in 2019. grew by around 43% year-over-year. grew by 60% year-over-year. increased the healthy light meals and sanitary during the same period. That's food delivery can serve consumers' changing lifestyle. As the quality of service by delivery delivery time continued to improve, the purchase frequency of repeat consumer is also growing in turn. In line with the successful rollout of our food delivery membership program in 2019, has enabled us to continue enhancing the consumption behavior and loyalty of these repeated consumers. Both the number of membership subscribers and all the volumes from membership subscribers have risen steadily each quarter for the past year. The average purchase frequency of our monthly membership subscribers continues to be around three times that of non-membership consumers throughout all four quarters in 2019. On the merchant side, we observed three prevailing trends in 2019. First, sales from online channels are becoming more and more important for existing restaurants. Second, digitization is helping to boost restaurant efficiency in terms of production and operations. Third, the diversification of products across individual product categories has accelerated among restaurants. In 2019, we continued to grow our annual active food delivery merchant base. Moreover, to further enable local merchants, we paired our cost-effective on-demand delivery infrastructure with our continuous effort to optimize our comprehensive set of solutions for local merchants. This set includes solutions for online marketing, production, and operation digitization, integrated payments, as well as food distribution and financing services. For example, during the third quarter of 2019, we introduced our dish-based recommendation and continued to optimize this marketing solution in the following quarters. These efforts have enabled the restaurants to better showcase their popular local dishes and attract new consumers to their Red Hot SKUs, helping to increase their conversion ratios in turn. Our continuous efforts in developing innovative online marketing products yielded encouraging results in 2019. An increasingly large number of food delivery merchants are utilizing our online marketing services. As such, the online marketing revenue of our food delivery business grew rapidly, increasing by 118.6% year-over-year in 2019. In the fourth quarter, we also released four targeted merchant solutions, including digital business solutions, a centralized product solutions, a diversified marketing solution, and intelligent service solutions. Our goal is to help millions of merchants leverage these solutions to build next-generation stores, identify and resolve online operation pain points, achieve seamless integration between online and offline operations, and enhance their service and product quality. On the delivery side, we have built the largest and the best on-demand delivery network with the most efficient operations and the quality of service that continues to improve at a good pace. In 2019, we further solidified our delivery efficiency advantages, which were attributable to a higher order density, the refinement of our proprietary dispatching system algorithms, and the optimization of our operational capabilities. We also began to fine-tune our delivery services standardization and our delivery network mobilization capacity, especially during non-peak hours, extreme weather conditions, and holiday periods in the second half of 2019. We are pleased to see that our efforts have enabled us to further lower our delivery cost per order for our delivery model by around 6% year-over-year while ensuring a consistent level of user experience over the past two quarters. Next, let's turn to our second segment. That's In-store, Hotel and Travel, which continued to achieve rapid revenue growth and demonstrated strong monetization capabilities in 2019. Notably, the advertising revenue of this segment increased by 66.1% year-over-year in 2019, while advertising revenue of this segment as a percentage of total segment revenue further increased to 47.2% in 2019 from 42.5% in 2018. For our in-store businesses, the year-over-year growth rate of GTV and commission revenue from transaction-based products continued to ramp up during the fourth quarter. Online marketing revenue from in-store businesses also maintained a strong growth momentum throughout the year. Such impressive results were mainly because we have become the most valuable online destination for consumers and online operation channel for merchants. We have improved merchants' coverage, enhanced the location-based algorithms, the expanded range of products and services offerings, refined the business operations, and the broadening of our content creation capabilities. We reorganized our sales team and expanded our coverage for high-quality restaurant merchants in 2019, allowing our sales team to gain a better understanding of each merchant category, and therefore become increasingly capable of providing more customized product solutions. In addition, we continue to address the unmet marketing needs of small to medium-sized local merchants through our diversified product portfolio and enhanced advertising algorithms, further unleashing the potential of this merchant segment. Notably, the merchant-based penetration rate of both our CPC ad products and subscription-based service increased steadily. Our interest-based feeds, which were rolled out in late 2018 and have barely been monetized at the current stage, also enabled merchants to tailor and promote their content within the inventory feeds, display their content to a larger audience, and achieve a higher click-through rate. We also continued to improve our operational capability through numerous promotional activities and campaigns in 2019. This helped to enhance our brand awareness and influence among both consumers and merchants, driving the robust growth of commission revenue and user traffic during each event period for the related categories. Meanwhile, we continue to enrich our content ecosystem to maximize the marketing effect of merchants in 2019. As of December 2019, we had accumulated over 7.7 billion user-generated reviews for millions of merchants. Our refinement of interest-based feeds on the Dianping app has resulted in a more visually appealing user interface and increasing personalized content delivery system, rapid growth in DAUs, as well as time spent on the Dianping app during 2019. At the same time, our enhanced Black Pearl restaurant guide, a must-visit series, and other initiatives further strengthened our brand awareness among consumers and helped to reinforce the positioning of our platform as both the most authoritative online marketing channel for merchants, as well as the go-to platform for consumers to discover and in a wide range of categories. For our hotel business, we further demonstrated its ability to generate sustainable growth and its potential for continuing success going forward. The domestic room nights increased by 38.2% year-over-year to 392.4 million in 2019. In addition, growth in the domestic room nights accelerated during the third quarter, maintaining its rapid growth trajectories into the fourth quarter as well. Over the past two consecutive quarters, the number of the domestic room nights consumed on our platform reached 110 million. In particular, daily room nights peaked during the national holiday in October of 2019, exceeding 3 million room nights for the day in total. Now let's move on to our new initiatives and other segments. In 2019, we continued to explore different ways to strengthen our platform on consumer side and merchant side. We also become more prudent when exploring new business opportunities, which helped to narrow losses significantly for the second half on an annual basis. Throughout this process of exploration, our new initiatives have not only begun to develop more synergies, but also to serve as new consumer touchpoints and sources of value creation for our merchant base. In grocery retailing, we continue to explore both our self-operated model and marketplace model, while improving the operational efficiency of both. For our self-operated Meituan Groceries, known as Meituan Maicai, we have increased our warehouse density by setting up 96 warehouses in Beijing, Shanghai, and Shenzhen, as well as by establishing more than 30 locations for self-pickup in Wuhan as of the end of 2019. Meituan Instashopping, also known as Meituan Shangou, is currently positioned to serve as an online marketplace with tens of thousands of SKUs. These SKUs will range from items that meet the daily needs of consumers to specialty items from selected vertical service categories, such as medical products and flowers. Notably, for the full year of 2019, the growth in GTV of medical products and flowers on our platform exceeded more than 250% and 100% on a year-over-year basis, respectively. In 2019, we continued to drive supply side digitization by investing in our restaurant management system and B2B food distribution services. For our RMS, we emphasized on merchant quality expansions in 2019, as we increased both the number and percentage of high-quality merchants on our platform. Additionally, further investment into R&D and product upgrades as well as the improvement of our post-sale service quality standards further strengthened our position in this space. For our B2B food distribution services, known as Taimai, we prioritized the development of merchants, the assignment of our product mix, and upgrades to our core competencies in 2019. The fresh produce and meat products accounted for a higher proportion of our product selection in the year. Our average ticket price also steadily going up. For our bike-sharing and car-hailing services, we successfully reduced losses during 2019, while also improving operational efficiency and cultivating additional synergies with other businesses on our platform. Most of our older bikes reached the end of their useful lives in the third quarter of 2019. As such, we have gradually replaced the remaining older bikes with new Meituan bikes, which are painted in Meituan yellow, have a longer lifespan, are modified with people and improve user experience, and can only be unlocked through our Meituan app. We plan to complete the replacement of older bikes and advance the synergy of bike-sharing with our core business in 2020. For our car-hailing services, we improved our control of operating losses after rolling out the aggregation model in 2019. We operated our car-hailing business in 54 cities as of the end of 2019. Looking ahead into 2020, we are confronted with the novel coronavirus outbreak. The pandemic has resulted in tremendous near-term shocks to many industries in China. Inevitably, local services will be significantly impacted by this crisis in many ways. In the short term, our business segments, such as the food deliveries and in-store, hotel and travel, will all face significant challenges from both demand and supply sides. In the face of such a pandemic, the first thing that came to our minds is our role as an industry leader and the social responsibility, which comes along with such a distinction. In the very early stage of the outbreak, we established a special support fund of CNY 200 million for medical staff across the country, while proactively providing supply assistance and helping to secure people's livelihood in pandemic-stricken areas. To the best of our ability, we have also continued to provide our service to people throughout the country to ensure that their normal lives are not adversely affected during the crisis. We were the first to introduce contact-free delivery service in Wuhan, which has now been rolled out at the national level. Our Meituan Instashopping business continued to cooperate with more merchants to provide consumers with the instantaneous delivery of food, medicines, everyday consumer goods, and other products. Our Meituan Groceries business also continues to grow its number of high-quality suppliers, strengthen its food safety management, and work to ensure the supply of groceries during the pandemic. In order to speed up the refund process for hotels, trains, tickets, and packages, we have extended our emergency service guarantee policy for travel orders made through our platform. Our B2B food distribution service, Kuailv, has also opened green channels for medical institutions in 34 cities to ensure the adequate supply of foods during the pandemic. We also temporarily suspended fee collection for the use of our bikes in Hubei province and donated more than 2 million free rice packets to medical professionals to assist the government in checking the pandemic. Our car-hailing services roll out across the new main public transport system in China. We are also providing job matching services for millions of local service providers and tens of millions of participants. To date, we have released 200,000 rider job openings and thousands of other job openings across campuses and throughout the country. At the same time, we have launched a series of programs to help small and medium-sized merchants in the local services industry overcome the severe difficulty that they are facing. For example, we established a special fund in support of merchants resuming operation across the country. Further, we are working with our banking partners to provide RMB 20 billion of loans with preferential interest rates to various merchants. We are also providing free online courses to merchants on best practices in pandemic response and safety, storefront operation, and more. With respect to our food delivery business, we have waived commissions for all food delivery merchants in Wuhan until after the citywide lockdown is over. We have also returned a portion of commissions to high-quality food delivery merchants across the country to be used for online promotion and marketing in the future, while providing free traffic support and subsidy to them at the same time. With respect to our in-store dining as well as in-store other local services, we have waived several commissions for all in-store merchants across the country and one more month for all in-store merchants in Hubei. In addition, we have extended the breadth of subscription-based services for recently onboarded in-store merchants, as well as for those merchants who have renewed their contracts with us within a specific period of time. With respect to our hotel booking and attraction ticketing businesses, we are providing subsidies to hotels, guesthouses, and tourist attractions nationwide worth a total of RMB 1 billion, and primarily to be used for online promotion and marketing. We also launched a series of campaigns to further promote the gradual recovery of consumption. By establishing safe dining restaurants, safe stay hotels, and other services, we utilized our online capabilities to guide the merchants in the process of streamlining, standardizing, and digitizing their pandemic and safety measures to help merchants attract consumers. In addition, we also launched the safe consumption month to provide consumers with subsidy and other benefits, as well as our safe reservation services in cooperation with more than 60,000 in-store dining restaurants and tens of thousands of hotels and attractions across the country. Meanwhile, we are providing additional support to our delivery riders who remain committed to providing delivery services during the pandemic. For example, we are implementing strict health management system for our delivery riders, broadcasting pandemic prevention and control knowledges, providing subsidy to them, as well as upgrading our antiseptic and pandemic prevention measures at delivery stations across the country. We will continue to implement and refine these measures to support each and every player in our ecosystem. We expect our business performance will be significantly affected in first quarter, and probably the whole year of 2020. Despite the short-term setback, we have strong confidence on our long-term goals. The pandemic has made society more aware of the urgency and importance of digitizing the service industry from both the demand and supply sides. It has also strengthened our determination to continue upgrading many of the core elements of our business model. Last, as Meituan just celebrated its 10th anniversary this March, I want to take this chance to express my sincere gratitude to our consumers, merchants, partners, and investors for your trust and support. I would also like to thank our delivery riders, the entire staff, for their excellent work and outstanding contribution. In the new coming decades, we will increase our investment in science and technology to promote the development and iteration of the service industry. We will also continue to advance our corporate governance and talent development program. We will stick to our mission and continue using technology to help people eat better, live better. With that, I will turn the call over to our CFO, Xiaowei, for an update on our latest financial results. Please go ahead, Xiaowei. Thank you, Xing. Hello, everyone. First, let me give you a more detailed update on our fourth quarter results. Our total revenue for the fourth quarter reached RMB 28.2 billion, up by 42.2% year-over-year. Such growth was mainly driven by the robust increase in revenue across all business segments. Our total gross profit increased to RMB 9.7 billion, up by 116.9% year-over-year. Gross profit margin increased to 34.5% from 22.6% in the prior year period. Selling and marketing expenses as a percentage of revenue in the fourth quarter further decreased to 19% from 22.9% in the prior year period. As our marketing efficiency improved and our sales execution was more productive in this quarter. The quarter-over-quarter improvement of 1.4 percentage point was primarily attributable to a decrease in incentives for transacting users, mainly driven by the reduction in subsidy for our food delivery business, which was partially offset by an increase in promotion and advertising expense in promotional and branding campaigns at the end of the year. Our R&D expenses as a percentage of revenue decreased to 8% from 10%, and our G&A expenses as a percentage of revenue also decreased to 4.4% from 13.8%. Including the effect of the impairment provision for intangible assets, which was due to the change in our branding strategy for ride-sharing services, and the impairment provision for Mobike's overseas restructuring in the fourth quarter of 2018 G&A expenses as a percentage of revenue in the fourth quarter of 2019 decreased by 1.9 percentage points from the same period last year. On a consolidated basis, our adjusted EBITDA and adjusted net profit in Q4 continued to improve year-over-year, reaching RMB 2.2 billion and RMB 2.3 billion respectively. Adjusted net margin further increased to positive 8.1% compared to negative 8% in the prior year period. Adjusted EBITDA margin further increased to positive 7.7% compared to negative 4.3% in the prior year period. The improvements of adjusted net profit and adjusted EBITDA on a year-over-year basis were attributable to our ongoing efforts in improving the operating margins of our core business, our enhanced operating leverage resulting from our business scale, and the streaming of operating losses for new initiatives and others. Let's now turn to segment reporting, starting with our food delivery segment. This quarter, our food delivery transacting user base maintained healthy growth on a year-over-year basis, mainly due to our increased penetration of lower tier cities. In addition, we have been allocating a higher percentage of subsidy into our membership program over the past few quarters. These efforts improved order frequency of targeted consumers while stimulating their in-house consumption during non-meal and off-peak hours, as well as holiday seasons. As a result, our year-over-year growth rate for the number of food delivery transactions continued to surge, with the average number of daily food delivery transactions increased by 36.7% year-over-year to 27.2 million transactions. In addition, AOV increased by 2.3% year-over-year, while our monetization rate for this segment increased to 14% from 13.7% in the prior year period. As a result, our food delivery GTV increased by 39.9% year-over-year to RMB 112.1 billion, while food delivery revenue increased by 42.8% year-over-year to RMB 15.7 billion. Gross profit increased to RMB 2.8 billion in the fourth quarter, up by 89.4% year-over-year, while gross margin expanded significantly to 7.7% from 13.4% in the prior year period. Notably, our ongoing efforts to further enhance our online marketing products through innovation continued to accelerate the adoption of our online marketing services by food delivery merchants in this quarter, which helped to gradually improve our monetization rate and the gross margin for the food delivery segment on a year-over-year basis. Despite the average delivery cost per order increasing on a sequential basis due to seasonal incentives paid to riders for working on the winter season, our increasing economies of scale and the refinement of delivery network operations have allowed us to continue improving our delivery efficiency and reducing the delivery cost per order on a year-over-year basis. Notably, the average delivery cost per order for our 1P delivery model decreased by around 6% year-over-year during this quarter. Now, turning to our second segment, In-store, Hotel and Travel. Revenue in this segment increased to RMB 6.4 billion, up by 38.4% year-over-year. This significant expansion in revenue was mainly due to the strong growth of advertising revenue generated from our expanding merchant base, the revival of growth in our transaction-based services for in-store, and the continuing accelerated growth of our domestic room night bookings. Gross profit increased by 41.5% year-over-year to RMB 5.6 billion. Gross margin remained stable on a sequential basis and increased to 88.8% from 86.8% on a year-over-year basis. For In-store Dining business, the growth of commission revenue continued to accelerate in the fourth quarter as a result of our expansion of top brand restaurant accounts, effective promotional campaigns, and increasingly targeted transaction-based service products. Meanwhile, the increased adoption of online marketing services by In-store Dining merchants continued to drive the rapid growth of our online marketing revenue. For in-store other local services, we continue to upgrade our product through innovation and various theme-based campaigns to drive both the supply side and demand side. The Double 11 and Double 12 carnivals for merchants in the beauty, leisure and entertainment, and healthcare categories helped to drive the growth of our transaction-based commissions on a year-over-year basis. For our hotel booking business, we continue to ramp up our investments in those areas that are able to reinforce our market leading position, especially in lower tier cities and in the leisure traveling segment. As such, the number of domestic room nights consumed on our platform maintained its strong growth momentum, increasing by 47.9% year-over-year and reaching 110 million for two consecutive quarters in a row. Additionally, the average daily rate per room night also experienced a steady year-over-year increase as we increasingly work more closely with high-end hotels. High-end hotels continue to represent a growing portion of our hotel room night consumption, accounting for over 13% of our overall room nights in the fourth quarter. Let's now turn to our third segment, new initiatives and others. In this quarter, revenue in this segment increased to RMB 6.1 billion, up by 44.8% year-over-year. In addition, the segment recorded a gross profit of RMB 1.2 billion, while its gross margin further expanded to positive 21.2% from negative 23.3% in the prior year period, and positive 18.7% in the third quarter of 2019. The year-over-year improvement of 44.5 percentage points was mainly due to the meaningful decrease in G&A of our bike-sharing business, as well as the further optimization of our product and service mix in these new initiatives. For our cash position, our cash equivalents, and short-term investments totaled RMB 62.8 billion as of December 31, 2019. Let's now move on to our outlook for the first quarter. Since late January of this year, the pandemic has already caused a severe disruption to both demand side and the supply side of our business. On one hand, a significant portion of local service merchants were inactive for more than one month on our platform. Although we have seen gradual recovery from March, especially for food delivery business, the active merchants of our in-stock service category remain at a very low level as of late March. We expect consumers will need more time to build their consumption confidence for local consumption, especially those discretionary consumption scenarios in our in-stock business. We are forecasting negative year-over-year revenue growth and operating loss for the first quarter of 2020 on a consolidated basis. Moreover, due to the evolving nature of this highly uncertain situation, we cannot yet fully ascertain the impact for the full year of 2020 at this moment. It is important to note that if it takes longer for user demand and merchant operations to recover, the results of our operation for the following quarters could also be adversely impacted. However, the pandemic further cultivates the habit of consumers to use online platforms to satisfy their daily needs and makes local merchants realize the value of digital operations. We believe the digitization for both demand side and supply side will be accelerated in the longer term. Our long-term operating philosophy will establish a competitive advantage and a strong cash balance will enable us to remain unobstructed during this short-term market impact and the resulting fluctuations in performance. We remain committed to working closely with our merchants, supporting them in their recovery from the crisis and creating more long-term value for their continued success. Even though these supporting initiatives may impact our short-term financial performance, we believe that it is our social responsibility and will also benefit ourselves in the long term. With that, we can now open for your Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question. Thank you. Thank you, Xing, Shaohui, Scarlett, and team, and congratulations on another strong quarter. My question will be on competition this quarter. With Alibaba and Alipay's strategic upgrade basically emphasizing the positioning as a comprehensive consumer services platform and previously a financial payment platform. Now we are seeing these new entry points for food delivery, hotels, in-store, and also seeing some aggressive policies in supporting the merchants, which has been heavily impacted by the current pandemic. Would love to hear how management sees as the potential impact, mostly on the competitive dynamics, especially as competitors would try to leverage this period as opportunity to catch up with you on the merchant side. I would love to hear your thoughts on this. Thank you. Thank you, Ronald, for your question. I guess Xing's line was cut off again, so I will take the question, and we can have him to add on when he comes back. I think competition is never a new question to ask, but what we want to emphasize is still our mission and vision for our business. Since we founded our company, we are foreseeing that the local service digitization has great growth potential and it can create great value to the society. Our past performance has proved that our original thoughts, and also showcase our execution capability is good. With the Alibaba's reorganization and Alipay's new version further prove our vision and also prove the potential, and great value of this business model. We believe China has very big market, and we are at the very early stage of this industry. We welcome the other players to join us to accelerate the digitization and development of this industry, which will benefit all participants in the ecosystem. Healthy competition will always drive us to work harder and smarter, and in turn, will benefit the consumers, the merchants, and the whole ecosystem. We are quite confident that we are still the most popular brand and most reliable platform in this business. We are confident to maintain our leading position for the long term. We have been focusing on this area for the local services and have built deeper insights, and also have proven secure execution record. We have also owned most of the popular brands for these local services, both on the consumer side and on the merchant side. Today, we have seen that the business scale in demand and supply and also our delivery side, have enabled us to maintain a much efficient operation than our peers. With our continual growing scale within this competitive advantage, we are further reinforced. We are very proud of our largest and most efficient delivery network, as well as the consistent delivery service quality. As we believe this is one of the very important pillars for our business model. For our in-store services, we have developed very comprehensive and high-quality content as well as very wide service category coverage and very close interaction with our merchants. I think what is more important that we not only started this business model, but we never stopped during the evolution of the whole process. We initiated the one-stop platform to diversify local services about 9 years ago, and we were able to refine the model continuously along the way. We have done a lot, but we feel there have still so much more to do in the industry for us to further update our platform. We will always focus on continuing investing for our consumers and merchants, and continue to upgrade our business model. I think this is what we care more than competition. I hope I answered your question. Thank you. Yes. That is very useful. Thank you. Your next question comes from the line of David Dai from Daiwa. Please ask your question. Thank you. Hi, Xing, Scarlett and team. Thank you very much for taking my question. My question is related to the COVID-19 as well. Given that the pandemic has brought significant negative impact on restaurant merchants, are you facing any pressure to lower your commission rates this year? How should we forecast the monetization rate of the services, especially for food delivery business this year? Following up on that, will that change your view on the long-term profitability potential of the food delivery business? Thank you. Yeah. As Xing already mentioned in the speech, we have actually a voluntary initiative to reduce our commission in the areas where the situation is more serious, such as Wuhan and Hubei area. We have also launched several different types of supporting policy to our merchants. We feel this is a challenge not just for the merchants, but for the whole industry to face, including platform like us. What we care most is still how we can work with the merchants more closely and help them get through this difficult time. I want to emphasize first that our long-term philosophy is always to grow the business first and to care about the scale and efficiency rather than short-term monetization rate. As you can see that our food delivery monetization rate compared to our global peers has always been much lower than most other countries. This was a consistent strategy that we have been implementing since day one because we realized scale and efficiency is the most important factors to make this business successful. Although we charge a relatively lower commission compared to global peers, as you can see in our past several quarters' continued improvement, our scale and efficiency actually help us achieve a much better unit economics in the food delivery, particularly the self-operating delivery model, the 1P model, compared to other countries. That's because our scale and order density allow our delivery riders to deliver much faster and efficiently for our merchants and also for our consumers. So merchants and consumers, their total combined charge as a percentage of their GTV is much lower than global peers. I think this is important for our past success and will also be our continued philosophy going forward. In this period, we expect to maintain our relatively low monetization rate, and we also don't expect this to increase in the near term. We will be more conservative in terms of our monetization pace. Although we have talked about our initiative in the marketing and advertising tools for merchants, overall, our overall monetization rate as a percentage of GTV has been relatively stable. We will choose to maintain this, and we work closely with the merchants. However, this does not change our understanding of this business model or our confidence for its profitability in the long term. We still feel the same level of confidence for food delivery as we launched it five years ago and as we introduced it during our IPO. We still believe food delivery is a great opportunity and a great business model, and it's still at a very early stage. We have proved that the unit economics could be very healthy, very good in our past several quarters' results. But going forward, we'll continue to focus on building our platform to extend our scale and continue to explore the potential of this market. Thank you very much. That's very helpful. Your next question comes from the line of Edward Yew from Bank of America. Please ask your question. Good evening. Hope everyone is doing well. I'm curious on your food delivery business. You mentioned that there has been a recovery in March. Could you share with us more color? Specifically, are we going to see positive growth in the upcoming months of the full year? Just a follow-up on the epidemic. Also, we are seeing negative growth during the past couple of months. Was it more a demand issue or a delivery and fulfillment issue for your food delivery business? Could you talk a little bit about, for example, the rider incentive you need to provide right now versus previously, et cetera? Thank you. Sure. We mentioned that at the company level, we expect a revenue decline in Q1. For the food delivery specifically, we also expect the order volume of food delivery business will have negative year-over-year growth in Q1. The impact actually comes from several different dimensions and also is changing dynamically during the process. In China, we know that the outbreak happened in late January, and it also coincided with the Chinese New Year break. Our food delivery has seen a significant volume decline since then. In the whole of February, the volume was significantly affected. On average, less than half of the normal level. It changed gradually since late February, but the order volume we see the whole quarter on average remain at a very low level compared to usual. The recovery pace compared to, say, normal year after the New Year break, after the central holiday break, also much lower than usual. The reason first is because a significant number of restaurants were forced to, or voluntarily, to suspend their operation. Also, we have seen that there are gradually more and more merchants coming back. However, on demand side, we also see that consumers actually still have concerns in terms of the interruption, and the health risk happened first from the restaurant side and then the delivery side. That's making the whole process more complicated than normal. I guess you know that many cities have the regulators have required very strict control of the in and out for each living area, each community. That makes our delivery process also more complex. Actually, in terms of delivery capacity, we had good capacity to handle the order volume. That part is not really a bottleneck. The bottleneck still for the supply is not really stable, and they have also faced their own challenge. On the demand side, there is some concern and complexity. Also, since March, we have seen the recovery for most company to begin to restart to work, and the employee come back to the workplaces. However, there is also very strict regulation on that part. In conclusion, there's only a portion of the usual workforce that is really in these working places. Those are important consumption nowadays for our food delivery. We think that's also making a negative impact for our recovery. For the whole year, it's still hard to forecast, given there are still many uncertainties on this whole situation. What we are trying to do is to, first, we continue to roll out our contact-free delivery methods to assure consumers and also delivery providers, and also to launch initiative for help the merchant, the restaurant, to recover, to reopen. At the same time, I think we hold a more conservative view on the overall whole year's growth for food delivery. We will continue to focus on improve our own efficiency, but at the same time, watch out closely about the overall situation. Understood. That's very helpful, Xiaohu. Thanks. Thank you. Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question. Hi. Thanks, management, for taking my questions, and wish everybody is healthy and safe. My question is about the In-store, Hotel and Travel segment. We believe it is the important profit source for the company in Q4 and 2019. It has also been significantly impacted by the outbreak in Q1. Can you please help us to understand in more details how the growth and profitability for this segment will be impacted for the full year 2020? Thank you. Yeah. Compared to food delivery, our In-store, Hotel and Travel segment is much worse. I am sorry. Because for food delivery, I mentioned that in February, we still see a stable portion of business activities as consumers stay home, but they order for meals and also for actually daily consumption, daily goods. But for in-store, basically, the business, the whole industry shut down in February. Because as what we call in-store business, that means that consumers need to go into the store to enjoy the services, and you need to have the real physical contact with the merchant owner and the other people. That is not really doable during this outbreak period. We have also voluntarily reduced our commission charge for most of our in-store category during that period. As you can imagine that both the transaction-based commission revenue as well as our CPC or CPS advertising revenue declined dramatically for more than one month. We have seen some positive recovery, including In-store Dining in March. But still transaction of In-store Dining lags far away behind the food delivery. And certain service categories such as beauty, wedding, pet related, also is in a very slow recovery process. There are some category that we have seen increasing, like small vertical, for example, consumer search more for their convenience store or drug store, pharmaceutical. But those are still a very small portion of the total normal consumption. In hotel and travel business, we believe it is even far away from really recover. We have some structural advantage in supply side because we cover more diversified areas and also have a good local consumption for the hotel business. But overall, this is a very sad industry during this period. We expect it will take a much longer time to fully recover compared to food delivery, and revenue will also decline significantly in Q1 on a year-over-year basis. Got it. Thank you. Your next question comes from the line of Allen Xiao from JPMorgan. Please ask your question. Thank you, management, for taking my call, and wish you guys stay safe and healthy throughout the breakout. I just want to follow up on the hotel business. Can you talk about the outlook for 2020, assuming second quarter, the coronavirus outbreak gets better and second half the situation gets a lot better? Also, can you talk about the competitive dynamics change during the outbreak? Thank you. I will pause here. For hotel, right? Yes, hotel. I think it's very difficult to really understand how this will go. Also, I think your assumption that the Q2 and it will gradually recover. But in our internal management and discussion, we feel more conservative about that because nowadays it's really a global situation and the people travel still really bring lots of uncertainties. So we think hotel could be a very challenging year. We actually didn't focus on really the tax rate, the growth rate for now because there are so many uncertainties. What we're trying to do is to leverage our platform advantage to cooperate hotel owners and take a series of measures to stimulate industry's recovery. For example, we provide free traffic support through various marketing solutions, free hotel management system to better digitize their operation in response to the strict pandemic prevention policies, and also provide subsidies to procure pandemic prevention materials for hotels. We also launched a project called Safe Space for Return Employees, to collaborate with the hotels that meet our criteria, and these hotels should need to offer very strict disinfection, strict temperature checks for both employees and guests, strict guest registration, and also very new ways of free booking cancellation and different discounts. We think this kind of project is able to really help. We have engaged around 30,000 hotels across more than 300 cities. But I would overall still be very conservative in terms of the overall volume for the hotel and travel business for this whole year. Are you seeing any changes in the competitive dynamics during the coronavirus breakouts? Well, we really cannot see that there is big change in this period because I believe each one is focusing on how to really walk through this difficult time. We believe, compared to other peers, we have the advantages of local consumption. Domestic hotel room nights base, which is our core business, I think are relatively less affected compared to the cross-border travel and overseas hotels. That could be a positive factor for us. We also think in this difficult period, the power of platform could be also a good positive supporter as we can build more trust for consumers when they are using other services from us and convert those consumers. We think we maintain a very good position in this sector, but what we focus more on is to really support our hotels to get through this difficult period. As you can see in the last year, our hotel growth is very strong and in line with our expectation. We think this short-term challenge everybody needs to face, but in the longer term, we remain very confident in our continued growth of our hotel business, and we will remain our investment philosophy into this space. Thank you. Thank you. Your next question comes from the line of Ellery from China Renaissance. Please ask your question. Thank you. Thank you, management, for taking my question, and I wish everybody safe and healthy. You mentioned good progress in your grocery retail business during the outbreak, and other online grocery platforms also announced rapid volume growth during the pandemic. Can we expect increased revenue contribution or even positive profit from this business? What is your strategy on online grocery business overall? Thank you. Hello. I will take this one. First, our grocery business is still in the early stage, relatively small when compared with our main business. As a result, the operating results of this sector will not have significant impacts on the performance of the whole company. Our grocery retail business is growing faster and faster, and the unit economics is improved during the pandemic. We have two models. The first one is a self-operated Meituan Groceries model, now operating in Beijing, Shanghai, and Shenzhen. For both the average order volume, the warehouse, and average ticket size, significantly improved, even if most people have not come back to the office. Orders have only come from the community and the circulation. I think we are going to see continuing growth in these major cities. The other model is a marketplace model, and that is called Meituan Instashopping or Meituan Shangou, and that is built on top of our Meituan food delivery. There, demands for fresh produce and fast-moving consumer goods, medicines, also significantly increased. Although some temporarily high demands for safe or storable SKUs made a substantial contribution to the high growth during the pandemic, and some orders with abnormal SKU mix may not be sustainable after the pandemic. We believe the accelerated growth and increased demands enhance the user stickiness during the pandemic, and further demonstrate the potential of this online grocery market. This gives us much more confidence to accelerate the development of our grocery business. Because after all, the mission of our company is to help people eat better and live better. Everyone needs to eat, that is for sure. Right now, although we have a sizable food delivery business, 24 million orders per day. 24 million is no small number. It is still a very low percentage of the overall meals people eat every day. I think more people will order food delivery. At the same time, more people will buy groceries, especially after the pandemic. We are going to have more exploration in this business. Right now, it is a very hot market. Big companies and startups, everyone is trying different ways, different models. We will continue to do more experiments in different markets with very ROI-oriented investment in 2020. By ROI, I mean we are going to evaluate not just the financial resources we put into this market, but also the management bandwidth and our top talents. Because this is going to be a key market, very closely related to our mission, helping people eat better, live better. We are going to make sure we can win in this market. We may go out and have our staff operating the model in more cities, and grow the number of warehouses in each city we have been operating in. We will further enhance our supply chain and the operation process, and user experience, and product innovation to drive the growth of our integrated cross-border retail services, and also help to digitize the whole industry. Because we know the upstream supply chain is not digitized very well. We will lead the revolutions here to make high-quality, authentic ingredients available for more consumer groups. In the past six years, we have made it easy for people to order meals online. In the next several years, we are going to grow the number of categories, but at the same time, we are going to make a major contribution to help people buy grocery online. In summary, we are going to do our best to win this market. Thank you. Thank you. That's very helpful. Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question. Hi. Good evening, management. Thanks for taking my questions, and wish everyone well. I have a question related to your new initiative. Recall that during the last earnings call, you noted that the company will invest aggressively in several new initiatives in 2020, which including the bike-sharing, the food distribution service, and also the restaurant management system. Has this investment plan still intact, or has it changed in light of the pandemic? If you could share any specific investment amount that you plan. Last quickly is that, will this new initiative business also experience a year-over-year decline in the first quarter, or will this segment actually have a positive growth in the first quarter? Thank you. Okay. Thank you. I'm not going to give you a number. I'm going to share how we think about these questions. We will continue to invest in the new initiatives, especially those with big market size and important strategic value. For our P2P food distribution business, Haiwei, we will continue to invest and continue to improve the supply chain and to further diversify and grow our SKUs and optimize the product mix and the operation process. Here we see a huge market potential. We will continue to improve the experience and stickiness of the high-quality merchants. Actually, I think, when people think about this business, they often mention who's going to become the Sysco in China. But after several years of experimentation, we think this market is going to be even much bigger than Sysco in the U.S. For the same reason that e-commerce in China is much bigger than e-commerce in the U.S., especially compared to the traditional retailing. Here we see the same opportunity here, and I think we are in a very good position to keep investing in this. For our restaurant management system, improving our products to better meet the demand for high-quality merchants and increasing the scale of high-quality merchants will be our priority this year. We think the vertical players have been under considerable pressure, especially during the pandemic. The concentration of the industry is probably going to be further improved. Further concentration. The whole society have increasingly realized the value of digital economy, digital technology, especially after the pandemic. We will continue to invest to drive the supply side digitization of the industry. Bike-sharing is expected to be our key CapEx area in 2020. We will complete a replacement of all the old Meituan bikes this year. We are going to put in new bikes. We all believe bike-sharing business not only help us tap into the more high-frequency consumer basis, but also could continuously expand our consumer base and touchpoints, improve transaction frequency, and the stickiness of our consumers. They have a big cost-saving potential. We will continue to allocate resources to our new initiatives based on our ROI assessment. We will evaluate these investments from a very long-term perspective on value creation, and will not change due to short-term disruptions. That's our approach, and we will stick to that. Thank you. Any colors on the first Q? Will this segment be also negative? Thank you. I'm not sure I really understand the question. I don't think I can give you a second number. No, I'm just thinking, will new initiative also experience year-over-year decline in the first quarter? Yes, I think for new initiatives, it's different among different situations. But overall, yes, it will be also an overall decline situation. Okay, great. Thank you. Thank you. Your next question comes from the line of Natalie Wu from CICC. Please ask your question. Hi. Good evening. Thanks for taking my question. Best wishes for everyone, and congratulations on the solid Q4 results, and also congrats on your recent 10th anniversary. On which we actually noticed, Xing, that you have mentioned that you will further increase your investment in technology. Which should be additional from those investments planned for new initiatives, I guess. Could we have more details on this, and is there any critical investment plan for technology we should be anticipating in 2020. Would the recovery pace from COVID-19 affect the process of the related investments. Thank you. Okay. So finally, we are talking of really the long-term perspective. Yeah, sometimes I can believe we have in the 10 years old company. Thinking back, it's just, I think, 10 years. Fortunately, we didn't waste the past 10 years, so we have a good solid foundation. On top of which, we can really start investing in real technology to pursue our mission. Remember that our mission is very clear for, so we want to help people eat better every day. Here, by eating better, I think we mean we want to cover a lot of people. In the past, not just 10 years, but 20, 30 years, actually the whole history of internet is moving things online. Move things from offline online. The photo is moving our media offline to online. Late marketplace offline to online. We are going to move more things online. Here, I think that the real innovation needs to come from the fulfillment. The real innovation will come from the digitization of the offline world, not just the online world. It's much easier to use technology to handle information, to handle bits. But it's much more difficult to think of technology to handle atoms. For our business, in order to help people eat better, we need to move atoms. That's why when we started in food delivery, in the first we built a marketplace. Very soon, we got into building our own delivery network. Because we want to get involved in a fulfillment, we need to move atoms. In the past five years, we have built the largest online delivery network, not just in China, but also the largest one in the world. But compared to our mission and compared to our 2025 goal to do 100 million orders, right now we are still much smaller, at a much smaller scale to our mission. In order to get there, we need to become much better in fulfillment. We want to invest a lot into the fulfillment. Not just the last mile option, but global all technology that can do much, much better at moving atoms. I understand this is a little bit too abstract. But because we are talking about long-term goals. Just remember that we are going to invest in technology that will be really important for moving atoms. Usually when people talk about internet, people talk about how to move bits, move information. But in order for our business to thrive and in order for us to get closer and closer to our mission to help people eat better, we need to move atoms. That is where we are going to invest a lot of our resources, not just financial resources. But also, the management bandwidth to develop the type of technology to move atoms. That's my answer. Of course, at the same time, we are going to keep investing our information infrastructure into our big data, into our machine learning. I think the most exciting innovation is going to be in how to be the best in moving atoms. Got it. That's very helpful. Thank you, Xing, for the detailed elaboration. There are no further questions at this time. I would now like to hand the conference back to Ms. Scarlett Xu for closing remarks. Thank you. Okay. Thank you for joining this call today. We are sorry for the technical issues today. And we look forward to speaking with everyone next quarter. Thank you. Thank you, everyone. Ladies and gentlemen.