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Dingdong Q3 Review: Losses Narrow Sharply, Q4 May Turn Losses into Profits

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Wise Shark wrote a column · Nov 18, 2022 03:08
$Dingdong(DDL.US)$ released its 2022Q3 results on November 11, with revenues of 5.943 billion yuan, down 4% YoY, and an adjusted net loss of 290 million yuan, compared to a loss of 1.98 billion yuan a year ago, a significant narrowing of losses from last year. After releasing the earnings report, company's founder and CEO Changlin Liang said, "At the current rate of development, it is fully possible to basically achieve Non-GAAP standard profitability in Q4 this year."
Operating data review: 22Q3 net loss rate narrowed, Q4 earnings inflection point can be expected
Revenue: Revenue declined slightly YoY from last year's high base, "commodity power" strategy to enhance customer stickiness
22Q3 achieved GMV of RMB 6.512 billion/yoy-7.2%, with a revenue conversion rate of 91.3%, up 3.1 pcts from the same period last year, and average order value (AOV) up ~25% yoy.
By segment, merchandising revenue was 5.872 billion yuan/yoy-4.1% and service revenue was 0.70 billion yuan/yoy+4.4%. Revenue was affected by the high base due to the significant coupon issuance to pull new in 21Q3, and shrank slightly year-on-year. In terms of user performance, high quality and price product power building strategy to build a stronger user mind, customer stickiness continues to improve, net retention rate reached 84.2%, per capita GMV contribution of more than 400 yuan per person.
Gross margin: gross margin improved significantly year-on-year and is expected to continue to improve
Benefiting from the maturity of the supply chain construction and the company's deepening participation, 22Q3 gross margin 30.0%/yoy +11.8pct, in the long run, the proportion of direct procurement & higher gross profit of own brand ratio is expected to drive the company's overall gross margin continue to improve.
Expense: performance fee rate improved significantly year-on-year, marketing and management fee rate continued to reduce
22Q3 fulfillment expenses 1.595 billion yuan/yoy-30.9%, fulfillment expense ratio 26.8%/yoy-10.5pcts, mainly due to the company's warehouse staff & site distribution efficiency optimization is obvious, first-line distribution site distribution efficiency increased by 15.8%, warehouse staff efficiency increased by 29.6%. Q3 sales expenses of 130 million yuan, -70.3% year-on-year; current revenue accounted for Administrative expenses were RMB 120 million, -21.5% year-on-year, accounting for 2.0% of revenue, down 0.4 pct YoY.
Profit: Losses improved significantly, expected to achieve break-even in Q4
Non-GAAP net loss of 285 million yuan, compared with - 1.976 billion yuan in the same period last year, the company expects to achieve a break-even in Q4 Non-GAAP caliber, the profit inflection point or verify the strong vitality of the front warehouse model.
Investment advice:
As an industry leader in front warehouse model, the company has a double flywheel effect of building differentiated product power + operational efficiency & cost management optimization to drive continuous growth in performance, and the inflection point of break-even is expected, and the blood-making ability of business model is expected to be verified in advance. In the future, profitability is expected to continue to improve as product structure & customer structure continue to be optimized, the proportion of own products such as pre-made dishes increases, and regional expansion tightens cost control carefully. CITIC Capital Securities has a target price of $6.33 for Dingtone and maintains a Buy rating.
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