Dingdong's Q2 shows a year-on-year decrease in both revenue and net profit.
On 1 September, Fresh produce e-commerce platform, Dingdong (Cayman) Limited (NYSE:DDL), unveiled its Q2 2023 financial report. The company reported revenues of CNY 48.406 billion (approximately USD 6.646 billion), down 27.04% from CNY 66.344 billion the same period last year. Non-GAAP net profit stood at CNY 7.5 million, marking its third consecutive quarter of non-GAAP profitability. However, this figure is down 63.59% from CNY 20.6 million in Q2 2022. The non-GAAP earnings per share were CNY 0.02, compared to CNY 0.06 last year.
In a detailed revenue breakdown, Dingdong's Q2 product revenue was CNY 47.787 billion, a 27.09% decline from CNY 65.540 billion year-over-year. Service revenue was CNY 619 million, down 23.01% from CNY 804 million the previous year.
The company attributed this year's Q2 slump to the surge in demand last year, especially in Shanghai, due to the COVID-19 pandemic. With consumer demands normalizing from last year's peak, order volume has decreased. Furthermore, increased travels during the Labor Day and Dragon Boat Festival in Q2 2023 dampened consumer spending. Revenue was also impacted by the company's withdrawal from several cities in 2022 and this year due to challenges in short-term profitability.
Founder Liang Changlin mentioned in the financial statement that despite a high base in Q2 2022, the frequency of monthly orders per user increased by 5%, hitting an average of 4 orders for the first time. The GMV share of members rose significantly, reaching 54%, a 10% increase year-over-year.
In a subsequent earnings call, Liang expressed confidence in achieving non-GAAP profitability for the upcoming Q3 and Q4.
The company highlighted that Dingdong has achieved overall profitability in the East China region, with daily order volumes in Jiangsu and Zhejiang provinces rising by 27% and 21% year-on-year, respectively. As for city-specific performance, Shanghai has been profitable since Q1 2022, while Jiangsu and Zhejiang have seen profits for three consecutive quarters since Q4 2022. The average order value for the first half of 2023 stood at CNY 72.9, with Shanghai's average order value at CNY 75.8.
"Last year, our main focus was Shanghai. In the second half of this year, we will shift our focus to Jiangsu and Zhejiang. After achieving and stabilizing the gross profit margin in the East China region, we will then turn our attention to improving operating metrics in North and South China," Liang stated.
Interestingly, Dingdong closed some stations in the Sichuan-Chongqing region in Q2. Addressing concerns of potentially abandoning the Southwest market, Liang clarified during the earnings call, "In May, we adjusted our business in Chongqing and Chengdu. After thoroughly evaluating the overall returns in the region, we temporarily suspended services there. The business volume from the Sichuan-Chongqing region currently contributes a small percentage of our total business and is not expected to be profitable in the short term. We can't yet achieve large-scale operations in the area, which is why we chose a temporary exit. We will continue to deepen our cooperation with food enterprises in the region and consider expansion only after ensuring stable profitability in our existing regions."
Dingdong has significantly invested in the upstream supply chain in the past six months, maintaining a direct sourcing ratio of over 80% for fresh produce. The company's self-developed products now account for 19% of its GMV, and Liang hopes to increase this to 30%.
The Q2 report showed reduced operational costs and expenditures. Total costs dropped by 26.6% to CNY 48.669 billion from CNY 66.346 billion year-over-year. Sales and marketing expenses fell by 39.3% to CNY 891 million. The company attributed the decline to improved product development capability and a more mature brand image, which lowered customer acquisition costs. R&D expenses decreased by 21.0% year-on-year due to increased efficiency.
As of June 30, 2023, Dingdong had cash and cash equivalents and short-term investments totaling CNY 55.178 billion (approximately USD 7.609 billion), down from CNY 64.930 billion as of December 31, 2022.