Meituan conference call transcript: Fully entering AI, optimistic about high profit margins in the Middle East market, pilot program for rider social security to start in the second quarter of this year

On the 21st, Meituan announced its full-year and fourth-quarter financial report for 2024, showing strong performance in Q4 core business, a narrowing of losses in new businesses, and a net profit increase of 180.7% year-on-year. While Chinese concept stocks fell broadly on Friday, Meituan's ADR dropped by 5.11%.

In the subsequent earnings call, Meituan's management elaborated on the direction of comprehensive entry into AI and continued global expansion.

In terms of AI, Meituan clearly stated that in the face of the disruptive changes brought by AI technology, the company is adopting a proactive offensive strategy rather than a passive defensive one. Management believes that Meituan will become a bridge between the digital world and the physical world in the AI era, with its AI strategy built on three levels:

Application in Work Scenarios: The company has deployed its self-developed large language model "LuoMa" to enhance employee productivity. AI customer service efficiency has improved by over 20%, and customer satisfaction has increased by 7.5 percentage points; the AI sales assistant has collected and updated information on 1.2 million merchants for the BD team, reducing workload by 44%; 27% of new code is generated by AI programming tools.

Product Applications: Providing merchants with tools for smart store design and information enhancement; creating AI services such as restaurant assistants and travel assistants for consumers, with plans to launch an AI assistant covering all services this year, creating a "free personal assistant."

Building Self-Developed Large Models: Continuously investing to enhance the self-developed large language model "LuoMa," increasing capital expenditure. Currently, the performance of "LuoMa" is comparable to top domestic models, with API call volume increasing from 10% at the beginning of last year to 68%.

Management also revealed that the company has invested "tens of billions of dollars" in GPU resources in the AI field this year and plans to further expand investment. At the same time, Meituan is exploring the application of AI in robotics and autonomous driving, combining unmanned delivery with AI technology.

Regarding overseas business, management provided a detailed introduction to the performance of Meituan's overseas brand Keeta in Saudi Arabia for the first time, stating that Keeta has launched food delivery services in six major cities in Saudi Arabia. Management expressed confidence in Keeta's long-term profitability, believing that the average order value in the Middle East is high, user willingness to pay is strong, and the profit margin of the food delivery business is higher than that of the Chinese market, indicating a clear long-term profitability path.

In terms of food delivery business, although the growth rate of the food delivery business has slowed due to a high base, management remains optimistic about on-demand delivery services. Meituan pointed out that the initial purchase frequency and ARPU value of new users are higher than those of early users. Existing users' order frequency has increased, and supply innovations such as "Pin Hao Fan" can improve overall efficiency.

The following is the full Q&A:

Q1: With the continuous development of AI technology, the importance of AI applications and agents at these application traffic entrances may change over time. How do we assess this risk and formulate corresponding strategies? Additionally, what are Meituan's investment plans in AI and related technologies? How will we integrate these technologies into existing businesses to enhance competitiveness?

Everyone is very concerned about AI. Therefore, please allow me to convey a key message and clarify one point at the outset: our strategy in the AI field is proactive offense rather than passive defense. When fundamentally revolutionary technologies like AI arrive, the only meaningful strategy is not to try to hold on to what already exists, but to use everything at hand to take proactive action I believe this is the only meaningful strategy because the pace of change in AI is very fast, and it will change, disrupt, and even reshape every industry. Therefore, we feel both excited and somewhat concerned about the upcoming changes.

I think we are at a considerable advantage in positioning because Meituan, as a company, is connecting offline businesses with the online world. In the AI era, we will be well-positioned as a bridge between the digital world and the physical world. Next, I will elaborate on our AI strategy, which is built on three levels:

Level One: Application of AI in Work. We will integrate AI into the daily work and business operations of our approximately 100,000 employees, significantly enhancing their productivity and work experience.

Level Two: Application of AI in Products. We will leverage AI to upgrade existing products and services, including those aimed at B-end (merchants) and C-end (consumers) businesses. At the same time, we will launch entirely new AI-native products to better serve consumers, merchants, delivery personnel, and partners. I will elaborate on this later.

Level Three: Building a Self-Developed Large Language Model. We plan to continuously invest in and enhance our self-developed large language model (LLM) and increase capital expenditure. Currently, we have made some progress in AI model training and application, and we will further accelerate our exploration of AI in the future.

I believe that at Level One (the application of AI in work, i.e., enhancing employee productivity), we have already deployed our self-developed large language model named "Longcat." We are using Longcat in parallel with external models to provide employees with efficient tools, including AI programming, smart meetings, document assistants, as well as graphic design and short video generation tools, and AI sales assistants. These tools have significantly improved employee productivity and work experience.

Currently, these tools have been applied in the customer service field. We are developing an intelligent AI customer service agent using our self-developed large language model. The results from pilot operations show that efficiency has improved by over 20%, while customer satisfaction has increased by 7.5 percentage points.

In business operations, we use AI sales assistants to support the BD (business development) team. For example, during this year's Spring Festival, we collected and updated business information for 1.2 million merchants on the platform through the AI sales assistant. This effectively reduced the workload of the BD team by 44%, while further improving the accuracy of merchant information on the platform.

In the tech team, we use self-developed AI programming tools and integrate them into the IDE (Integrated Development Environment) to promote them among engineers. Currently, about 27% of new code within the company is generated by AI programming tools.

But more importantly and excitingly, we are advancing in two directions in terms of products: one is to optimize existing products using AI, and the other is to develop entirely new AI-native products.

Regarding the first direction (optimizing existing products using AI), I think this is not difficult to understand. We use AI in multiple categories to enhance user experience by providing various tools, such as smart online store design, intelligent merchant information enhancement and display, and operational management

On the consumer side, we have begun testing AI systems in some categories to enhance users' search and transaction experience on the platform. For example, we have launched Restaurant Assistant, Travel Assistant, and Booking Assistant. These assistants can interact with users through text or voice, making operations more convenient and user-friendly. Currently, we are developing a brand new AI-native product, expected to launch later this year, featuring a more advanced AI assistant that covers all of Meituan's services, allowing everyone to have a free personal assistant.

Based on our rich offline services and efficient instant delivery network, I believe we will be able to meet many personalized needs in local services, whether it's ordering takeout, making restaurant reservations, purchasing discounted products, ordering daily necessities, or planning trips or booking hotels. We have achieved one-stop coverage.

Now, we will deliver these services to users in real-time. Our diverse consumption scenarios, extensive offline services, and strong fulfillment capabilities are our unique advantages. Therefore, our AI system will not only provide services in the digital world (not just a chatbot) but will also be able to meet many of the users' needs in the physical world.

Bringing AI into the physical world requires not only very intelligent algorithms or models but also the infrastructure in the physical world. This is our advantage. However, in terms of algorithms, models, and computing, we need significant capital expenditure and a very strong foundational model.

Over the past year, ensuring sufficient GPU resource supply has been our top priority. Even though we have allocated substantial resources for shareholder returns and new plans, we continue to invest billions of dollars in GPU resources. This year's capital expenditure scale is quite considerable, and we plan to further expand our investment in this critical area.

Thanks to the efforts of our infrastructure and large language model team, we have achieved significant optimizations in both efficiency and effectiveness. Therefore, our self-developed large language model Longcat has achieved quite good evaluation results, comparable to the top domestic models.

In addition to our self-developed large language model, we have also integrated other mainstream models on the market so that our internal product development teams can freely explore AI-driven products and services. Notably, the API call volume for Longcat has increased from 10% at the beginning of last year to the current 68%, further validating the effectiveness of our self-developed foundational model.

Furthermore, AI technology will greatly drive the development of the robotics field. We are early pioneers in the field of unmanned delivery vehicles and drones. In fact, we began research and development of autonomous vehicles at the end of 2016 and started drone development in 2017. Over the years, we have been working hard in this field and have made very good progress.

Currently, we are exploring the application of AI technology in the instant delivery sector. In addition to internal research and development, we have also made several investments in leading startups in the robotics and autonomous driving fields to support their growth. Looking ahead, we hope to deepen business cooperation and technical exchanges with these leading companies

In the future, our robotics and AI technologies will be more closely integrated, continuously improving performance in areas such as autonomous driving and logistics automation. Currently, in addition to the "last mile" of instant delivery, we also operate many large warehouses, which are very suitable for the application of automation technology.

Ultimately, our mission has always been to help people eat better and live better. We have established a strong infrastructure in the physical world and connected it through digital technology. We believe that this infrastructure will have extremely high value as we move towards the era of physical AI.

Q2: Given the strong growth momentum of Meituan's overseas brand Keeta in Saudi Arabia, what are our expansion plans in the Middle East? Additionally, we have noticed from the news that Little Elephant Supermarket is also actively preparing to enter the Middle East market. Will the company accelerate the overseas expansion of other businesses? What are the loss expectations for overseas expansion in 2025 and the medium to long term? What is the company's strategic planning for overseas business? What is the profit outlook?

In early October last year, I personally went to Riyadh to witness the launch of Keeta with our team. Although I did not participate in the specific work, I was delighted to celebrate this important moment with the team. In the past four to five months, Keeta has performed exceptionally well in Riyadh and other cities. It can be said that Keeta is on a good development track and has shown strong growth momentum.

Thanks to our experience and accumulation in the Chinese market, Keeta has a leading advantage in product supply, technical capabilities, and operational experience. Based on the progress made in Riyadh, we continued to expand our business to other cities in December last year and January this year. Currently, Keeta is operating in more than six major cities in Saudi Arabia. For other markets outside Saudi Arabia, we are still conducting research and currently have no specific expansion plans to share.

Currently, our overseas business focuses on food delivery. We believe that the high-frequency traffic and delivery network built through the food delivery business has enormous value. First, in the Chinese market, Meituan has accumulated a large user base through high-frequency food delivery, reducing customer acquisition costs for other low-frequency categories, thus promoting the development of other services. Second, the 30-minute instant delivery network established through the food delivery business allows us to expand into more non-food categories. This is the foundation for us to build instant retail and on-demand market models.

The Little Elephant Supermarket you mentioned is our self-operated model, primarily meeting consumer demand for instant grocery delivery. Little Elephant Supermarket offers consumers high-quality and diverse grocery options.

For our overseas business, we believe that various businesses, including Little Elephant Supermarket, have good long-term potential. However, in the short term, we will focus on market research and some pilot projects, without making overly aggressive investments. Similar to our development path in China, we hope to gradually expand other businesses based on the on-demand food delivery business.

Currently, we are focused on establishing our delivery business in these markets. Looking ahead, as a relatively new player in the market, Keeta will concentrate on growth, but we are also confident in its long-term prospects and profitability. The delivery business has already proven its clear path to profitability in China and other countries such as the Middle East. In markets like the Middle East, the average order value is significantly higher than in China, users are more willing to pay for services, and the profit margins for the delivery business are also higher than in the Chinese market.

Looking towards 2025, we will allocate significantly more financial resources to overseas operations than in 2024, which will drive strong growth in scale and rapid increases in market share. At the same time, we will closely monitor return on investment (ROI) and continuously improve operational efficiency.

Q3: As the company rapidly expands its business in Saudi Arabia and launches many new initiatives, each business segment has grown quarter by quarter. How should we balance investment in new businesses (especially Meituan Youxuan) this year? Given the increased demand for overseas capital, what is the company's shareholder return plan for this year?

We continuously review our capital allocation strategy, covering investments in new initiatives as well as shareholder return plans. Each new initiative is at a different stage of development and requires different levels of support from the company. Therefore, we will carefully assess the ROI of each new initiative and flexibly adjust our business strategy based on the evaluation results. Our goal is to ensure that new initiatives can grow healthily and achieve our long-term financial objectives.

First, after years of iteration, some of our new initiatives (such as Kuailv, restaurant management systems, shared bicycles, and power banks) have achieved market leadership and continue to improve efficiency. Our ongoing efforts in strategic and operational iterations over the past few years have yielded results, and we believe that the positive momentum of these businesses will continue in the coming years.

Regarding Meituan Youxuan, we made significant strategic adjustments to this business last year, greatly enhancing efficiency. Meituan Youxuan has made significant improvements in product quality, variety, and the quality of service provided by group leaders. We are increasingly aware that Meituan should focus on core areas to achieve its long-term goals and build key capabilities. For example, we are reshaping the product-related capabilities of Meituan Youxuan, which is a key factor that differentiates us from competitors. However, the transformation of the supply chain is not an overnight process and will not be immediately reflected in financial statements; it requires more patience.

The grocery market in China is enormous, and the current online penetration rate is still very low. Meituan Youxuan remains one of our key models for exploring this market. Compared to offline retail, Meituan Youxuan aims to offer products of the same quality at significantly lower prices. In the future, the unique model of Meituan Youxuan can reduce procurement costs, minimize waste of fresh products, and eliminate operating expenses of offline stores.

If we continue to improve in product capabilities, operational efficiency, and service quality, I believe that the long-term profit margins of Meituan Youxuan will be able to compete with those of offline retail channels. Overall, despite accelerating our overseas business expansion, we will continue to enhance the operational efficiency of other new initiatives based on long-term strategies and financial goals. At the same time, we remain committed to enhancing shareholder returns through stock buybacks

In our annual capital allocation, we consider multiple factors, such as business development plans, cash flow status, offshore cash reserves, and debt maturity schedules.

This year, we expect to repay approximately $1.5 billion in convertible bonds (affected by early redemption rights) and $750 million in maturing corporate bonds. The $2.5 billion senior notes issued last September enhanced our offshore cash reserves. We expect to maintain stable and sufficient offshore cash reserves each year and will continue to use stock repurchases (rather than dividends) as the primary means of shareholder returns. Through stock repurchases, we will first offset the dilution caused by equity incentives (ESOP) each year, and additionally, we will maintain flexibility to seize good market windows to further reduce the total number of outstanding shares, ultimately enhancing shareholder returns.

Q4: Given the current scale of our takeout business, what are our key areas and strategies for further market penetration and maintaining order growth? Additionally, what is the strategic focus of Meituan Instant Retail after last year's strong growth? As the company increases its investment in rider support and benefits, how should we expect profit growth in the takeout business this year?

Yes, although the growth rate of the takeout business has slowed in recent years after reaching a high base, the management team remains confident in the overall potential of the on-demand delivery business (including takeout and non-food delivery).

In the takeout segment, despite the large user base, we continue to attract new users to the platform, especially younger users. We have noticed that the initial purchase frequency and ARPU (average revenue per user) of new users are higher than those of the early user group, and their growth momentum is faster.

We have also found that the order frequency of existing users is continuously increasing. In broader scenarios and time periods, we can continue to innovate on the supply side. For example, new supply innovations like "group meals" can attract consumer demand, increase order frequency, and enhance overall efficiency. We expect the monthly active users and transaction frequency of the on-demand delivery business to continue to grow.

In the non-food segment, Meituan Instant Retail continues to show strong growth, with a growth rate far exceeding that of the takeout business. We continue to empower merchants and brands through online operations and deepen cooperation with brand retailers, thereby continuously enhancing the supply capacity of instant retail.

On the consumer side, we continue to strengthen the consumer mindset of "everything delivered to home" and are pleased to see that consumers are becoming increasingly sticky to instant delivery services. Overall, we maintain our vision and goal of daily order volume exceeding 100 million for the on-demand delivery business.

In addition to growth potential, we are also increasingly focused on the healthy development of the entire ecosystem. Riders and merchants are crucial to our sustainable growth. Last quarter, we launched a merchant support program worth over 1 billion yuan to help merchants grow. We also plan to launch a rider social security pilot project under regulatory guidance, expected to start in some cities in the second quarter of this year and gradually promote nationwide in the coming years based on regulatory guidance. The plan may be further adjusted based on feedback and evaluation

Although these measures may increase overall costs, we believe that in the long run, the entire ecosystem (including our platform) will benefit from them, and the improvements in efficiency will offset these incremental costs.

In addition, we continue to strengthen food safety management. For example, we recently launched the "Bright Kitchen" program. In this program, we provide digital cameras and require merchants to allow online display of kitchen operations. We believe that a better food safety environment will further stimulate consumer demand, ultimately enhancing our long-term competitiveness and driving sustainable growth. Overall, we are confident in achieving stable profit growth in the on-demand delivery business through improved efficiency, expanded economies of scale, and enhanced operational leverage.

Q5: What is the current competitive landscape for in-store business? After experiencing rapid growth over the past two years, what are the expectations for GTV (Gross Transaction Value) growth? Additionally, can management update on the cross-selling situation from the "God Membership" to in-store travel and hospitality business?

Overall, although we have seen rapid growth in the total transaction value (TTP) of in-store business over the past two years, we expect this growth momentum to remain strong in the coming years. Compared to physical e-commerce, the online penetration rate of in-store business is still relatively low, and we will continue to drive the improvement of online penetration and consolidate our competitive advantages.

Regarding competition, we believe that we differ from our competitors in terms of business model, value propositions for consumers and merchants, and operational strategies. We also have significant differences in category mix, types of merchants, merchant scale, and marketing efficiency. Even in the current consumer environment, the demand for digitalization from consumers and merchants continues to grow, and these trends will further drive the increase in the industry's online penetration rate.

In terms of core categories, the current competitive landscape is relatively stable, and we have effectively defended our market leadership position. In the future, we will fully leverage the advantages of the sharing model, enrich our supply, and enhance price competitiveness. We will continue to expand and optimize our special offer product "Meal Ticket," making it a more organized marketing program focused on low prices and quality deals. We will continue to consolidate our position as the preferred platform for merchants' online operations and online marketing.

Recently, we renamed our integrated in-store service business to the Service Retail Unit. We believe this is a name that better defines the categories we operate in. We also merged the leisure and entertainment and beauty sectors, renaming it the "Better Life" department. This department is dedicated to meeting consumers' diverse needs for a better life.

Regarding the "God Membership" issue you mentioned, in July last year, we expanded the God Membership program nationwide, covering all major categories of core local business. In the fourth quarter, the God Membership program further expanded to more categories such as group travel and attraction tickets. The proportion of God Membership orders in total local business orders continues to rise, currently exceeding 40%, with its contribution to total transaction value (TTP) growing even more significantly, exceeding 70%. More than 70% of our in-store travel and hospitality merchants have participated in the God Membership program, and this integrated marketing operation strategy helps reinforce consumer perception

The God Membership Program effectively directs user traffic to a broader range of categories. Currently, users from the God Membership account for 10% of the total transaction users in service retail. We continue to make progress in user acquisition, retention, and purchase frequency.

Soon, we will further upgrade the God Membership Program to the Meituan Membership Program. We expect this will unify the membership brand, integrate a wider range of categories and scenarios, and provide consumers with more diverse benefits.

Q6: I have a question about organizational structure adjustments. After a year of organizational restructuring in the core local business, can you share your views on the long-term growth trajectory of this business? This includes GTV (Gross Transaction Value), CAGR (Compound Annual Growth Rate), and GTV profit margin.

I am pleased to answer questions regarding the organizational restructuring of the core local business (CRC), which took place about a year ago. So far, the progress has been very smooth. We are pleased to see that despite this being a significant organizational restructuring, the overall internal progress aligns with our expectations. This adjustment occurred amidst complex changes in the market environment, but we successfully consolidated our leading position in the overall local service sector.

Since the adjustment last year, we have integrated the core local business and formed three key platforms: Meituan Platform, Infrastructure Platform, and Business Development Platform. Through this adjustment, we have become more efficient in integrating marketing, user growth strategies, large language model development, and product innovation on both the consumer and merchant sides.

We have also strengthened our user mind share in five core business areas: Takeout, Meituan Instant Retail, In-store Services, Hotel and Travel, and Pharmaceuticals and Health. With the upgraded organizational structure and synergies, we continue to accelerate product and service innovation, leveraging AI to drive business growth, and further enhance user experience and engagement.

Through the Meituan Membership Program I just mentioned, we expect to create more synergies across the five business categories. Based on this strategy, we are confident in further enhancing user mind share and consolidating our leading position in the overall local service sector. We are very excited about the potential that AI brings to the core local business. We believe that smarter systems will help us create better value propositions for consumers and merchants, fulfilling our mission of "helping people eat better and live better."