Meituan (Minutes): Plans for overseas markets have not yet been determined except Saudi Arabia

The following are the minutes of Meituan's FY24 Q4 earnings call. For the earnings interpretation, please refer to《 Meituan: The Great Battle Has Just Settled, But Is It Time to Stir Up the "Second Curve"? 》

1. Core Information Review of the Earnings Report

1. Revenue Growth: In Q4 2024, Meituan's total revenue increased by 20.1% year-on-year to RMB 88.5 billion. For the entire year of 2024, total revenue grew by 22% to RMB 337.6 billion.

2. Costs and Expenses: The cost-to-revenue ratio decreased by 3.9 percentage points year-on-year to 62.2%, mainly due to the improvement in gross margins of the instant delivery and grocery retail businesses. The sales and marketing expense ratio decreased by 3.1 percentage points to 19.6%, the R&D expense ratio decreased to 6.1%, and the management expense ratio remained stable at 3.3%.

3. Profitability: In Q4, total segment operating profit increased to RMB 10.7 billion, compared to RMB 3.2 billion in the same period last year, with total segment operating profit margin improving from 4.3% to 12.1%. Adjusted net profit reached RMB 9.8 billion.

4. Cash Position: As of December 31, 2024, Meituan maintained a strong net cash position, with cash and cash equivalents and short-term investments totaling RMB 168.2 billion. Cash generated from operating activities significantly increased year-on-year to RMB 16.9 billion.

5. Business Segment Performance:

(1) Core Local Business: Grew by 18.9% year-on-year to RMB 65.6 billion. Both operating profit and operating profit margin improved year-on-year, reaching RMB 12.9 billion and 19.7%, respectively.

(2) Innovative Business: Revenue increased by 23.5% year-on-year to RMB 22.9 billion, mainly driven by the development of grocery retail and overseas business. Operating losses and loss rates narrowed year-on-year to RMB 2.2 billion and 9.5%.

2. Detailed Content of the Earnings Call

2.1 Key Information from Executives' Statements

1. Business Performance and Strategy:

(1) In 2024, Meituan's annual transaction users exceeded 70 million, and the number of active merchants significantly increased to 14.5 million, with the average purchase frequency of annual transaction users reaching a new high; for the in-store business, the order volume in 2024 increased by over 65% year-on-year.

(2) In the takeaway business, consumption scenarios and price ranges were expanded through supply-side innovation. Instant shopping significantly expanded product choices, stimulating demand for instant retail consumption. The in-store business released the potential for service retail consumption through more cost-effective group buying options (3) Meituan is actively expanding its overseas market, officially launching kita in Saudi Arabia in the fourth quarter, and the Zone business in Dubai has begun commercial operations.

(4) The company continues to promote innovation in instant delivery technology. By the end of 2024, the cumulative number of commercial orders completed by autonomous vehicles and drones is expected to reach 4.9 million and 1.4 million, respectively. Pilot programs have been launched in the Middle East market.

2. Supply-side advantages and innovation:

(1) Meituan enhances its supply-side capabilities through supply chain innovation and refined operations to meet diverse consumer demands and create growth opportunities for merchants.

(2) Pin Hao Fan redefines affordable dining, with order volumes hitting new highs, driving demand for more consumption scenarios.

(3) Brand satellite stores provide merchants with a low-cost business expansion method, with the number of Meituan instant stores and order contributions rapidly increasing, particularly performing well in lower-tier markets.

3. Support for merchants and consumers:

(1) The company simplifies promotional plans, standardizes marketing activities, strengthens food safety management, and improves the governance of malicious reviews.

(2) In the fourth quarter, a 1 billion yuan merchant support plan was launched, providing cash support and platform subsidies to help merchants improve service quality and efficiency.

(3) Meituan extends traffic support for newly settled small and medium-sized merchants and provides digital tools and operational services for free.

4. Social responsibility and ecological development:

(1) Since July 2022, Meituan has provided 1.4 billion yuan in work injury insurance for riders in 7 provinces and cities and implemented multiple rider-friendly measures.

(2) The company has developed a pilot social security plan for riders, which will be launched in some cities in the second quarter of 2025.

5. Future outlook:

(1) Meituan will continue to promote the digital transformation of the industry, enhance merchant operational efficiency, and unleash consumer potential.

(2) The company actively embraces and expands investments in cutting-edge technologies such as artificial intelligence, unmanned delivery zones, and autonomous service vehicles.

(3) Meituan is committed to integrating artificial intelligence into consumers' daily lives, fostering the sustainable development of the local service ecosystem while demonstrating social responsibility.

2.2 Q&A

Q: With the development of AI technology, applications, and entry points may change over time. How does Meituan assess this risk and formulate corresponding strategies? What are Meituan's AI and related technology investment plans, and how will they be integrated into existing businesses to enhance competitiveness?

A: Meituan's AI strategy is offensive rather than defensive. Meituan's AI strategy is built on three layers. The first layer is the application of AI in work, integrating AI into employees' daily work and business operations to improve the productivity and work experience of over 400,000 employees. An internal large language model named "Longcat" has been developed, combining external models to launch efficient tools such as AI coding, smart meetings, and document processing, as well as applications in graphic design, short video generation, and AI sales assistance.

In customer service, an intelligent AI customer service agent has been developed using the internal large language model, with efficiency improved by over 20% and customer satisfaction increased by more than 7.5 percentage points after the pilot; in business operations, AI sales assistants support the BD team, collecting updated information from 1.2 million merchants on the platform during this year's Spring Festival through AI assistants, effectively reducing the workload of the BD team by 44% and improving the accuracy of merchant information About 27% of the company's new code is generated by AI coding tools.

The second layer consists of AI products that upgrade existing B2B and B2C products and services, and will also launch entirely new AI-native products. In optimizing existing projects, tools such as intelligent online store design, smart merchant information enhancement, and display and operation management are provided; on the consumer side, AI assistants have been tested in some categories, such as the launch of restaurant assistants and travel assistant booking systems, with plans to introduce more advanced AI assistants covering all major services later this year. The third layer is building its own internal large language model, with plans to continue investing and increasing capital expenditures to enhance this model. Ensuring sufficient GPU resources has been a top priority over the past year, and this year the plan is to further expand investments in this critical area. The internal large language model "Longcat" has achieved evaluation results comparable to China's top models, and in addition to the internal model, other mainstream models on the market have been integrated.

Moreover, AI will drive the development of robotics technology, and Meituan has started early in the research and development of autonomous vehicles and drones. In addition to internal R&D, it has made multiple investments in leading startups in the robotics and autonomous driving fields, hoping to deepen business cooperation and technical exchanges with these companies in the future, making robotics technology more closely integrated with AI, and continuously improving in areas such as autonomous delivery and logistics combinations.

Q: Given Kita's strong growth momentum in Saudi Arabia, what are the company's expansion plans in the Middle East this year? There are reports that the company's supermarket business is also actively preparing to operate in the Middle East. Will the company accelerate overseas investments in other businesses? How do you anticipate the losses from overseas expansion in 2025? From a medium to long-term perspective, what is the company's strategic planning and profit outlook for overseas business?

A: Over the past approximately five months, Kita has performed well in Riyadh and other cities, showing good momentum. With the experience and expertise accumulated in the Chinese market, Kita leads other competitors in product supply, technical capabilities, and expertise. Based on the progress in Riyadh, the company expanded its business to other cities in December last year and January this year, and currently, Kita is operating in more than six major cities in Saudi Arabia. For markets outside of Saudi Arabia, the company is still conducting research and has no specific plans to share at this time.

At this stage, the company's overseas business mainly focuses on food delivery. The company believes that the high-frequency traffic and delivery network generated by the food delivery business have greater value. In China, Meituan's food delivery business has brought a large user base and expanded into other low-margin categories at low cost, promoting the development of other services, while the 30-minute instant delivery network has also enabled the company to expand into more non-food categories. From a long-term perspective, various businesses, including supermarkets, have good potential overseas, but in the short term, the company will focus on market research and some pilot projects, without making hasty and aggressive investments.

In the long run, the company hopes to develop other businesses based on the traffic and consumer mindset brought by the instant food business, just like in China. Currently, the company is focused on establishing food delivery businesses in these markets. As a new participant in the market, the company will emphasize growth in the future while being confident in its long-term prospects and profitability The food delivery business has proven to have a clear path to profitability in China and other countries. In many overseas countries, such as those in the Middle East, the average order value is higher than in China, consumers are more willing to pay for services, and the profit margins for food delivery companies are also higher. Looking ahead to 2025, the financial resources allocated to overseas operations by the company will be significantly higher than in 2024, which will drive strong growth in business scale and rapid market share expansion, while the company will closely monitor return on investment and continuously improve efficiency.

Q: The company is operating in Saudi Arabia, with many new business segments expanding quarter-on-quarter. How should it balance investments in other new businesses this year, particularly in Meituan Youxuan? Considering the increased demand for overseas funding, what is the company's shareholder return plan for this year?

A: The company will continuously review its capital allocation strategy, covering new business investments and shareholder return plans. For each new business, investment returns will be carefully assessed, and business strategies will be flexibly adjusted based on evaluations, to ensure healthy growth of new businesses and achieve long-term financial objectives. Some new businesses, such as catering, bike-sharing, or shared power banks, have already achieved market leadership and are continuously improving efficiency, and this positive momentum is expected to continue in the future.

Meituan Youxuan underwent significant strategic adjustments last year, resulting in a notable improvement in efficiency, with clear enhancements in product quality, categories, pricing, and the quality of service provided by group leaders. The company is reshaping the product-related capabilities of Meituan Youxuan, which is a key differentiating factor from peers, but the transformation of the supply chain is not an overnight process and will not be immediately reflected in the profit and loss statement. The Chinese grocery market is vast, with a relatively low online penetration rate, and Meituan Youxuan remains a key model for exploring this market. Its unique business model can reduce procurement costs, minimize fresh produce waste, and eliminate store operating expenses. If it can continue to enhance product capabilities, operational efficiency, and service quality, it is expected to achieve profit margins comparable to offline retail channels in the long run.

While accelerating overseas business, the company will continue to enhance the operational efficiency of other new businesses based on long-term strategies and financial goals. This year, it is expected to repay approximately $1.5 billion in convertible bonds (which can be exercised early) and $750 million in maturing corporate bonds. The issuance of approximately $2.5 billion in senior notes last September has strengthened the offshore cash position, and the company expects to maintain a stable and sufficient offshore cash reserve each year. It will continue to use stock buybacks rather than dividends as the primary means of shareholder return, first offsetting the equity dilution caused by the employee stock ownership plan (ESOP), and on this basis, remain flexible to seize good market windows to further reduce the total number of circulating shares to enhance shareholder returns.

Q: Given the current scale of the takeaway business, what are the key areas and strategies to drive further penetration and maintain order growth? After strong growth in the flash purchase business last year, what is its strategic focus? With the company's increased support for merchants and broader benefits, what are the profit growth expectations for the takeaway business this year?

A: Management remains very confident in the potential of instant delivery services, including takeaway and non-food delivery. In terms of takeaway, although the user base is already large, there is still a focus on attracting new users, especially younger ones. New users have a higher initial purchase frequency and average revenue per user (ARPU) than early users, and their growth momentum is faster; existing users are also increasingly ordering takeaway more frequently across a wider range of scenarios and periods It continues to innovate on the supply side, such as the new supply innovations like "Pin Hao Fan" that can attract consumer demand, increase frequency, and overall efficiency. It is expected that the transaction frequency and number of monthly transaction users for instant delivery will continue to grow.

In non-food areas, Meituan's flash purchase performance is strong, with growth rates faster than takeout, continuously empowering merchants and brands for online operations, deepening cooperation with brand retailers, and improving supply; on the consumer side, it strengthens the mindset of "everything delivered to home," enhancing consumer stickiness to instant delivery services. The company maintains its vision and goal of exceeding 100 million daily orders in the instant delivery business.

The company is also increasingly focused on the healthy growth of the overall ecosystem. Last quarter, it launched a merchant support project with over 1 billion yuan in funding; it will also introduce a social security pilot project for riders under regulatory guidance, expected to launch in some cities in the second quarter of this year, gradually promoting it nationwide in the coming years. This plan may be further adjusted based on feedback, which may increase overall costs, but in the long run, the entire ecosystem, including the platform, will benefit from it, and efficiency improvements can offset incremental costs.

In addition, it continues to strengthen food safety management, such as the recent launch of extensive monitoring projects, providing digital cameras, and requiring merchants to open their kitchens for online display. It believes that a better food safety environment can further stimulate consumer demand, ultimately enhancing long-term competitiveness and bringing sustainable growth. Overall, with improvements in efficiency, expansion of economic scale, and enhancement of operational leverage, there is great confidence in achieving stable profit growth in the instant delivery business.

Q: What is the current competitive landscape of the in-store business? After rapid growth in the past two years, what are the expectations for GTV in the in-store business? Can you introduce the cost sales measures of the Shen Membership for in-store hotel and tourism businesses?

A: The in-store business has seen very rapid GTV growth in the past two years, and it is expected that the growth momentum will remain strong in the coming years. Compared to physical goods e-commerce, the online penetration rate of the wide variety of in-store businesses is still relatively low. The company will continue to drive user acquisition and consolidate its competitive advantage. In terms of competition, the company differs from competitors in business models, value propositions to consumers and merchants, and operational strategies, with variations in category combinations, merchant scale, and marketing efficiency.

In the current consumer environment, the demand for digitalization from consumers and merchants is continuously growing, and this trend will deepen the industry's online penetration rate. The current competition in core categories is relatively stable, and the company has effectively defended its market leadership position. In the future, the company will fully leverage its share-based model advantages, expand supply, enhance price competitiveness, continue to expand and optimize promotional activities and consolidate its position as the preferred platform for merchants' online operations and marketing.

Recently, the company renamed its other in-store service business to the service retail department, merging the leisure entertainment and beauty departments into the "Beautiful Life" department. In July last year, the Shen Membership plan was promoted nationwide across all major categories of core local business, further expanding in the fourth quarter to more categories such as group tours and attraction ticketing. Orders using Shen Membership account for over 40% of the total orders in core local business, with a higher contribution to GTV. Over 70% of in-store hotel and tourism merchants participate in the Shen Membership plan, which helps strengthen consumer mindset and effectively guide user traffic to a broader range of categories. Currently, transactions directly from Shen Membership account for 10% of the total retail service transaction users, and the company continues to make progress in user acquisition, retention, and purchase frequency. Soon, the God Membership Program will be upgraded to the Meituan Membership Program, which is expected to unify the membership brand, integrate a wider range of category scenarios, and offer more diverse benefits, further strengthening the company's leadership position in the ecosystem.

Q: After one year of organizational restructuring in the core local business, how does the management view the long-term growth trajectory of this business, including CAGR and profit margin prospects?

A: It has been about a year since the organizational restructuring of the core local business, and the progress has been quite smooth, with overall developments meeting expectations. Despite being a significant internal organizational adjustment occurring in a very complex and changing market environment, the company has successfully consolidated its leading position in local service demand. Since the restructuring last year, the company has integrated the businesses within the core local commerce, forming three key platforms: the Meituan platform, the infrastructure platform, and the business R&D platform, which has made marketing integration, user growth strategies, large language model development, and product innovation for consumers and merchants more efficient.

The company has also strengthened user perception in five core business areas: food delivery, Meituan flash purchase, service retail, hotel tourism, and pharmaceutical health. With the upgraded organizational structure and synergies, the company will continue to optimize products and services, leverage artificial intelligence to drive business growth, and further enhance user experience and engagement. Through the Meituan Membership Program, it is expected to create more synergies across these five business categories. The company is confident in further enhancing user perception and its leading position in the local service sector, and is excited about the potential that artificial intelligence brings to the business, believing that smarter systems will create better value propositions for consumers and merchants, helping to achieve the mission of "helping everyone eat better."

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