Meituan (Minutes): It is expected to incur significant losses in Q3, with resources prioritized for core businesses.

The following are the overall$MEITUAN(03690.HK) FY25 Q2 earnings call minutes by Dolphin Research. For earnings interpretation, please refer to "The warm-up match has swallowed billions in profits! Is Meituan really facing a 'wolf'?""

I. Review of Core Financial Information

1. Cash Flow

- As of June 30, 2025, Meituan maintained a strong net cash position, with cash and cash equivalents and short-term treasury investments totaling RMB 171 billion.

- This quarter, cash flow from operating activities significantly decreased year-on-year to RMB 4.8 billion, primarily due to the company's strategic decision to lower operating profitability in response to competitive investments.

2. Guidance

a. Short-term and Long-term Outlook: The company expects intense competition to persist in the short term, potentially negatively impacting financial performance. However, management emphasized the resilience of Meituan's core local commerce business, which has been validated across multiple cycles, and expressed confidence in maintaining healthy, high-quality growth in the long term.

b. Strategic Direction: The company aims to enhance products and services by applying technology and launching more innovative offerings to better meet consumer needs. Meituan will continue to empower the local service industry, further unlocking its long-term potential.

c. Business Development Pace: The Xiaoxiang Supermarket model will gradually expand to all first- and second-tier cities nationwide. Internationally, KeeTa will continue to leverage the company's expertise in product, technology, and operations to deliver exceptional experiences to global consumers. The company firmly opposes "involution," aiming to focus on improving user experience, enhancing supply, and steering competition back to the track of value creation.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Business Performance

- User Growth: Total monthly active users (MAU) exceeded 600 million, with the main app MAU surpassing 500 million. The annual transaction frequency reached a record high, with the average user transacting at least once a week.

- On-demand Delivery: The industry has entered a new phase with intense competition. In July, the highest single-day on-demand delivery order volume reached 150 million orders. Revenue from the core local commerce segment grew by 7.7% year-on-year to RMB 65.3 billion. Operating profit decreased year-on-year to RMB 3.7 billion, with the profit margin contracting to 5.7%. Overall on-demand delivery order volume achieved moderate year-on-year growth acceleration, while the year-on-year growth of total transaction value (GTV) remained flat compared to the previous quarter, despite a decline in average order value (AOV).

- Food Delivery: Successfully attracted a larger new user base and strengthened core user loyalty. Through membership and diversified marketing activities, effectively enhanced core user stickiness and transaction frequency, while deepening penetration in high-value scenarios such as family dining and premium meals.

- Meituan Flash Purchase: Consolidated its leading position, with GTV achieving stronger growth than order volume, and accelerated user growth. Approximately 20 million new users tried the 30-minute delivery service for the first time this quarter. Core user transaction frequency significantly increased, with consumption scenarios expanding from fresh groceries to 3C electronics, cosmetics, and maternal and infant products.

- In-store Business: Maintained strong growth momentum, with order volume growing over 40% year-on-year and annual transaction users increasing by over 20%, reaching a new high in annual active merchants. During the Labor Day Golden Week, GTV for hotels and travel also reached a new high. Both order volume and GTV hit record highs this quarter, with strong growth across categories such as fitness, photography, and education.

- New Business: Revenue from the new business segment grew by 22.8% year-on-year to RMB 26.5 billion. Operating losses and loss rate both narrowed quarter-on-quarter, decreasing to RMB 1.5 billion and 7.1%, respectively. The year-on-year increase in operating losses was mainly due to increased investment in overseas business. Xiaoxiang Supermarket maintained very high growth, significantly outperforming the industry average.

2. Supply-side Advantages and Innovation

- Catering Category: The company promotes supply-side innovation and builds a sustainable ecosystem through collaboration with merchants.

- Brand Satellite Stores: Collaborated with over 800 chain restaurants to launch more than 5,500 brand satellite stores, helping them optimize online operational efficiency and reduce costs through AI-driven solutions.

- Raccoon Canteen: As part of the "Central Kitchen" initiative, continued expansion, setting a new benchmark for food safety across the industry.

- Pin Good Meal: Has become the fastest-growing innovative product in the industry over the past five years, providing a reliable source of income for small and medium-sized merchants and catering brands. Recently launched the "Ten Thousand Brand Initiative," offering tailored support to 10,000 brand restaurants nationwide.

- On-demand Retail: By the end of the second quarter, the company had partnered with retailers and brands to establish over 50,000 Instamart locations nationwide. This facilitated the digital transformation of numerous local mom-and-pop stores, expanded service radius, and improved operational efficiency.

- In-store Business: Actively seized emerging opportunities in the service retail industry, such as new category innovative supply models and growth potential in lower-tier markets, while continuously promoting merchant digital upgrades and standardization. The company also helped over 1 million independent artisans digitize their personal profiles and match them with consumer demand. Recently, a series of AI business assistants were launched in the merchant interface and have begun to be promoted to more service retail merchants.

- Xiaoxiang Supermarket: Continually improved product quality and diversity, with the number of private label products and their contribution to total sales steadily increasing.

3. Merchant and Consumer Support

- Merchant Support: The company simplified marketing plans to reduce merchants' operational burden, redirecting industry focus towards quality improvement.

- Consumer Experience: The company is firmly committed to service quality and consumer experience.

- Meituan Instant Shopping Service: Launched the service insurance plan "安心闪购，" upgrading services from three dimensions: service experience, fulfillment, and after-sales support. Collaborated with numerous home appliance brands to provide value-added services such as half-day installation services through offline stores.

- In-store Business Consumer Support: Further strengthened consumer perception of finding stores and deals on Meituan. Leveraged membership to offer consumers richer benefits and a better service experience, launching more in-store benefits for different membership levels this quarter.

- Membership Program: The upgraded membership program deepened cross-business collaboration within the core local commerce, driving higher engagement across all user groups.

- Hotel and Travel Cooperation: Deepened strategic cooperation with Marriott International, officially launching a co-branded membership program. On the first day of cooperation, Marriott hotel bookings on the Meituan platform increased by 88% year-on-year.

4. Social Responsibility and Ecological Development

- Rider Welfare Protection: The company is committed to developing a comprehensive welfare protection plan for riders, ensuring competitive compensation, flexible working hours, and safety guarantees. Since July 1, occupational injury insurance coverage has been expanded to all riders in 17 provinces and cities. The pension insurance subsidy program will be rolled out nationwide, expected to cover over 1 million riders by the end of this year. A RMB 1.6 billion summer subsidy fund has been established, and the "Serious Illness Mutual Fund" has expanded to cover more diseases, now including the children of part-time crowd-sourced riders.

- Rider Home: In collaboration with ecosystem partners, Rider Homes have been established in multiple provinces and cities, providing free services such as emergency assistance, rest areas, supplies, battery replacement, and charging facilities for all riders, even those from other platforms.

5. Future Outlook

- The company believes that industry progress does not come from temporary scale expansion driven by large-scale short-term subsidies, but through empowering merchants with digital transformation to reduce operating costs, improve operational efficiency, and enhance quality.

- The company aims to focus on improving user experience, enhancing supply, and steering competition back to the track of value creation.

- Whether through technological breakthroughs or business model innovation, Meituan will always prioritize sustainable industry growth, nurturing a healthy ecosystem, and unlocking greater consumer potential.

- Intense competition is expected to persist in the short term, negatively impacting financial performance, but there is confidence in maintaining healthy, high-quality growth in the long term.

2.2 Q&A Session

Q: Regarding competitors continuously offering high subsidies, can management elaborate on our response strategy and its effectiveness? Has competition significantly impacted our market share?

A: We firmly oppose "involution" and are committed to defending our market position, achieving growth and shaping a leading position through competition. The company focuses on business fundamentals, providing quality choices, fast and reliable delivery, and consistently affordable prices. Although we achieved RMB 1 profit per order in the past few quarters, the highest daily order volume has significantly exceeded 150 million orders amid recent intense competition, but we have not achieved RMB 1 profit per order. Management believes that it will take effort in the coming years to achieve both goals simultaneously. The company does not believe that short-term price wars will have a significant impact on long-term strategy.

Q: What is your view on the industry evolution driven by price wars?

A: Management believes that the success of instant retail as a retail form is attributed to fundamentals: more choices, good prices, and delivery services. Although competition is intense in the short term, the company focuses on returning to basics, expanding the market, increasing sales, and improving unit economics by providing better choices, fast and reliable delivery, and consistently affordable prices. This strategy aims to create more value for consumers, merchants, and riders, and the company does not believe it will be significantly affected by short-term price wars.

Q: What is our core advantage in maintaining competitiveness amid current intense competition?

A: The company's core competitive advantage is based on long-term focus on business fundamentals, providing quality choices, services, and prices. By introducing merchant digital operations, building a standardized large-scale fulfillment network, improving delivery efficiency, and supply-side innovation, the company has accumulated a large, high-quality user base. The flywheel effect formed by users, merchants, and riders, combined with strong execution and cross-business synergies, consolidates the company's market position. The company also continues to invest in the industry ecosystem to drive long-term high-quality growth.

Q: Given the intense competition, do we have any new insights into the long-term total addressable market (TAM) of the food delivery industry? What are our medium- to long-term growth targets for order volume, gross transaction value (GTV), and market share? How do we quantify the impact on short-term profits and the recovery trajectory of medium- to long-term profits?

A: Management believes that food delivery has become an indispensable part of consumers' daily lives, with clear long-term growth potential. A daily order volume of 100 million is an achievable number, not just a long-term target, but the average order value (AOV) may fluctuate. The company is more focused on the long-term growth of high-quality orders. Despite intensified short-term competition, the company remains committed to building a healthy ecosystem and is confident in the long-term leadership of the catering category in terms of gross transaction value (GTV). The company has industry-leading operational efficiency, and the advantage in unit economics is further expanding. The core local commerce is expected to incur significant losses in the third quarter due to strategic investments such as increased incentives and marketing, but unit economics are expected to return to reasonable levels in the long term.

Q: As major e-commerce companies continue to increase investment in instant retail, what differentiated competitive advantages does Meituan have in this market? What progress has been made in recent category expansions?

A: Meituan's differentiated competitive advantage in the instant retail sector lies in its largest network, rich choices, fast and reliable delivery, and consistently affordable prices. The company has established a nationwide hyper-local supply network and delivery network through early deployment, investing significant resources in building IT infrastructure and marketing tools. In terms of category expansion, the company has accumulated over a million retailers, covering almost all offline retail categories. The company has launched innovative supply forms such as Meituan Grocery, empowering tens of thousands of stores and deepening cooperation with brands. Notably, the company has launched the "24-hour Pharmacy" and high-end flower shop brand "One Flower One Wave," as well as upgraded service experiences such as chilled beer, meeting the incremental market demand not developed by traditional channels.

Q: Has management formed any new views on the long-term total addressable market (TAM) and profit potential of instant retail? What are the medium- to long-term growth and profit targets for Meituan Flash Purchase?

A: Management believes the market is still in the early stages of penetration, and the investment by major e-commerce platforms highlights its enormous growth potential, believing the market will far exceed expectations. The company is committed to cultivating consumer habits by providing stable, high-quality services and better supply. Meituan Flash Purchase has high user loyalty and strong consumption capacity. Although it has been profitable consecutively, the current priority is growth rather than short-term profit, and the company will continue to invest to consolidate market leadership. The long-term profit target remains unchanged, and it is expected to return to reasonable levels after subsidies decrease. The company is confident in the growth of Meituan Flash Purchase in the coming years, striving to capture more incremental demand in market expansion.

Q: Regarding the in-store business, what is the latest competitive landscape? What are the latest developments in in-store dining and service retail?

A: The competitive landscape of the in-store business is stable, with the company's primary focus on the long-term healthy development of the business. The company has differences in business models and operational strategies compared to competitors, with unique advantages in category composition, merchant ecosystem, and operational efficiency. To meet the growing demand for value for money, the company has expanded the coverage of high-quality, low-priced products and optimized subsidy strategies. Meanwhile, the company has expanded the scenario coverage of AI business assistants, helping merchants reduce costs and improve efficiency. In lower-tier markets, targeted group buying products have achieved rapid growth in transaction users and gross transaction value (GTV).

Q: Since the launch of Meituan Membership, what positive progress can be shared, especially in terms of cross-selling and quantitative results?

A: Meituan Membership has continued to make positive progress, launching a membership rights system covering food delivery, in-store dining services, retail, hotel travel, Meituan Flash Purchase, healthcare, and shared bicycles. In the second quarter, the net number of membership upgrades exceeded 10 million, with a higher proportion of high-level Black Gold and Black Diamond members, whose order volume and gross transaction value (GTV) grew faster. By rotating rights between different services, cross-selling was effectively promoted. The company is working to position Meituan Membership as a universal plan for local services and has launched a co-branded membership program with external merchants such as Marriott Hotel Group, offering better rights and precisely reaching target customers.

Q: Can you share the reasons and main considerations behind the decision to scale down Meituan Select, accelerate the expansion of Xiaoxiang Supermarket, and explore the "Happy Monkey" offline hard discount model?

A: The adjustment to scale down Meituan Select and accelerate the expansion of Xiaoxiang Supermarket is based on further developing instant retail, particularly the fresh grocery category, which is huge and aligns with the company's mission. Xiaoxiang Supermarket is growing rapidly and is currently one of the largest and fastest-growing online fresh businesses. The company plans to invest more resources in developing Xiaoxiang Supermarket and exploring the "Happy Monkey" offline hard discount model, aiming to cover lower-tier market users who prefer physical store shopping, offering a limited selection of products but highly competitive prices for in-store shopping experiences.

Q: After scaling down Meituan Select, what is your capital investment plan in fresh retail? What are the growth expectations for Xiaoxiang Supermarket in the next two to three years and its long-term profit potential?

A: After scaling down Meituan Select, the company's overall capital expenditure in the fresh retail sector will be significantly lower than in the past two years, with more resources invested in the expansion of Xiaoxiang Supermarket. Xiaoxiang Supermarket currently has nearly 1,000 stores in 20 cities, with plans to cover all first- and second-tier cities, and is expected to continue to outperform industry growth in the coming years. In terms of profitability, the company believes that fresh groceries are not a high-margin business, but expects to achieve a low single-digit net profit margin (note: possibly a slip of the tongue, should be net profit margin), such as 3%, at scale and with good overall efficiency. The company is patient and believes that streamlining will lead to better long-term growth.

Q: Can management share the latest progress of Keeta's overseas expansion and future expansion plans?

A: Keeta has made good progress in overseas markets, ranking first in Hong Kong. It entered Saudi Arabia in September last year and is currently among the top two, having expanded its coverage to about 20 cities, completing its geographical expansion in the region. The company has entered Qatar, the second destination in the Gulf Cooperation Council (GCC). For the Brazilian market, market research is still ongoing, with plans to expand the team, optimistic about the potential, but recognizing that competition will be very intense, so there is no rush to achieve results. Keeta's long-term goal is to reach an annualized gross merchandise value (GMV) of RMB 100 billion by May 2033.

Q: Given the need to allocate resources to address intense competition in the domestic food delivery market, what competitive advantages do Meituan or Keeta have over local players? Will the company control the pace and scale of overseas investments?

A: Meituan or Keeta's competitive advantage over local players lies in their focus on business fundamentals, providing the best choices, fast and reliable delivery, and consistently affordable prices. The company can replicate and adapt the IT infrastructure established in China to achieve relatively fast scaling and efficient operations. Regarding the pace and scale of overseas investments, the company stated that it is not in a hurry to achieve results, will comprehensively consider the latest situations in domestic and international markets, prioritize the development of existing markets, and prepare adequately for entering new markets to ensure the creation of new value for consumers, merchants, and riders.

Q: Does the company plan to set an overall investment cap to address competition in food delivery and on-demand retail in the short term? How will the pressure on core local commerce profits affect the company's future investment budget for overseas expansion and fresh retail?

A: The company has not explicitly set an overall investment cap but emphasizes investing in areas that can build long-term capabilities while avoiding unsustainable irrational spending, focusing on return on investment (ROI). Given the current intense competition, the company expects significant losses in the food delivery and core local commerce segments in the third quarter. Despite the pressure on core local commerce profits, the company remains confident in the enormous potential of its core business and will prioritize resource allocation. For new businesses such as fresh retail and Keeta, the company has clear long-term goals and confidence, developing with a longer-term and patient perspective, managing the pace of expansion to ensure high-quality growth while investing based on resource availability and market opportunities.

Q: Can management outline the company's capital allocation priorities and strategy, and explain whether increased business investment might impact shareholder returns, including stock buybacks?

A: The company's capital allocation strategy prioritizes allocating resources to core businesses such as food delivery, instant retail, and in-store business because they have enormous market potential and are still in the early stages of development. The company will firmly invest in projects that can build long-term capabilities, such as providing the best choices, services, and prices. Although short-term profitability may fluctuate due to increased investment, the company expects that once industry subsidies return to normal, core local commerce will generate stable cash flow. Regarding shareholder returns, the company believes that stock buybacks are currently the most effective way to enhance shareholder returns, but given the current investment opportunities, plans to prioritize using cash for core businesses. The company will continue to evaluate market conditions and seek favorable opportunities for stock buybacks to create solid shareholder returns in the long term.

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