Meituan
HKEX:3690
Meituan
In the bustling landscape of China's digital economy, Meituan has carved out a formidable presence as a multifaceted platform, central to the lives of millions. Founded in 2010 by Wang Xing, the company began its journey as a group-buying site, reminiscent of the early days of Groupon. However, it swiftly evolved, embracing a far-reaching vision to become the indispensable marketplace for local services. At its core, Meituan functions as a super app, weaving together a diverse array of offerings—from food delivery and restaurant bookings to hotel reservations and ride-hailing services. This strategic integration of services enables Meituan to attract a vast user base, entrenching itself deeply into everyday consumer transactions across China.
Financially, Meituan capitalizes on multiple revenue streams to fuel its growth. Its most prominent income sources are commissions from merchants and service providers, advertising fees paid by businesses eager to engage its massive audience, and delivery fees charged to consumers. These streams are complemented by Meituan's foray into emerging sectors like grocery delivery, which has seen a surge in demand. The company's business model thrives on the network effect; as more users flock to the platform, more merchants and service providers are drawn to it, creating a virtuous cycle of growth. The synergy of data analytics and AI-powered recommendations further enhances user engagement, optimizing service delivery and efficiency. This technological prowess, combined with strategic partnerships and consistent innovation, positions Meituan as a key architect in shaping China's digital consumer experience.
Earnings Calls
In 2024, Meituan achieved a remarkable revenue growth of 22% year-over-year to RMB 337.6 billion, driven by a surge in annual Transacting Users to 770 million and Active Merchants to 14.5 million. Their on-demand delivery business remains a crucial growth driver, with daily peak orders exceeding 98 million. The company is also focusing on global expansion, launching its Keeta platform in Saudi Arabia. Looking ahead, the company expects to maintain strong operational efficiencies, with a targeted segment operating profit margin of 12.1%. Meituan is also investing heavily in AI and technology to enhance user experience and operational productivity.
Management
Xing Wang, also known as Wang Xing, is a prominent Chinese entrepreneur best known for founding Meituan, a leading e-commerce platform in China that offers services ranging from food delivery to hotel and travel booking. Born in 1979 in Longyan, Fujian Province, Wang Xing pursued his higher education at Tsinghua University, where he earned a degree in Electronics Engineering before furthering his studies in Computer Science at the University of Delaware. Wang Xing's entrepreneurial journey began with a series of internet ventures, including the social networking clone Xiaonei, which was similar to Facebook. This platform eventually became known as Renren. However, it was Meituan, founded in 2010, that brought him significant recognition and success. Under his leadership, Meituan evolved from a group-buying website into a comprehensive digital service platform, expanding its services to include food delivery, hotel and travel booking, movie ticketing, and more. Over the years, Wang Xing's strategic decisions and ability to adapt to market trends have solidified Meituan's position in China's highly competitive tech environment. His focus on user experience, strategic partnerships, and innovations in delivery logistics has helped the company become one of the largest of its kind in the world. Known for his low-profile lifestyle despite his success, Wang Xing is regarded as an influential figure in China's digital economy. His work has had a significant impact on the way services are consumed and delivered in China, marking him as an important player in the global technology and entrepreneurial landscape.
Mr. Rongjun Mu serves as the Chief Human Resources Officer at Meituan, a leading Chinese e-commerce platform that offers services spanning from food delivery to travel and entertainment. In his role, Mr. Mu is responsible for overseeing the company's human resources strategies, recruitment processes, talent management, and organizational development to build and maintain a productive and motivated workforce. Before joining Meituan, he gained substantial experience in human resources and management through various roles in different industries. With his expertise, Mu Rongjun plays a crucial role in aligning Meituan’s human resource policies with its broader business objectives, helping to foster a supportive work environment that drives the company’s growth and innovation.
Tao Zhang is a well-regarded business executive and entrepreneur known for his significant contributions to the technology and finance sectors. He co-founded Meituan, one of China's leading e-commerce platforms for services, in 2010. Meituan offers a wide range of services, including food delivery, hotel and travel bookings, and various lifestyle services, becoming a crucial part of China's internet services landscape. Before establishing Meituan, Tao Zhang was involved in various entrepreneurial ventures and gained substantial experience in the tech industry. His leadership and strategic vision have been instrumental in Meituan's rapid growth and success, helping it to expand and diversify its offerings to millions of users across China. Under his guidance, Meituan has also taken significant steps in integrating advanced technologies, such as AI and big data, to enhance service offerings and improve customer satisfaction. His work has earned him a reputation as an influential figure in the Chinese tech ecosystem.
Shaohui Chen currently serves as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform for services. He joined Meituan, known for its comprehensive service offerings ranging from food delivery to travel services, bringing with him a wealth of experience in financial management and corporate strategy. Before joining Meituan, Shaohui Chen held significant roles in other major corporations. He worked at Alibaba Group, where he gained extensive experience in the internet and technology sectors. His expertise contributed to Alibaba's financial strength and strategic growth initiatives. Chen has an academic background that includes high-level qualifications in finance and economics, which have been fundamental in his role as a financial executive. His leadership style is characterized by a focus on strategic financial planning, operational efficiency, and innovation-driven growth. Under his financial stewardship, Meituan has continued to enhance its market position and navigate the competitive landscape of the tech industry in China. His work at Meituan involves overseeing financial operations, investor relations, and providing strategic guidance to ensure sustainable growth and profitability.
Chuan Zhang is a prominent Chinese business executive known for his role in Meituan, a leading technology company in China that offers a broad platform for local services and products, from food delivery to travel and entertainment services. As a crucial member of Meituan’s leadership team, he has played a significant role in the company's strategic direction and operational efficiency. Zhang has contributed to the rapid growth and success of Meituan by leveraging his extensive experience in the tech industry. His leadership skills and innovative approaches have helped Meituan expand its reach and maintain a competitive edge in the fast-evolving market of on-demand services in China. Beyond his responsibilities at Meituan, Chuan Zhang is recognized for his insights into the digital economy and often participates in industry discussions about the future of technology and service-based platforms. His strategic vision continues to influence Meituan's growth trajectory and adaptation to new consumer trends.
Puzhong Wang is a prominent executive associated with Meituan, a leading Chinese e-commerce platform that specializes in local services, including food delivery, hotel booking, and travel services. He has served in vital roles within the company, contributing significantly to its strategic growth and expansion. Wang's expertise in business development and operations has been instrumental in leading Meituan's initiatives to enhance user experience and operational efficiency. His leadership skills have been recognized as a driving force behind Meituan's ability to navigate the competitive landscape of the digital commerce industry in China. His role often involves overseeing key projects, optimizing service offerings, and implementing innovative solutions to meet consumer demands.
Yee Wa Lau is known for serving as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform for services. Prior to her role at Meituan, Lau has amassed extensive experience in financial management, having held significant positions in major corporations. She worked at Goldman Sachs in both the Hong Kong and Beijing offices and later joined AIA Group Limited, where she took on various roles, including Group Head of Business Development. Her expertise in financial strategy and management has made her a key figure in Meituan's financial operations, contributing to the company’s growth and financial strategy in the competitive e-commerce space.
Ms. Sijia Xu is known for her role as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform specializing in the delivery and sale of local consumer products and retail services, including food delivery, hotel and travel services, and other consumer offerings. Xu has been instrumental in steering Meituan's financial strategies and operational efficiencies. She joined Meituan with a wealth of experience in finance and capital markets, bringing valuable insights into corporate finance, investment strategies, and financial planning. Her leadership has been crucial in managing Meituan's financial health and navigating the complex regulatory and competitive landscape of China's tech industry. Sijia Xu's expertise extends beyond financial management; she has played a significant role in investor relations and has been active in maintaining transparent communication with stakeholders. Her strategic input has been vital in Meituan's continued growth and expansion in various service sectors. Throughout her career, Xu has been recognized for her analytical skills and strategic acumen, contributing significantly to Meituan's position as a major player in the global e-commerce market.
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Thank you for standing by, and welcome to the Meituan Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.
Thank you, operator. Good evening, and good morning, everyone. Welcome to our fourth quarter and fiscal year 2024 earnings conference call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our fourth quarter and fiscal year 2024 results and then conduct a Q&A session.
Before we start, we would like to remind you that our presentation contains forward-looking statements, which include a number of risks and uncertainties and may differ from the actual results in the future. This presentation also contains unaudited non-IFRS accounting standard financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFRS accounting standards. For a detailed discussion of risk factors and non-IFRS accounting standard measures, please refer to the disclosure document in the IR section of our website.
Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing.
Thank you, Scarlett, and good evening, everyone. 2024 was an important year for Meituan. We adapted to the evolving consumption trends and facilitated industry transformation. For the full year of 2024, our total revenue increased by 22% year-over-year to RMB 337.6 billion.
Annual Transacting Users exceeded 770 million, and annual Active Merchants increased notably to 14.5 million. Average purchase frequency of annual Transacting User reached a new high. And as a leading platform for local services, we explored new growth opportunities through industry innovations and brought changes to consumers' daily lives and merchants' business operations.
As we maintained a steady growth in all our core business areas, we also helped unleash consumer demand in the local services. In food delivery, we further expanded consumption scenarios and broadened the price bands through our ongoing innovations on the supply side. In Meituan Instashopping, we significantly expanded product selections through Meituan InstaMart, effectively spurring consumer demand in on-demand retail. Regarding the in-store business, we unlocked the consumption potential in services retail through a wider selection of value-for-money group-buy deals.
Meanwhile, we actively expanded into the overseas markets. In the fourth quarter, Keeta officially launched in Saudi Arabia, bringing China's speed to Saudi Arabian consumers for food delivery services. In addition, we continued to drive innovations and apply advanced technologies in the on-demand delivery space. For example, by year end of 2024, the accumulated number of commercial orders fulfilled by our autonomous vehicles and drones have reached 4.9 million and 1.45 million, respectively. Our drone business also started commercial operation in Dubai recently. In the long run, we believe technology will continue to transform the retail industry and will help us better fulfill our mission to help people eat better, live better.
In 2024, we achieved steady growth in our on-demand delivery business, with peak order -- a daily order volume exceeding 98 million on the first day of autumn season. And we are delighted to see that food delivery has become an important growth driver for the restaurant business. And on-demand retail has become an indispensable component of the retail industry and the lifestyle of more young people.
As an industry leader, our on-demand delivery business actively adapted to the evolving consumption trend. We further improved our consumer mindshare of value for money and cultivated a more efficient and inclusive ecosystem. We explored supply chain innovations and refined operations, enhancing our ability to cope with different consumer demands.
Especially, the development of new supply models created growth opportunities and helped the merchant withstand external challenges, further solidifying our competence on the supply side. For example, during 2024, the order volume of Pin Hao Fan kept hitting new highs. Pin Hao Fan has redefined affordable catering as an innovative business model that benefits both merchants and consumers. We continue to expand supply, enhance food safety control and improve the user experience of Pin Hao Fan, which incentivized the consumer demand in more scenarios and lifted the consumer purchase frequency.
For branded merchants, the Branded Satellite Store is a new way to expand the business scale at a lower cost. This model allows branded merchants to offer better price than in-store dining and bring consumers affordable and high-quality options.
Meituan InstaMart is another good example. In the past year, the number of Meituan InstaMart and its order contribution both experienced rapid growth. The progress was even more evident in the lower-tier markets, and that has helped deepen online penetration of on-demand retail.
Product diversity of Meituan InstaMart was substantially improved not only for convenience store supply but also in many other vertical categories. In 2024, many large traditional retailers actively embraced the Meituan InstaMart model. It complements traditional off-line retail supply and enhances the convenience of on-demand retail, which further stimulate consumer needs.
Our advantage on the supply side has significantly enhanced our brand awareness and elevated consumer experience. On-demand retail is no longer just about fulfilling consumers' urgent needs. It has evolved into a lifestyle characterized by a high level of certainty.
Additionally, we continued to improve our services across different on-demand delivery categories. For example, consumers can enjoy one-stop services, covering home testing, online diagnosis, medical insurance payment and on-demand delivery when purchasing medicines on our platform.
As our on-demand delivery business grows, we remain steadfast in our commitment to cultivating a sustainable ecosystem. On the merchant front, we streamlined our promotional schemes, standardized marketing activities, which largely mitigated irrational competition of the industry. We have further enhanced the food safety management and improved the governance of malicious negative reviews.
We also launched an RMB 1 billion merchant support program in the fourth quarter. By offering cash support and platform subsidies, we aim to help merchants improve their service quality, optimize efficiency and explore innovations. For example, we provided digital tools and operational services free of charge for time-honored brands. Additionally, we largely extended the duration of traffic support for newly onboarded small- or medium-sized merchants.
Regarding couriers, enhancing their rights and benefits and improving their work experience are our top priorities. Under the guidance of government authorities, we have accumulated provided RMB 1.4 billion in occupational injury insurance for all the couriers in 7 piloted provinces and cities since July 2022.
Moreover, we implemented a series of courier-friendly measures. These include the introduction of anti-fatigue features in our system and providing special caring and accommodations for deaf and hearing-impaired couriers. We also provided support to the family members of numerous couriers, who are facing major illness or are in need of educational aid.
Moving forward, we will continue to invest in the ecosystem to drive sustainable development of the industry. Specifically, through in-depth research and under the guidance of relevant authorities, we have come up with a pilot plan for couriers' social security. We will roll out in some cities in the second quarter of 2022 -- 2025.
In 2024, we actively adapted to the changing consumption trends and achieved a rapid growth in the in-store business, thanks to our refined operations, new category expansions and accelerated penetration into lower-tier markets. For the in-store business, order volume increased by over 65% year-over-year in 2024. Both annual Transacting Users and annual Active Merchants broke new highs.
As China's leading platform for local services, we provide the merchants integrated solutions that encompasses business infrastructure plus marketing tools plus digital asset accumulations. After our organizational restructuring, we further integrated all the resources across different business lines and provided the merchants with a richer business infrastructure and traffic support.
We offered the merchants with more customized, diversified and efficient marketing tools through Special Deals sessions, live streaming events and theme-based campaigns. We also provided merchants with various tools and services, such as consumer insights, review management and ranking list to help a merchant refine business operations and accumulate digital assets. Moreover, the upgraded Shen Hui Yuan membership directed our high-quality food delivery user traffic to in-store merchants, helping them improve marketing efficiency and boost transactions.
Our solidified advantages on the supply side helped us further enhance consumer mindshare and drive business growth. In 2024, we actively capitalized on consumers' preference to access a wider array of leisure and entertainment services at more affordable prices, delivering our extensive offerings, strong brand awareness and high-quality services. We continue to expand into new categories and effectively incentivize consumption.
Additionally, to capture the rising trends of county economy and further drive the demand for services retail, we accelerated the penetration of our in-store business in the lower-tier markets. We developed easy-to-use operating tool kits for the small- and medium-sized merchants there, which lowered merchants' online operating barrier and accelerated merchant onboarding. We continued to enrich our offerings in group-buy deals and packaged offerings through our tailored Special Deals session in those lower-tier market. As a result, our in-store business have achieved a robust growth in the lower-tier markets in 2024.
In 2024, consumer demand for hotel and travel on our platform remained robust, with the lower-tier cities' niche travel destinations, value-for-money choices and local accommodations emerging as new trends. Fully tapping into our strengths in the lower-tier markets and lower-star hotels, we strengthened our collaborations with industry partners and improved diversity and price competitiveness of our offerings.
Meanwhile, we further leveraged our platform advantage and enhanced cross-sells with other categories. We identified the consumption needs in transportation, in catering and entertainment when consumers make travel plans and integrated resource across different categories to further refine our Hotel+X packaged deals.
On the merchant side, we precisely directed our user traffic, including the user traffic from our Shen Hui Yuan membership program, to many low-star hotel merchants and offered comprehensive online tools and room renovation solutions. Moreover, we deepened our collaboration with high-star hotel in joint membership and joint marketing programs. Several leading hotel brands like Marriott, Wyndham and InterContinental have actively participated in our Shen Hui Yuan membership program.
For New initiatives in 2024, we continued to refine our operations in grocery retail and software and hardware services and significantly improved their operational efficiency. We solidified our industry leadership in most of the new initiatives and accelerated our exploration in the overseas markets.
After launching Keeta in Riyadh last of October, we further expanded Keeta to all the major cities in Saudi Arabia, with the user base and order volume growing rapidly. In the long run, we will continue to bring high-quality products and services to consumers and merchants in more regions around the world and help more people eat better, live better.
Looking ahead, we will continue to facilitate the industry digital transformation, improve merchant operational efficiency and help unleash consumption potential. While resolutely executing our Retail + Technology strategy, we will actively embrace and expand investment in cutting-edge technologies, such as AI or unmanned aerial delivery or autonomous delivery service vehicles, and accelerate the application of these technologies. And we are committed to fully integrating AI into consumers' daily lives and help people eat better, live better.
Furthermore, as an industry leader, we will also show that our social responsibilities, create more job opportunities and improve welfare for the couriers and cultivate sustainable development of the local services ecosystem.
With that, I will turn the call over to Shaohui for an update on our financial results.
Thank you, Xing. Hello, everyone. I will now go through our fourth quarter financial results. During this quarter, our business sustained healthy growth, with our total revenue increasing by 20.1% year-over-year to RMB 88.5 billion.
Cost of revenue ratio decreased 3.9 percentage points year-over-year to 62.2%, primarily due to the improved gross margin of our on-demand delivery business and the grocery retail business and strengthened operating leverage. Selling and marketing expenses ratio decreased 3.1 percentage points year-over-year to 19.6%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 6.1%, primarily benefiting from improved operating leverage. G&A expenses ratio was 3.3%, remaining stable.
Our strategic focus on quality growth and operational efficiency continued to deliver strong results. This quarter, total segment operating profit grew to RMB 10.7 billion, up from RMB 3.2 billion last year. And total segment operating margin increased from 4.3% to 12.1%. On a consolidated basis, our adjusted net profit increased year-over-year, reaching RMB 9.8 billion this quarter.
Turning to our cash position. As of December 31, 2024, we maintained our strong net cash position, with our cash and cash equivalents and short-term treasury investments totaling RMB 168.2 billion. Cash generated from operating activity increased meaningfully year-over-year to RMB 16.9 billion.
Now let's review our segment results. Starting with Core local commerce. Order volume growth for food delivery and certain nonfood category was softer compared to Q3 '24 due to factors including much warmer weather conditions during winter season and earlier return of working population from high-tier cities to lower-tier cities for the year-end celebration and et cetera.
For food delivery, the transaction frequency of mid- to high-frequency users continue to grow year-over-year. Our rapid expansion and continuous acceleration of Pin Hao Fan also allow us to further capture consumers' demand for low-priced meals. We also made strong progress in converting more food delivery users to Meituan Instashopping users, driving their greater engagement across a wider range of nonfood category. Except for the on-demand medicine category, which saw a tough base due to the widespread of flood last year, the rest of the nonfood category stayed on a strong growth track.
Number of transactions for our in-store increased by high 40s year-over-year this quarter. Our expansion into lower-tier markets has accelerated, driving meaningful increase in merchant base, user engagement and transaction volumes in Q4. Our continuous acceleration on Special Deals supply have also catalyzed increased demand for light meals and beverage. Additionally, our ongoing optimization of the Shen Hui Yuan program has enhanced traffic, driving up consumption frequency across the in-store hotel and travel categories.
Our Core local commerce segment continued to deliver strong year-over-year revenue growth of 18.9%, reaching RMB 65.6 billion. We are pleased to see that the year-over-year decline in AOV for both on-demand delivery and in-store hotel and travel narrowed sequentially in this quarter.
Delivery service revenue grew faster than the order volume of on-demand delivery on a year-over-year basis due to several reasons, including, first, user incentives deducted from delivery service revenue decreased as a result of the national rollout of Shen Hui Yuan program. Second, more merchants switching to Meituan's delivery service from their own fleet to save cost. Third, the increasing population of long-distance, nighttime and large-sized orders.
Commission revenue achieved robust growth, primarily driven by the rapid order growth from in-store business, partially offset by the decline of AOV across various categories. With respect to online marketing service revenue, more merchants, off-line retailers and brands adopted our advertising services, thanks to our upgraded marketing solutions that better meet their needs and boost their marketing efficiency.
Core local commerce segment's operating profit and operating margin both improved on a year-over-year basis to RMB 12.9 billion and 19.7%. We drove greater efficiency in marketing and operations across our Core local commerce businesses and realized greater operating leverage.
Turning to our New initiatives segment. During this quarter, revenue in this segment increased by 23.5% year-over-year to RMB 22.9 billion, mainly due to the development of our grocery retail business and overseas businesses.
Thanks to our efforts in improving operating efficiency in our grocery retail business, the segment's operating loss and operating loss ratio both narrowed on a year-over-year basis to RMB 2.2 billion and 9.5%, respectively. The sequential increase in operating loss was mainly due to our increased investment in our overseas business, unfavorable seasonality for bike sharing, power bank and other new businesses.
In closing, 2024 has been a testament to Meituan's resilience and adaptability in a dynamic market. Our Core local commerce segment delivered solid results and achieved a number of impressive milestones. Our focus on high-quality growth and efficiency improvements also drove meaningful expansion in EBITDA and free cash flow. We remain confident in our business' long-term growth prospects.
With that, we are now open for Q&A.
[Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs.
My question is on the AI. So as AI technology continues and focusing on AI applications and agents, these app traffic entry points may shift through time. So how does Meituan assess this risk and make some corresponding strategies?
And on the AI topic, what are our AI and related tech investment plans? And how will we integrate these into our existing businesses to enhance competitiveness?
Thank you, Ronald. So of course, everyone is very concerned about AI. So allow me to deliver the key message loud and clear in the very beginning. Our -- in AI, our strategy is to play offense, not defense. When something as fundamentally revolutionary as AI is coming, the only strategy that makes sense is not trying to defend the way we already have.
I think the only sense that -- only strategy that makes sense is to use whatever you have to try to play offense. I think that's the only strategy because AI is changing so quickly and is going to change, disrupt or transform every industry. So we are both excited, and also I think it's quite, to some sense, frightened to see what's coming and what will come.
So here, I think we are quite well positioned at this because Meituan as a company bridging off-line businesses to online world, I think in the AI era, we will be well positioned to be the connection between digital world and physical world.
So I will elaborate more. Put it this way, our AI strategy builds upon 3 layers. The first one is AI at work. We are integrating AI in our employees' day-to-day work and our daily business operations and to significantly enhance the productivity and work experience for our over 400,000 employees.
And then second layer is AI in products. So we will use AI to upgrade our existing products and services, both 2B and 2C. And we will also launch brand-new AI-native products to better serve our consumers, merchants, couriers and business partners. More on that later.
And the third layer is building our own in-house large language model, and we plan to continue to invest and enhance our in-house large language model with increased CapEx. So far, we have made some progress in AI infrastructure, model training and applications, and we will further accelerate our AI exploration.
So I think on the first layer, AI at work, on the employee productivity front, we have our -- we have developed our in-house large language model. It's called longcat. By putting longcat side by side with external models, we have rolled out our very highly efficient tools for our employees, including AI coding, smart meeting and document assistant, and also, it's quite useful in graphic design and short-form video generation and also AI sales assistance.
These tools have substantially boost employee productivity and working experience. So it's -- right now, it's being used in customer service. We have developed an intelligent AI customer service agent using our in-house large language model. So after the pilot operation, the results show more than 20% enhanced efficiency. And moreover, the customer satisfaction rate has improved over 7.5 percentage points.
And on the business operations side, we use AI sales assistant to support our BD teams. So for example, during this year's Spring Festival holidays, we gathered an updated business information of our 1.2 million merchants on our platform with AI sales assistant. So it very effectively reduced the workload of our BD team, yes, by 44% and further enhanced the accuracy of the listed merchant information on our platform.
And in our tech teams, we use our in-house AI coding tool that integrates with our IDEs and roll it out to our engineers. So right now, in our company, about 27% of new code is generated by AI coding tools.
But what's more important and more exciting is on the product front. So here, we have 2 -- we are working on 2 directions at the same time. One is using AI to optimize current projects, and the other one is -- more exciting, is to develop AI-native new products. So on the first one, I think it's more difficult to understand. We use AI across multiple categories by providing various tools such as smart online store design and smart merchant information enhancement and display and operation management. That's all for -- the usual suspect for AI applications.
But on the consumer side, we have already started testing AI assistant in some categories to enhance customer -- consumer experience for their search and transaction on our platform. And for example, we have rolled out a restaurant assistant and travel assistant -- reservation assistant. They can chat with the users, either by text or voice, making things more convenient and easier to use for users.
And right now, we are already working on a brand-new AI native product. We expect to launch this more advanced AI assistant later this year and to cover all Meituan services so that everyone can have a free personal assistant. So based on our rich off-line service offerings and efficient on-demand delivery network, I think we will be able to handle many personalized needs in local services.
And whether it's ordering food delivery or making a restaurant reservation or purchasing group deals or ordering groceries or planning trips or booking hotels, I think we have got it covered with a one-stop, and we are going to deliver it to you on time. So our diverse consumption scenarios and broad off-line service offerings and strong fulfillment capabilities are our distinctive advantages.
And so our AI assistant will not only offer consumer services in the digital world, not just a chatbot, but it's going to be able to satisfy a lot of their needs in the physical world because in order to bring AI to the physical world, you need more than just very smart algorithms or models. You need infrastructure in the physical world, and that's our advantage.
On the algorithm model and compute side, it's going to need a lot of CapEx and a very good foundation model. So in the past year, to ensure adequate supply of GPU resources has been a top priority for us. And even as we allocate meaningful resources in shareholder return and new initiatives, we keep investing billions in GPU resources. So our capital -- CapEx this year has been substantial. And this year, we plan to further scale our investment in this very critical area.
And thanks to our infrastructure and large language model team, we have made significant optimization, both in efficiency and effectiveness. And as a result, our in-house large language model, longcat, has achieved quite good evaluation results comparable to the top-tier models in China.
And in addition to our in-house large language model, we have also integrated other mainstream models available in the market, so -- to enable our internal product development team to move freely -- to freely explore AI-driven products and services. Notably, the API core volume for longcat has increased from 10% at the beginning of last year to 68% currently, so -- which further validates the effectiveness of our in-house foundation model.
And on another front, I think AI is going to give a massive push to the development of robotics. So we have been a very early mover when it comes to autonomous delivery vehicles and drones. So actually, we started our R&D in autonomous vehicles in late '26 (sic) [ late '16 ]. And we started our R&D in drones in 2017. So we have been working on this for many years, and we are making very good progress.
So right now, we are looking to ways to apply AI in the on-demand delivery field. So apart from our in-house research -- in-house R&D, we have also made quite several investments in leading start-ups in the robotics and autonomous driving sector to support their growth. Looking ahead, we hope to deepen our business collaboration and technical exchanges with these leading companies.
In future, our robotics and AI will be even more tightly integrated, and we will keep improving in the areas such as autonomous delivery and logistics and automations because right now, apart -- besides the last-mile delivery of on-demand delivery, we also operate a lot of rather big warehouses, and that will be very good use cases for automation technologies.
So at the end of the day, our mission has always been to help people eat better, live better. And we have built a big infrastructure in the physical world with digital connections. We believe that, that kind of infrastructure is going to be very valuable when we are moving to the era of physical AI. Thank you.
Your next question comes from Gary Yu with Morgan Stanley.
Given the robust growth and momentum of Keeta in Saudi Arabia, what's our expansion plan of Keeta in the Middle East this year? And we also noticed from the news that the company's Xiaoxiang supermarket is actively preparing to launch business in the Middle East as well. Will the company accelerate overseas expenses for other businesses? And how should we project the losses for overseas expansions in 2025? And in the medium to longer term, what is your strategic plan for the overseas business? And what is the profit outlook?
Thank you, Gary. Yes, in the beginning of last October, I was personally in Riyadh together with our Keeta team to launch Keeta in Riyadh. I didn't do any real work. I was just there to witness the launch of it and to celebrate with our team.
So in the past about 4 or 5 months, so -- we have been doing quite nicely in Riyadh and other cities. So I think it's safe to say Keeta has been on a good track showing very good growth momentum, thanks to our experience and know-how built up -- that we have built in China domestic market.
So we believe Keeta holds a leading edge over other players in terms of the product offerings or tech capabilities and operation know-hows. So building on the progress in -- achieved in Riyadh, we continue to expand the operation into other cities in December and January. So now Keeta is operating in more than half a dozen major cities in Saudi Arabia.
And for other markets outside Saudi Arabia, we are still doing our research work, so we don't have any concrete business plan at this moment to share. And at this stage, our overseas business is focused on food delivery. We believe that high-frequency traffic and delivery network built by food delivery business are of greater values. First of all, in China, at the superapp, our high-frequency food delivery business brings us large user base and low customer acquisition costs to other low-frequency categories. And so we have been able to drive the development in other services.
And secondly, the 30 minutes on-demand delivery network established by food delivery has enabled us to expand into more nonfood categories. That's how we built Meituan Instashopping and our on-demand marketplace model. And the Xiaoxiang supermarket that you mentioned is our first-party model, mainly for on-demand grocery. Backed by Meituan's on-demand delivery capability and consumer mindshare, Xiaoxiang supermarket provides consumers with a grocery of very good quality and variety.
So for our overseas business, we believe our various business, including Xiaoxiang supermarkets have a good potential in the long term. But in the short term, we will focus on market research and some pilot program. So we are not going to make very rushed and aggressive investment.
In the longer run, similar to our path in China, we hope to build other businesses on the foundation of the traffic and consumer mindshare generated by our on-demand food business. So at this stage, we are focused on building up our food delivery business in those markets. And looking ahead, as a relative new player in the market, Keeta will focus on growth. But we are also confident in its long-term prospects and its profitability.
So food delivery business has proven its clear path to profitability, both in China and in other countries. In many overseas countries, such as the Middle East, the average order value is much higher than in China, and users are more willing to pay for services. And profit margin for good -- for food delivery players is higher compared to growth in China.
Looking to 2025, the financial resources we are going to allocate to overseas will be significantly higher than 2024, and this will fuel robust growth in scale and pickup in market share. But at the same time, we will keep a close eye on the return on invest -- ROI, the return on investment, and we will continuously improve our efficiency. Thank you.
Your next question comes from Ya Jiang with Citic Securities.
As the company rapidly rolled out business in Saudi, the loss of New initiatives segment expanded quarter-over-quarter. So this year, how should we balance the investment in other new business, especially in the Meituan Select? And given the increasing overseas capital needs, what is the company's shareholder return plan for this year?
Well, thank you, Jiang Ya. We constantly conduct reviews of our capital allocation strategy. And this covers both our investment in new initiatives and also the shareholder return program. And each of our new initiatives is at different stage, and each use different level of support from the company. So we will prudently evaluate the ROI for each new initiative and stay flexible to address the business strategies based on that assessment.
And our goal is to ensure that New initiatives can grow in a healthy way and achieve our long-term financial targets. So first, after years of iteration, some of our new initiatives like Kuailv or our restaurant SaaS or our bike or e-moped sharing and shared power banks, those new initiatives have already achieved a market leadership and continue to improve efficiency. And our persistent effort to iterate the strategies and operations has paid off over the past years. So we think the good momentum for these businesses will continue in the coming years.
As for Meituan Select, we have made significant strategic adjustment to this business last year, resulting in a very substantial improvement in efficiency. Meituan Select has witnessed notable improvement across product quality, assortments and pricing and as well as group leaders' service quality. We become increasingly aware of the core areas that Meituan should put efforts on to achieve its long-term targets, and we will actually build key capabilities.
For instance, we are reshaping our merchandise-related capability for Meituan Select. This is a key factor that will differentiate us from our peers. However, supply chain transformation isn't something that can be done overnight. So it won't immediately reflect in the P&L. It will take time, and we need to be more patient.
Again, the grocery market in China is massive. And right now, the penetration -- online penetration is still very low. Meituan Select remains as one of our key models for exploring this market. And compared to off-line retails, Meituan Select aims to offer goods with the same quality but meaningfully cheaper price in the future.
The uniqueness -- the unique business model of Meituan Select can lower our procurement cost, and it can also reduce the loss cost of fresh produce and eliminate off-line store operation expenses. So if we can keep achieving continuous improvement across merchandise capability, operational efficiency and service quality, I believe Meituan Select can achieve profit margin comparable to those of off-line retail channels in the long run. So overall, while we accelerate overseas businesses, we will continuously to improve operation efficiency of the other new initiatives based on our long-term strategy and financial targets.
And at the same time, we remain committed to enhancing our shareholder return through share buybacks. So we will take into consideration quite a few elements of our capital allocation each year, such as business development plans and cash flow situation and how much offshore cash we have and the debt maturity schedules.
So this year, we expect to repay around USD 1.5 billion convertible bonds. They are subject to early put options as well as USD 750 million corporate bonds that are maturing. About USD 2.5 billion senior notes we issued last September has enhanced our offshore cash position before we expect to maintain stable sufficient offshore cash reserve for each year, and we will still use share buyback rather than dividend as a major approach for shareholder return.
And through share buyback, we will first offset the dilution caused by ESOP for each year. And on top of that, we will remain flexible and try to capture good market window to further trim down the number of total outstanding shares and thus enhance shareholder return. Thank you.
Your next question comes from Kenneth Fong with UBS.
Given the current scale of our food delivery business, what are our focus area and strategy to drive further penetration and maintain order growth? So what is the strategic focus on Meituan Instashopping as well after its strong growth last year? And as company invest more in merchant support as well as rider welfare, how should we anticipate the profit growth for the on-demand delivery this year?
Thank you for the question. Yes, while the food delivery growth rate have been slowing down recent years after reaching a high base, the management team remain very confident for the potential of the overall on-demand delivery business. It's including food delivery and including the nonfood part.
On the food delivery part, while it's a very big scale of users, we actually continue to attract new users coming to our platform, particularly the younger users. We also noticed that among the new users, their initial purchase frequency and ARPU value cohort are higher than our earlier cohorts, and their growth traction is much faster. We also noticed our existing users order food delivery more and more frequently in broader scenarios and in broader time periods.
We also continue to make innovation on the supply side. For example, the Pin Hao Fan and other new supply innovation, being able to attract consumer demand increasing higher frequency and also improve the overall efficiency. We expect both the number of and the transaction frequency of the monthly Transacting Users on on-demand delivery will continue to grow.
On the nonfood part, the Meituan Instashopping continue to deliver strong results and maintain a much faster growth rate than the food delivery. We continue to empower the merchants and brands with online operation and deepening our collaboration with branded retailers. As a result, the supply for on-demand delivery continue to improve.
On the consumer side, we continue to reinforce our Everything Now consumer mindshare, and we are glad to see that consumers are getting more and more sticky on these on-demand delivery services.
Overall, we maintain the vision and the goal of over 100 million orders a day for our on-demand delivery business. Besides the growth potential, we're also paying more and more attention to the healthy growth of the overall ecosystem.
Couriers and merchants are very important for our sustainable growth. Last quarter, we launched a merchant support project with over RMB 1 billion funding to support our merchants. We are also going to launch the social security pilot program for our couriers under regulatory guidance. It's expected to kick off in the second quarter of this year and in selected cities first. We will progressively roll out the plan nationwide in the coming years, follow guidance from regulators.
And the plan may be further fine-tuned based on the feedback and excitement. While it may increasing the overall cost, we believe for the long run, the whole ecosystem, including our platform will benefit from this, and the improved efficiency will be able to offset the incremental cost.
In addition, we continue to enhance food safety management. For example, we recently introduced a Bright Kitchen [Foreign Language] program. In this program, we offer digital cameras and ask the facilities to allow open-kitchen presentations online. We believe a better food safety environment will, in turn, further incentivize consumer demand and will eventually enhance our long-term competitiveness and bring sustainable growth.
Overall, with the improving efficiency, greater economic scale and enhanced operating leverage, we feel very confident to achieve steady profit growth for our on-demand delivery business. Thank you.
Your next question comes from Thomas Chong with Jefferies.
For in-store business, what's the current competitive landscape? And what's the GTV growth expectation after the past 2 years of rapid growth? Can management also update about the cross-selling measure from Shen Hui Yuan to the in-store hotel and travel business? Does the user from Shen Hui Yuan have higher user stickiness?
Yes, thank you. Overall, we -- while we already see very fast GTV growth in the last 2 years for our in-store business, we expect this growth momentum will remain strong in the coming years. The online penetration rate for their broad in-store categories remain quite low compared to physical goods e-commerce, and we will continue to drive the online penetration and solidify our competitive advantages.
As for competition, we believe we differ from our competitors and business model in the value proposition for consumers and merchants and also in operational strategy. We also have quite different categories mix, merchant type, merchant scale and marketing efficiency.
Given the current consumption environment, both consumers and merchants have growing needs for digitization. These trends can deepen the industry's online penetration. For the core category, the current competition remained relatively stable, and we have effectively defended our market leadership.
Moving forward, we will fully leverage our advantage in the share-based model, enrich our supply and enhance price competitiveness. We will continue to expand and optimize our Special Deals [Foreign Language] to make it a more organized marketing scheme that focus on low price and good deal. We will continue to solidify our position as the top choice for merchants' online operation and online marketing.
Recently, we have renamed our in-store other services Dazhong business to Service Retail unit, [Foreign Language]. We believe this is a better name that define the category that we operate.
We also renamed the combined leisure and entertainment and beauty divisions the name Happy Life division, [Foreign Language]. This division caters to the diverse needs of consumers for a happier life. Our Life Event division has also been renamed the Easy Life [Foreign Language] division. It helps enable people to live an easy and convenient life by providing various life services.
As to your questions on the Shen Hui Yuan, last July, we expanded the Shen Hui Yuan program to nationwide for all the major categories in our Core local commerce. In Q4, this Shen Hui Yuan program further expanded coverage to package tours, attraction ticketing and more categories. The proportion of orders using Shen Hui Yuan continue to rise to over 40% of total Core local commerce order volume, and the increase in GTV contribution was even higher.
Over 70% of our in-store hotel and travel merchant base have participated in the Shen Hui Yuan program. The integrated marketing and operation strategy helps strengthen consumer mindshare, and Shen Hui Yuan effectively direct user traffic to our broader categories.
Currently, Transacting Users directed from Shen Hui Yuan represent 10% of the total retail service transaction users, and we continue to make progress in the user acquisition, retention and purchase frequency.
Soon, we will further upgrade the Shen Hui Yuan program to Meituan membership program, [ Meituan Hui Yuan ]. We expect this will unify the membership brand, integrate a wider range of category scenarios and more diverse benefits for the consumers to enjoy. Through this [ Meituan Hui Yuan ] program, we can offer more users much better benefits and greater variety of deals in a more targeted manner. We believe this program will further strengthen our leadership in the ecosystem. Thank you.
Your next question comes from Charlene Liu with HSBC.
I have a question about organization restructuring. So after 1 year of organization restructuring of your Core local commerce business, can management share your latest view on the business' long-term growth trajectory? This includes GDP, CAGR as well as GDP margin.
Okay. Thank you. I'm glad you raised the question of the CLC's organization restructuring, which happened about slightly 1 year ago. So far, the progress has been quite solid. We are glad to see that although it's a quite major organizational restructuring internally, the overall progress has met our expectation. And it also happened in a very complex and changing market environment, but we managed to solidify our leading position in the overall local service domain.
Since the restructuring last year, we have integrated different business within the Core local commerce and formed 3 key platforms, namely the Meituan platform, infrastructure platform and the business R&D platform. With that, we are more efficient in our integrated marketing, user growth strategy, large language model development and product innovations on both the consumers and business side.
We have also reinforced our user mindshare in our 5 core business areas, namely food delivery, Meituan Instashopping, service retail, hotel and travel and medicine and healthy. Leveraging this upgrade organizational structure and the synergy it created, we continue to iterate our product and service, utilize AI to help business grow and further enhance user experience and engagement.
With the Meituan membership that I just mentioned, we expect to create even more synergy across these 5 business categories. With all this strategy, we are confident that we can further enhance user mindshare as well as our leading position in this overall local service area. We are also very excited for the potential that AI can bring to our CLC business.
We believe that more intelligent system will help us create an even better value proposition for both the consumer side and merchant side and can help realize our mission of helping people eat better, live better. Thank you.
There are no further questions at this time. I'll now hand back to Scarlett Xu for closing remarks.
Okay. Thank you for joining our call. We look forward to speaking with you next quarter. Thank you for your support.
That does conclude our conference for today. Thank you for participating. You may now disconnect.