Meituan Dianping Stock

Thank you for standing by, and welcome to the Meituan Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Scarlett Xu, VP of Capital Markets. Please go ahead.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our Second Quarter of 2026 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 second quarter of 2026 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 actual results in the future. This presentation also contains unaudited non-IFRS accounting standards 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 documents 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 hello, everyone. In the second quarter, our total revenue grew 14.4% year-over-year and net profit turned positive. Both core local commerce and new initiatives delivered solid results. We remain focused on our retail plus technology strategy, improving business quality and driving high-quality growth across the industry.

As they go to local services platform for consumers and merchants, our ecosystem continues to strengthen. We pushed forward with the product and business innovation while stepping up investment in our ecosystem and technology to build a long-term value. We also expanded our grocery retail and overseas businesses with continued gains in operating efficiency. On the AI front, we made further progress in foundation models as well as in AI agent applications.

Now let me walk you through the details. In the second quarter, the e-commerce industry shifted its focus to improving marketing and operating efficiencies. Against this backdrop, our strong consumer mindshare and core competitive advantages translated into healthier financial results. Order mix and user quality continue to impose -- improve steadily.

For food delivery, core user stickiness strengthened further with purchase frequency, retention and average order value all trending up. Meituan Instashopping maintained healthy new user acquisition with a post-2005 generation growing particularly fast, while existing users also increased their order frequency. Despite a high base from last year and evolving consumption trends, we actively pursued new growth opportunities, improving our supplier offerings, strengthening product competitiveness and deepening our understanding of user needs for different consumption scenarios.

For food delivery, Pin Hao Fan improved its ability to identify consumer demand and accelerated rollout of hit products from chain merchants. Shen Qiang Shou continued to raise the bar on supply quality, catering to mid- to high-end consumer seeking quality upgrades. We also steadily expanded innovative store formats, such as Branded Satellite Stores, [Foreign Language], creating incremental value for merchants.

For Meituan Instashopping, Meituan InstaMarts maintained rapid growth and remained a key growth engine. Waima Songjiu expanded quickly across the majority of provinces in China. It also launched more private label products in June. It rolled out an anticounterfeiting verification system to safeguard product authenticity for high-end alcohol. In Songshu Bianli also accelerated its market penetration, leveraging customized product development and factory partnership to enhance product competitiveness and better serve users in night times and travel scenarios. We also took more proactive steps to strengthen our platform ecosystem, deepening merchant support and empowerment. We continue to lead the industry in full safety governance and improve courier welfare.

In Q2, we fully rolled out 10 key initiatives under Trusted Food Delivery, [Foreign Language], establishing an end-to-end food safety system spanning 4 pillars: pre-onboarding screening, in process monitoring, crackdown on fraud and illicit activities, and collaborative public oversight. To address evolving industry needs, we launched the first comprehensive AI solution built for the quick commerce industry. We also scaled up AI-powered tools, helping merchants optimize their online operation efficiency. Around the big holiday seasons, we supported 220,000 small- and medium-sized restaurant merchants with funding, operational supplies, equipment upgrades, AI tools and store renovations.

In Q2, we also launched a special program to boost the demand in lower-tier markets and energize county level economies. In the second half of the year, this program will expand to nearly 400 counties nationwide, helping over 0.5 million small and medium-sized merchants digitize their operations.

On courier welfare, we have expanded the occupational injury insurance program nationwide, covering every order and every courier. In addition, we continue to refine our algorithms and just recently, we pioneered pause the clock at red light, [Foreign Language], rolling out of this feature first in Beijing. Going forward, occupational injury insurance, pension insurance subsidies and our critical illness care program for couriers and their families will together form a robust and comprehensive welfare framework.

This quarter, we further strengthened our position as the preferred platform for local services, sustaining high-quality growth across our in-store hotel and travel business. Despite a changing consumer consumption environment and intensified industry competition, we continued to enrich our supply with more diverse, high-quality offerings while elevating the overall user experience.

Meanwhile, we pushed the industry further from choosing the right merchants to choosing the right artisans and the right experiences. We saw a clear shift in local services consumption from standardized spending towards more personalized experiential and emotion-driven experiences. Authentic experiences and deep engagement play an increasingly important role in consumer decision-making.

This quarter, we released the new Must-Eat List, [Foreign Language], curated from 1.5 billion authentic user reviews. It now covers 264 cities and regions globally with 120 newly added cities. Through genuine user recommendations, more long-standing local restaurants, specialty dining stores and hidden culinary gems are being discovered. The Must-Visit List, [Foreign Language], also continued to expand into more immersive, interactive and interest-driven scenarios. We believe that in the AI era, authentic experiences, authentic reviews and authentic trust will continue to be the most vital infrastructure for the local services industry. And we will continue to strengthen our unique advantages in this area.

In addition, we are leveraging AI to enhance both consumer experience and merchant operations. For complex local services decisions, consumers increasingly turn to Xiaotuan, our AI assistant built in Meituan app. As adoption grows, we are seeing a meaningful lift in user engagement on Meituan. We also continue to elevate the consumer experience with integrated services, Pick-up now [Foreign Language] or online reservations, advanced online ordering, smart queuing and in-store smart ordering. These features give consumers a more seamless experience across a wide range of scenarios.

Our partnership with Tencent is progressing rapidly with both teams refining the product to deliver faster, more convenient services. Beyond serving consumers, we are extending Meituan's operational expertise across industries through AI agents. On the CatPaw platform, we are rolling out specialized AI agents across restaurant, services, retail, medicines and health and hotels and travel. These AI agents help merchants in improving daily operations and driving tangible efficiency gains. This marked our evolving role from merchants online channel to their AI business partner. Looking ahead, we want to be more than a platform that connects consumers and merchants. We aim to become a digital copilot for merchants on our platform.

Now let's move on to new initiatives. In the second quarter, both grocery retail and Keeta maintained a very rapid growth while further improving operating efficiency. For grocery retail, Xiaoxiang Supermarkets accelerated expansion and now operates across 68 cities. We continue to strengthen our supply chain and enhance our merchandising capabilities with private label products accounting for a growing share of our GTV.

We also expanded our off-line footprint. In July, we opened our third Xiaoxiang Supermarket offline store in Hangzhou. We scaled the Happy Monkey model to serve community scenarios with 40 stores in operation as of Q2. And for Keeta, we sustained strong growth momentum alongside continued efficiency gains. By market, Hong Kong has reached stable profitability. The Middle East delivered a further sequential improvement in operating efficiency. In Brazil, we focused on the Sao Paulo market. Going forward, we will continue to leverage our strength in product technology and operations to deliver a superior consumption and delivery experience to Keeta users.

Reflecting on the second quarter, our focus was on building operational capabilities. We continue to enhance supply quality, expand consumption scenarios and deliver high-quality growth while steadily improving efficiencies. Looking ahead, we see broad room for growth across the industry. Many niche local service needs remained underserved, and there is still significant potential to elevate both service experience and operating efficiency. We will move decisively to capture these growth opportunities, continuously iterating on our products and services and actively deploying AI in real-world consumption scenarios.

Our goal is to further extend our competitive edge in supply diversity, user experience and operational efficiency. At the same time, we remain committed to our social responsibilities, strengthening food safety, governance, improving courier welfare and empowering small and medium-sized merchants. We will continue to drive the industry towards higher quality and more sustainable development.

With that, I will turn the call over to Shaohui for an update on our latest financial results.

Thank you, Xing. Hello, everyone. With the on-demand industry gradually shifting towards efficiency improvements, our focus on operational execution and the structural advantages translated into meaningful financial improvement. Revenue growth accelerated and the business turned profitable in Q2.

Now let's look at our financial results in detail. All comparisons are on a year-over-year basis unless otherwise noted. Total revenue grew by 14.4% to RMB 104.6 billion this quarter. Cost of revenue ratio edged down to 66.5%. The accelerated revenue growth and better controlled cost ratio were both primarily driven by the improvement in marketing efficiency. This reflected our continued focus on quality growth amid the dynamic and competitive environment. Selling and marketing expenses ratio also went down to 23.6%, mainly due to more disciplined marketing spending. R&D expense ratio increased to 7.3% as we increased investment in AI, while the G&A expenses ratio remaining stable at 3.1%.

We turned profitable this quarter with total segment operating profit and adjusted net profit reaching RMB 3.9 billion and RMB 2.5 billion, respectively. As of end of June, we have cash and cash equivalents and the short-term treasury investments totaling RMB 168.3 billion. As of June 30, our investment portfolio was nearly RMB 77.3 billion. Separately, fair value changes in certain of our investments resulted in an RMB 22.2 billion gain recognized in other comprehensive income rather than P&L this quarter. We will be thoughtful and disciplined about evaluating [ exit ] opportunity for our investment portfolio along the way to provide more capital resources for our business and for shareholder return.

Now let's look at the segment results. Starting with the core local commerce segment. Revenue reached RMB 71.5 billion in Q2, with year-over-year growth accelerating to 10.1%. Delivery service revenue and merchant service revenue both picked up growth pace during this quarter while product sales delivering a solid year-over-year growth of 78.9%. We are pleased to see our food delivery turn to positive year-over-year revenue growth this quarter. Our strategic focus on higher AOV order segment for user base and operational efficiency continues to bear fruit. We improved our leadership in both order volume and GTV this quarter. A healthier order mix has driven year-over-year recovery in our food delivery net AOV. We also improved our marketing efficiency. However, the industry subsidy levels are still well above where they were in 2024, and we expect normalization will take time as markets evolve.

On Meituan Instashopping, we continued to deliver steady growth with revenue growing faster than order volume on a year-over-year basis. This was primarily driven by 2 factors: the rapid expansion of our 1P business and strong advertising traction as more retail brands allocate marketing budget to our platform. Revenue of our in-store hotel and travel business also grew steadily, and we continue to lead in core categories.

Turning to profitability. Segment operating profit turned profitable to RMB 5.7 billion this quarter. On-demand delivery, unit economics turn positive with our [indiscernible] across both food and nonfood categories, staying far ahead of the industry. The significant sequential improvements in [indiscernible] was driven by seasonal tailwinds and meaningful subsidy reduction. With our strategic focus on high-quality growth and ROI-driven resources allocation, our in-store hotel and travel business also improved its operating profit margin sequentially despite intensified industry competition. All of these gains more than offset our increased investments in brand marketing and promotional expenses.

Now turning to our new initiatives segment. Revenue in Q2 was up 25% to RMB 33.1 billion. Segment operating loss narrowed sequentially to RMB 1.7 billion. The rapid expansion of our grocery retail business contribute meaningfully into the segment's revenue growth, while losses from grocery retail increased quarter-over-quarter on a faster-growing business scale. We continue to see steady operational efficiency gains across the board and its margin also improved.

On Keeta, growth momentum across Hong Kong and the Middle East remains strong. The loss has narrowe quarter-on-quarter as operational efficiency improved across Hong Kong and the Middle East market. Hong Kong is now profitable on a sustained basis and unit economics in the Middle East continue to trend in the right direction.

After navigating an intense competitive environment over the past year, the results we are seeing today through our execution capability on quality growth and operational efficiency improvement. The path forward is about compounding our advantage in product services, technology and ecosystem so that we can deliver more value to all stakeholders. We remain deeply committed in our long-term potential.

With that, we are now open for Q&A.

[Operator Instructions] The first question today comes from Thomas Chong with Jefferies.

How does management view the competitive landscape in food delivery and quick commerce space? Specifically, what trends are you seeing in Meituan market share within the mid- to high AOV order segment? And looking into Q3, as industry subsidies gradually normalize, how do you expect the unit economics for food delivery to trend sequentially versus Q2?

Thank you, Thomas, for the question. Let me first share some thoughts on where we see the food delivery industry is heading. First of all, we are seeing a shift across the industry toward greater focus on marketing and operational efficiency. We believe competition will gradually shift back to what really matters: quality, service and innovation as regulators provide further guidance on subsidy practice, that will drive healthier industry development and create a fair field for companies with genuine core confidence.

And we are already seeing that play out. Over the past few months, our advantage across user mix, order mix and operational efficiency has continued to strengthen. We've extended our lead in both order volume and GTV on a sequential basis, particularly in the mid- to high AOV segment, our focus on enhancing membership benefits, expanding premium supply and elevating service quality are playing off. We are seeing deeper engagement and stronger mindshare among premium users for our brand.

For Meituan Instashopping, we also maintained our industry-leading position. Quick commerce has fundamentally reshaped consumer expectations around convenience and reliability. It is an irreversible lifestyle shift with adoption still at an early stage across different consumer groups. We see a significant long-term opportunity ahead. While we recognize the pressure from a high base last year and a broader macro environment, we focus on strengthening our operational capability to build a solid foundation for high-quality, sustainable growth in the long term.

Over the years, we built a diversified quick commerce supply network, spanning a wide range of off-line retailers and [indiscernible] stores. And that's the solid foundation for us to meet evolving consumer needs and drive broader adoption of on-demand consumption over time. Going forward, we will keep investing in product competitiveness, supply chain integration and supply diversity to deepen our consumer mindshare across different categories.

On Q3 outlook, we expect food delivery unit economics to improve meaningfully year-over-year, but it will still be impacted by seasonality on a sequential basis. Even so, we expect UE to stay positive in Q3 as we continue to optimize operational efficiency. Specifically, the industry sub level is still much higher than 2024 level, and it will take a few quarters to normalize. At the same time, seasonal headwinds will weigh meaningfully on our UE.

As we mentioned before, Q3 is the peak season for on-demand delivery, driven by some activity. It's also when we ramp up our marketing spending sequentially to capture the high demand window of the year. We will also provide additional subsidy to our couriers to ensure our delivery service quality through the peak season and on extreme hot weather conditions. As such, delivery cost per order in Q3 will be higher than that in Q2. On top of that, the occupational injury insurance began its nationwide rollout on July 1, which adds another cost layer.

However, I want to highlight that the near-term UE fluctuations are primarily driven by seasonality and our proactive strategic decisions to balance scale, profitability and ecosystem. We are very confident to sustain our market leadership and stay far ahead on UE across both food and nonfood categories. And that confidence is grounded in our improving user mix and operational efficiency.

Our ongoing investment in the ecosystem is also deepening our moat. In fact, under the current market environment, we are in a good position to focus on our strategic priorities that matter most over the long term. Our UE recovery has clear visibility and it will gradually get back to a reasonable level in the medium to long term.

The next question comes from Ronald Keung with Goldman Sachs.

I want to ask about your AI side on LongCat-2.0. Now it's been open source and being rolled out internally. How does management think about its role in your broader AI strategy? And beyond internal efficiency, is there a path to commercializing the LLM? And how should we think about the financial impact of our AI investments near term versus medium to longer term?

Thank you, Ronald. And I will begin with LongCat-2.0 is an important foundation for our AI strategy. But what we are really focusing on is evolving our AI to bridge the digital and physical worlds, and doing so deepening Meituan's competitive moat in local services over the long term.

So for us, AI is less about competing on the models. It's more about leveraging AI to reshape our organization, product and workflow. As we have explained in the past, Meituan's AI strategy has 3 pillars: building LLM, AI at work and AI in products. And LongCat-2.0 is our next-generation in-house foundation model, and it's one of the first, if we're not the first, trillion parameter model chained entirely on Chinese infrastructure. So it's an open wide and we have rolled out across our core internal [ needs, ] including our software developing and operations, customer service and AI agents.

And LongCat-2.0 has made significant progress in core agentic capabilities, particularly in coding, reasoning and tool calling and complex task execution, and it has gained positive feedback across the global developer community. And we believe AI creates lasting value where it's deeply embedded in real workflow and where it can solve real problems as a reliable infrastructure. And our full step domestic infrastructure for training and influence give us a structural advantage in cost infrastructure control over the long run.

And on the product side, we continue to upgrade our AI product offerings, including our AI assistant, Xiao Tuan, and built inside the Meituan app. The direction is very clear from understanding complex multi-constrained queries to full agentic task execution. Ultimately, we want to deliver a seamless closed-loop experience that takes users from discovery and decision-making all the way through to transaction and fulfillment. The key is making this deeply integrated with real-world local services scenarios.

And on the organizational side, AI adoption is deepening and driving productivity across the board. More of our employees are now using AI to [ study. ] And AI generated codes as a share of the total output continues to climb. At this stage, our priority is to keep building our AI capability, driving real AI adoption across our business operations.

As I said in the past, we are not going to compete to be a token factory. Our focus is on using our models and AI products to strengthen our core businesses. We hope to provide a better experience for both users and merchants while also improving our internal operating efficiency. We'll assess our strategy with an ROI-oriented approach and stay disciplined for capital allocation. Thank you.

The next question comes from Kenneth Fong with UBS.

Congrats on the strong results. So I have a question on the in-store business. Could management update us on the competitive landscape for in-store? Are you seeing any rational shift towards monetization and profitability among competitors? And has the macro headwind be a meaningful drag on the business? And looking into the second half, how is management balancing growth and margin? And is there a clear path to margin recovery from here?

Thank you, Kenneth, for the question on in-store business. The competitive landscape in the in-store sector looks very different today versus a few years ago. The market is much bigger. There are new players, small players and different players. We are seeing market players increasingly differentiate across user groups, consumption scenarios and merchant segments.

For us, our one-stop local service offering and authentic review systems are well positioned and consistently deliver value to both users and merchants. Our operating priority is very clear. We are not going after subsidy-driven, low-quality orders. What we are focused on is strengthening our competitive position in core categories and deliver better services to our core users and merchants and to pursue high-quality growth and allocate our resources more ROI-driven.

Over the past few quarters, we've seen competitors stepping up investment in local service space through a dedicated share-based app. They have been [ subsidizing ] heavily to redirect the traffic from their content-driven model to accelerate the adoption of the new app. Aggressive subsidy did bring in many price-sensitive users, particularly in lower tier cities, but these users typically show weaker repurchase behavior.

We haven't seen meaningful impact on our core users or our core merchants and our in-stock GTV quality and redemption rates continue to run meaningfully ahead of key competitors. While macro has weighed on AOV in certain category, the local service sector has proven to be quite resilient overall compared to the e-commerce sector. Online penetration across the retail category is still relatively low, so there's long runway ahead. We now serve over 8 million merchants across 200-plus categories, and we are still seeing new demand emerging with that new consumption couriers, new service offerings or more merchants looking to go digital. For example, we are recently seeing category like sports and wellness and immersive entertainment service accelerated their shift online. So we are still confident about the long-term growth trajectory of the in-store business.

At the same time, heading into the second half, we are investing further to capture the growth opportunity. We will continue to strengthen our competitive positioning in core categories in core user group and core merchant segments. Beyond that, we will have more local merchants to digitize operations. Our goal is to go beyond being a [ tech ] source for merchants. We want to build a platform they run their business on, and over time, an AI-powered partner that helps them operate smarter and grow faster.

At the same time, continue to cut low ROI spending and improve our resources allocation efficiency. We will continue to realize the synergy between our in-store business and our quick commerce business.

On margin side, it's likely that operating margin will come down from Q2 due to our increased investment in Q3 and Q4 for our in-stock business. As competition gradually normalize in future, we believe our focus on AI-driven investment and operational efficiency will translate into gradual margin improvement over the medium to long term. Thank you.

The next question comes from Charlene Liu with HSBC.

Congratulations on an amazing set of results. Could management give us an update on Xiaoxiang Supermarket and Happy Monkey, how they have been tracking recently and where are you seeing stand on your omnichannel strategy? Are there any updates on expansion plans from here?

Thank you, Charlene. First, let's be clear. The mission of Meituan has always been to help people eat better and live better. And we believe more and more people will order food online. But if you still want to cook it for yourself, you need to buy grocery. So that's why we can see both Xiaoxiang Supermarket and Happy Monkey to be a very important part of our grocery retail.

And grocery retail is deeply aligned with our mission. And therefore, they are one of our key strategic priorities in the past decade and over the next decade, it will take a long time to do it right. Online penetration here is still low. We see a significant growth opportunity ahead. But we believe the right approach is to do our omnichannel, bringing both online and offline store on the same platform.

And on-demand retail is gradually changing how consumers shop groceries. In the past, the people used to be in wet markets in the morning or stock up at a very large supermarket or warehouse -- membership warehouse every week or every few days. And now more and more consumers are adopting on-demand delivery services. They just buy, order what they need when they need it because they are confident that they can get it within 30 minutes. So once this habit is established, their purchase frequency goes up significantly over time. And we believe the long-term consumption potential per user will be very substantial.

And talking about Xiaoxiang Supermarket, we continue to accelerate our coverage expansion in Q2. Now Xiaoxiang operates in 68 cities. The GDP growth remains very strong, and we are seeing a steady improvement in operating efficiencies. As we are committed to executing our omnichannel strategy, we are also actively exploring Xiaoxiang's off-line store. We opened our first off-line store in Beijing last December, and we opened our second in Ningbo in April. And the third in Hangzhou in July. And in this August, we opened the fourth store in Ningbo and the fifth one in Shenzhen exactly today. And we believe the online [indiscernible] store allows us to scale up across cities quickly and cover most of our targeted consumers.

Meanwhile, a select number of offline flagship stores will also play a very important role in the overall ecosystem. Working into our off-line stores, consumers can see, they can smell and they can touch the products. That sensory experience is something they cannot get from a digital screen. It builds strong trust in both our products and brands. In-store shopping naturally exposes consumers to a much broader range of products. Over time, we hope this omnichannel strategy will help Xiaoxiang become one of the most trusted and recognized grocery brands in China.

And next, let's talk about Happy Monkey, and that's our neighborhood grocery format. As of Q2, we have opened 40 Happy Market stores. Unlike Xiaoxiang's offline flagship store, Happy Monkey is built around a different value proposition. It had a much smaller, more flexible store format with a high private label mix and curated SKU selection, focused on delivering strong value for money products within local communities. We see these 2 businesses has differentiated complementary models. However, Happy Monkey is due at a very early stage and we will continue to refine our operational merchandising capability as we move forward.

Regarding our long-term investment plans, we believe the true moat in grocery retail are organizational and supply chain capabilities. These take time to build. But once in place, they unlock a very large addressable market. What gives us confidence is that consumer demand for high-quality grocery products is far beyond top tier cities. Many consumers in mid-sized cities and even counties in more developed regions have good consumption power. They also have a strong demand for better products, especially for groceries. This is also why we are exploring different grocery models to better serve different cities and different consumer needs.

Going forward, we will continue to strengthen our merchandising capability and deepen our supply chain collaboration across our grocery retail businesses to build a more differentiated advantage. There are significant long-term opportunities for us in this space, and we will grow these businesses in a disciplined and sustainable way. Thank you.

The next question comes from Gary Yu with Morgan Stanley.

Could you please give us some update on Keeta? It looks like Keeta's traffic and app downloads have continuously been increasing. How are you thinking about the expansion pace and also investment budget for Brazil? And more broadly, how should we think about the overseas investments in the second half?

Thank you, Gary. Before getting into Brazil, I think we can take a review of the markets we entered earlier because the progress we have seen there has proven our operational approaches in overseas market.

In Hong Kong, we launched Keeta in May '23, UE turned profitable in October '25. So it took us about 29 months to reach that milestone. And in our second market, Saudi Arabia, we entered the market in September '24. And I'm very glad to report that it has already turned profitable in July this year. That means it took us 22 months to get to that milestone. So even faster than Hong Kong. And what's more important here is that Saudi Arabia is a much bigger market than Hong Kong. And we are unfamiliar with the local market at the beginning. But we are able to ramp up even faster and get to profitability faster and against all kinds of headwinds. This showed that our operational approach can scale well across different overseas markets.

I think the key here is to stay focused on the fundamentals. Consumers and merchants needs are actually quite consistent across different markets. In every market, consumer care about better selections, better price, more reliable fast delivery, while merchants care about incremental order volumes, their commission rates and reliable procurement services. Our goal has always been on creating incremental value for both sides. And that's how we can ultimately build trust and a real edge in this market.

For Brazil, I believe it's a very attractive market to explore over the long term because Brazil is 1 of the top 5 food delivery markets globally, and the market is still growing rapidly, and it's still significantly underpenetrated. However, this market is quite different from the other markets we have entered. We will stay flexible and iterate our strategy as we gain more experience on the ground.

For now, we will stay focused on Sao Paulo, which already make up 25% of Brazil's overall footprint in the market. We want to improve our operation there and to build a differentiated competitive edge before broader expansion.

Regarding the investment pace in the second half of this year, the focus will be on operation optimization and efficiency gains in our existing markets. Factoring in our investment in both Keeta and grocery retail businesses. We expect the loss of our new initiative segment in 2023 -- 2026 will not exceed that in '25. Thank you.

The next question comes from Ya Jiang with Citic.

Congrats on a great quarter. My question is that through the delivery competition shift toward efficiency, how should we think about your capital allocation priorities going forward? And how are you balancing investment across different businesses and AI-related CapEx and shareholder returns? Would you consider monetizing some of your investment assets and on buybacks? Should we expect that to continue?

Thank you for the question on capital allocation. We have always been ROI-driven and anchored in long-term value creation. Core business comes first. We are committed to sustaining their high-quality growth and leading market position. From there, we dynamically evaluate the investment for other initiatives and direct resources toward areas that matter most to our long-term development. We don't think irrational competition is sustainable.

For Core local commerce, we will stay focused on high-quality growth and operating efficiency improvements. For overseas expansion, Keeta has already shifted focus towards operational optimization in Hong Kong and Saudi. We will continue to pace our expansion in each country based on ROI. On grocery retailing, we are excited about Xiaoxiang Supermarket's long-term potential, and we are confident to drive its continuous efficiency gains.

AI is a very important strategic opportunity, but we are being very deliberate about where and how we invest. Our focus is on embedding AI into real business scenarios to improve user experience, merchant operating efficiency and organizational productivity. We have no plan to compete aggressively for token factory business.

On shareholder returns, share buyback has always been our main approach to return capital to our shareholders. We have executed meaningful buybacks over the past few years, and we will continue to do so based on the competitive environment, cash flow and offshore capital availability.

On the investment assets, we will evaluate monetization of our high-quality investment portfolios on a regular basis. We hold stakes in some truly outstanding companies. At current valuations, our stakes in these companies are worth more than RMB 70 billion. Beyond the financial returns, some of our investments also offer meaningful strategic value that give us deeper insight and allow us to stay close to frontier technology development.

Going forward, we will [ waive ] market conditions, valuation, funding needs and our broader capital allocation priorities. When timing is right, we are very open to exit or monetizing select positions to free up capital. It will give us greater flexibility to reinvest in our own business and return value to shareholders. Thank you.

There are no further phone questions at this time. I'll now hand the call back to Scarlett Xu for closing remarks.

Okay. Thank you, everyone, for joining our call. We look forward to speaking with you next quarter. Thank you very much for your support.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the Meituan First Quarter 2026 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 first quarter of 2026 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 first quarter of 2026 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 actual results in the future. This presentation also contains unaudited non-IFRS accounting standards 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 standards measures, please refer to disclosure documents in the IR section of our website.

Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing.

Hello, everyone. In the first quarter of 2026, we stayed focused on our long-term retail plus technology strategy, driving high-quality growth for both our company and the whole industry. As the preferred local service platform for consumers, merchants, Meituan's ecosystem showed strong resilience. Despite a complex market environment, we kept innovating products and services.

We increased investment in our ecosystem and technology and remain committed to creating long-term value for both consumers and merchants. We also expanded grocery retail and overseas business with improving operating efficiency. Meanwhile, we accelerated the application of AI in real business use cases. Thanks to these efforts, both our core local commerce and new initiative segments delivered solid results in the first quarter. Their operating losses narrowed significantly compared with the prior quarter.

Now let me walk you through each segment in detail. In the first quarter, in on-demand delivery industry, the irrational subsidy moderated compared with the last quarter. And even so, our food delivery business continued to attract a large number of new users. This shows that consumers chooses Meituan for our comprehensive and reliable services rather than price incentive alone. In addition, our stable, reliable delivery services during holidays and extreme weather, together with our growing high-quality supply have further strengthened our users' stickiness.

Notably, high and mid-frequency users become more active. Their ARPU increased and user loyalty strengthened. A large number of mid-frequency users upgraded to high-frequency users. These high-quality users have more diverse consumption needs and value services and supply quality more. Meanwhile, core users of Meituan Instashopping also demonstrated higher order frequency. Notably, the post-2000s generation has emerged as a key growth driver.

Our user structure advantages support our industry-leading operational efficiency. In the first quarter, the operating loss of our on-demand delivery business narrowed sharply on a quarter-on-quarter basis. To better meet user demand, especially that of our core users, we continue to improve our delivery services, merchant supply and the whole ecosystem. First, we expanded the coverage of our high-quality delivery service. More food delivery users now choose to use one-to-one express delivery, eDouyin Jisong, and they are willing to pay a premium for faster delivery.

During the holiday shopping season, we further promoted this delivery service for Meituan Instashopping. This service addresses users' time-sensitive shopping needs for categories such as mother and baby products or daily necessities and their needs for high-end gift purchase, including electronics, baiju. Second, we further enhanced our supply chain capabilities. For food delivery, our branded satellite stores Pingbai Weiqing Dian expanded rapidly. With our comprehensive operational support, these stores achieved higher conversion rates and repeat purchase rates than traditional restaurant.

For Ping Hao Fan, we work closely with the merchants to optimize their menus based on our in-depth insights into local consumer preferences. For Meituan Instashopping, we upgraded our supply chain services for all Meituan InstaMarts. We help the merchant improve product assortments, enhance procurement efficiencies and elevate the consumer experience.

Wai Ma Song Jiu [indiscernible] and branded flagship InstaMarts, Pingbai Weiqing Dian, Shen Qiang Shou, all continued their steady expansion, further enriching the product supply available on our platform. Beyond the supply upgrade, we expanded support for small- and medium-sized merchants and further improved food safety governance to build a healthier platform ecosystem.

In the first quarter, we provided a targeted operational support for more high-quality local restaurant merchants. We launched practical tools and policies to improve merchant experience, including malicious review management, order damage protection and AI-powered operational solutions among others.

On food safety, we launched 10 improvement initiatives in April. We strengthened food safety governance in 3 core areas. The first is merchant onboarding and the second is transparent operations and the third is cross-party supervision. Our goal is to build a safer and more trustworthy food delivery environment for all users.

For our in-store hotel and travel business, we continue to optimize our supply system and focus on ROI-led investment. These efforts further solidified our leading position in local services. Our core categories achieved steady growth in the first quarter. Attributable to our sustained efforts to reinforce consumers' perception of Meituan as a one-stop local service platforms.

First, on the supply side, we built a full-scope value-for-money supply system, spanning all categories and price tiers with a particular emphasis on high-quality supply. We expanded the reach and influence of our authoritative recommendation list, including the Black Pearl List, Hei Zhenzhu, Must-Eat List, Bichi Bang, Must-Visit List and Must-Stay List. This recommendation list help direct targeted traffic to high-quality merchants while providing consumers with clear, reliable guidance to inform their decision making.

In addition, we supported nearly 1.3 million skilled artisans on our platform. We help them upgrade professional skills and build personal brands through digital profiles and training programs. We continue to serve as a key link connecting merchants artisans and consumers. And second, on the product side, we launched a new point system that integrates platform points with loyalty programs of chain merchants. And this helped merchants refine operations based on member data and insights. It also supports merchants in transitioning from onetime customer acquisition to long-term user retention and customer relation management. Moreover, we actively upgraded industry-wide service standard and consumer protection mechanism.

We expanded assurance programs for prepaid services across fitness, health room and massage categories. We also introduced equipment and medicine verification processes for dental care, medical aesthetics and other health care services.

Our goal is to reduce information asymmetry in local services and build a standardized trust system. We believe this will help lower barriers to transaction conversion and particularly for nonstandard local service categories, thereby supporting the long-term sustainable growth of both our platform and merchants.

Now let's turn to our new initiatives segment. In the first quarter, we focused on the high-quality development of grocery retail and Keeta. For grocery retail, Xiaoxiang Supermarkets increased its coverage to 55 cities in the first quarter through accelerated expansion. While sustaining robust GTV growth, it further strengthened its supply chain capabilities, offering consumers a broader selection of high-quality and very competitively priced products. For example, in the first quarter, private label products accounted for a higher share of its GTV. And for Keeta, driven by economy of scale and refined operations, we achieved meaningful efficiency gains in both Hong Kong and Saudi Arabia in the first quarter.

Keeta also posted solid growth in other Middle Eastern markets and Brazil, following their respective market launches. Leveraging our accumulated operational experience, Keeta has achieved efficiency gains in certain new markets at a faster pace than we realized in our mature markets, at comparable stages of development.

Going forward, we will continue to leverage our strength in product, technology and operations to deliver better consumption and delivery experience to Keeta users. This quarter, we continue to make progress in AI development. We upgraded our AI assistant, Xiao Tuan. It brings users improved AI search experience. We recently added a dedicated Xiao Tuan entry point within the Meituan app, making it easier for users to access and engage with the AI assistant. It also helped users make quicker and smarter decisions on local services.

On the merchant side, our AI tools are designed to address real pain points in their online operations. In the in-store dining domain, our smart manager, Zhineng Zhanggui has served over 700,000 merchants in total. This quarter, we expanded its coverage from individual stores to chain stores. Our digital staff, Shuzi Yuangong continue to support small- and medium-sized merchants in services retail. It now serves over 300,000 merchants across a wide range of services categories.

Moving forward, we will continue to evolve our AI tools from single point AI empowerment towards human machine collaborations. AI will support decision-making in merchants' complex business scenarios. It will also enable end-to-end automation for routine and repetitive merchant tasks.

Looking back at the first quarter, I would say we delivered solid results and ongoing industry changes. All our businesses showed strong resilience amid a competitive market environment. For the full year of 2026, we aim to further deepen our competitive moat for core local commerce while further improving overall operational efficiency.

We will continue optimizing our products, advancing technological innovations and deepening investment in our ecosystem. We will further improve user experience, help merchants improve operational efficiency and revenues and protect the rights and interest of couriers. For new initiatives, we will focus on grocery retail and overseas expansion with a focus on achieving higher ROI. In addition, we will continue to invest in AI across both the physical and digital worlds, leveraging technology to drive retail upgrades and create long-term sustainable value for all stakeholders.

With that, I will turn the call over to Shaohui for an update on our latest financial results.

Thank you, Xing. Hello, everyone. In this quarter, we have achieved substantial financial improvement while maintaining resilient growth, and we are the go-to platform for local service merchants to run their business and for consumers to discover and transact. This strong mind share, together with our ongoing investment in user experience, supply and fulfillment allow us to navigate this dynamic environment effectively.

Now let's look at our financial results in detail. All comparisons are on a year-over-year basis, unless otherwise noted. Total revenue was RMB 91 billion, up 5.6%. Cost of revenue ratio increased by 8.7 percentage points to 71.5%. This was primarily driven by 2 factors: more consumer incentives deducted from revenue, higher rider incentives to maintain leading service quality amid intensified competition.

Selling and marketing expenses ratio rose by 7.6 percentage points to 25.2%, largely due to our increased investments in promotion, advertising and user incentive to enhance our brand awareness and core user engagement to address the competition. R&D expenses ratio increased to 7.7%, reflecting our increased investment in AI, while the G&A expense ratio remaining stable at 3.2%.

Our bottom line showed a strong improvement this quarter. Sequentially, we achieved more than RMB 10 billion loss reduction with total segment operating loss and adjusted net loss narrowing to RMB 4.1 billion and RMB 5 billion, respectively. This meaningful improvement reflected a moderation of competition, our effective execution on high-quality growth and operational efficiency improvement.

As of end of March, we held cash and cash equivalents and short-term treasury investments totaling RMB 180 billion. Beyond our own AI initiatives, we are also actively investing into some of China's leading AI and other technology companies to support their growth. As of March 31, our investment portfolio was nearly RMB 53 billion. Separately, fair value changes in certain of our investments, including Z.AI result in an RMB 7.6 billion gain recognized in other comprehensive income rather than the P&L this quarter.

Now let's look at the segment results. Starting with the core local commerce segment. Segment revenue was RMB 64 billion in Q1, returning to positive year-over-year growth. Segment operating loss narrowed meaningfully from last quarter to RMB 2 billion. On-demand delivery industry-wide subsidy started to go down in Q1. We further improved our subsidy efficiency and stayed focused on high AOV order segment and our core user base. Both the order volume and GTV of our on-demand business maintained resilient year-over-year growth during this quarter.

We further solidified our leadership in both food and nonfood sectors. Our on-demand deliveries unit economics improved significantly quarter-over-quarter. This is mainly driven by 2 factors. First, our superior order mix and user structure supports a faster recovery in AOV. And second, our overall better operational capability allow us to adapt more quickly to market shifts and drive further efficiency. However, both the AOV and subsidy for our on-demand business still need more time to go back to a reasonable level. So they continue to weigh on the revenue growth and operating profit of on-demand delivery business during this quarter.

For in-store, we continue to focus on high-quality growth. We held our position in core in-store categories and effectively capture increased holiday spending and emerging consumption trends. Our in-store business delivered steady growth this quarter, driven by strong performance across multiple fronts. We continue to see categories, including leisure and entertainment, sports and fitness, pet service and et cetera, grow rapidly in both order volume and GTV.

In time, we also saw promising traction in service verticals like medical aesthetics, health care, home renovation and et cetera, as we bring more nonstandard local service online and scale our skilled artisan community in those industries. In hotel and travel, we also delivered steady growth as we capture as travel demand during holidays.

Our industry-leading position in the low-star hotel sector stayed strong. Despite ongoing competition, our in-store hotel and travel business overall operating profit margin remained stable quarter-over-quarter.

Now turning to our new initiatives segment. Revenue in Q1 was up 21.3% year-over-year to RMB 27 billion. Segment operating loss narrowed sequentially to RMB 2.1 billion. First, our grocery retail business narrowed their loss quarter-over-quarter, supported by operational efficiency gains and seasonal tailwinds. Given growing strategic importance and sustained growth, we have started to disclose their product sales separately this quarter. The product sales mainly generated from our grocery retail business grew about 41% year-over-year this quarter, contributing meaningfully to the segment's growth.

Second, Keeta delivered resilient growth in Middle East, even in a challenging environment, further supporting its rapid revenue expansion. The loss from Keeta reduced quarter-on-quarter as we improved operating efficiency across all of its markets. In closing, I want to reiterate our confidence in the company's long-term sustainable growth potential.

As we continue to execute our Retail + Technology strategy, we will provide greater value to our merchants, consumers and the whole business partners. This will further strengthen our competitive position in the longer term. With that, we are now open for your Q&A.

[Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs.

I want to ask about the food delivery business. So as the industry subsidies gradually rationalized, what marginal shifts have you seen in the competitive landscape? And with seasonal tailwinds, do you expect the business to turn profitable for the second quarter? And how should we think about the UE progression into the second half? Just building on to that, on order volumes, given tough comps, what is your outlook for order volume growth for the next few quarters? And stepping back, if we think about the TAM, and key structural drivers for the overall market, could you just help us frame that and the long-term UE, unit economics trajectory from here?

Thank you, Ronald. So for your question on our food delivery subsidy and on the UE. So I think with industry-wide subsidy finally getting more rational, so we are seeing competition shifting back to the fundamentals. That's operational efficiency and user experience. So this transition plays to our strength. But even as we see -- we gradually pull back subsidies, we still continue to see healthy user growth and stronger engagement from our core users.

We also solidified our leadership in mid- to high AOV order segment. This is a natural result of our strong user mind share and better supply and service quality. And our structural advantage in operational efficiency are becoming increasingly evident at this stage and driving steady improvement in our financials. If competition stays more rational, we expect a meaningful UE improvement in Q2 compared to Q1, supported by seasonal tailwind, and we have sustained our market leadership in recent months, while also widening our UE gap advantage. We will continue to monitor the market closely and adapt thoughtfully.

Our focus stays on sustaining our leading position while driving operational efficiency improvement, both for ourselves and our merchants. However, our UE improved in the second half, we'll still depend on how the competition environment evolves. Also, keep in mind that delivery cost per order is seasonally higher in Q3 and Q4 compared with Q2. And on order volume, given the high basis from last year, we may see negative year-over-year order growth in the second half. But we are seeing a healthier order mix as consumers are increasingly willing to pay for quality. I would say this is a very positive sign for merchants who invest in quality supply.

Therefore, we expect the net GTV growth to be more resilient than order volume growth. That really comes down to our leadership in mid- to higher AOV segments. And the expected AOV recovery supported by our user structure advantages. And looking long term -- longer term, we continue to see upside in China's food delivery market. The service is becoming a high-frequency daily necessities for border and broader demographic, a structural shift that provides sustained momentum for deeper market penetration over time. And as we broaden our reach, we also help merchants access a bigger customer base. In fact, we are seeing the industry user base continue to expand.

On one hand, food delivery is penetrating deeper into the lower price segment. On the other hand, in our better service to consumers seeking premium and diverse options, driving steady expansion in the user base as well. We see high growth potential in purchase frequency and retention for the new users, and we believe our superior services supplies can well position us to capture this upside.

Looking back, this wave of irrational competition proved one thing. Volume acceleration driven solely by subsidy is not sustainable. True long-term growth comes down to supply-side innovation and better managing of demand supply across diverse use cases. Leveraging AI and other technologies to drive efficiency and experience improvement across the industry is also super important. These are the true foundation for healthy, sustainable growth. And that's exactly where we will continue to invest with conviction.

We have confidence in the industry long-term growth potential and achieving a sustainable high-quality 1 million order per day stays our target. On long-term unit economics, we expect competition to be more rational, particularly under regulatory guidance. And we are confident in sustaining our industry-leading operational efficiency, which will support our long-term competitiveness. We believe our food delivery long-term UE will get back to a reasonable level. And beyond that, significant synergy potential remains untapped across our core local commerce businesses. We will actively drive cross-selling between food delivery and other services. Ultimately, this will generate a long-term compounding value for the entire core local commerce segment.

Your next question comes from Thomas Chong with Jefferies.

Given the ongoing competitive pressure from Douyin, could management share some color about the recent trend for the in-store business? Should we expect continued pressure on both the top line growth and margin for the in-store business? In the longer term, how do you project the growth and margin trajectory, especially given the traffic disadvantage versus Douyin?

We have always viewed the local in-store services as more than just a traffic-driven business. It is a business built on physical world fulfillment and on consumers' trust. Traffic alone doesn't automatically translate into transactions. In local services, Meituan has built strength that cannot be replicated purely through traffic.

First is our brand. Our strong consumer mind share for finding stores and deals, supported by a trustworthy information and review system. Our value for money group-buy offerings, verified merchant information, integrate services like online reservation and [indiscernible] system and billions of authentic user-generating reviews together form a strong moat.

Secondly, is our continuous innovation across the whole value chain to build better and better experience. We support millions of skilled artisans on our platform, and we have deeply penetrated into sectors like medical aesthetics, elderly care and home maintenance. Our consumer protection initiatives have rebuilt consumer trust in prepaid service. By transforming offline nonstandard and long-tail services into reliable, standardized online SKUs, we have built a very differentiated supply ecosystem.

These initiatives continue to help build a self-reinforcing cycle at scale, continue to provide the best experience in the industry. We're also aggressively using AI technology with a focus to reshape the value that we deliver in the local service industry, transforming Meituan from a customer acquisition channel into a full-rounded AI-powered business partner in the local ecosystem. While competition has created some near-term noise, we believe market players have to continue to differentiate across category, merchant segment and market scenarios.

Our position as a one-stop local service platform stays strong. Our in-store revenue keeps growing steadily, and we continue to lead in core categories. We have also expanded into new service retail verticals and deepened our reach in lower-tier markets. Our investment strategy will adapt dynamically to the industry trends with primary focus always being the long-term healthy development of the industry.

This year, we will focus on 2 things: strengthening our competitive edge in core categories, and building a better digital infrastructure for local service merchants. As the industry subsidy gradually normalize, the value we deliver to merchant will matter even more in their day-to-day operations. We expect the in-store margin to stay stable in the near term, with room to recover over the long term. We have the conviction and patience to keep leading the evolution of the local service sector.

Your next question comes from Gary Yu with Morgan Stanley.

I have a question regarding AI. We've noticed that the Meituan app has recently launched the AI assistant, Xiao Tuan on its home page. Can management share some color on the progress so far? Are there any other initiatives underway to accelerate AI integration on the product side? And what capabilities are you looking to build? And what goals do you aim to achieve on the AI front over the longer term?

Thank you, Gary. Yes, you are exactly right. We have placed our AI assistant, Xiao Tuan, front and center in the Meituan app. It now sits in the middle of the bottom navigation bar for easier access. But I would say it is still at a very early stage. But anyhow, we are already seeing good initial results. More and more users are coming to Xiao Tuan, not just for very simple and short searches, but for more complex cross-use cases queries, things like please recommend a restaurant between 2 locations for guests who do not eat spicy food or book an on-site repair service. And what makes Xiao Tuan different is the foundations.

It's the authentic consumer reviews and comprehensive POI information and proprietary model trained specifically for local service businesses. Together, this gives Xiao Tuan the ability to understand better the full context and provide users with personalized recommendations. And particularly when users change their mind and adjust criteria like price range, locations or anything else, Xiao Tuan can seamlessly factor that in all prior instructions and update its recommendation accordingly.

The May Day holidays was a good example. Session volumes pick up meaningfully compared to Chinese New Year. More importantly, users won't just come in to redeem coupons on Xiao Tuan. They are actually using Xiao Tuan to discover services, destinations and ultimately plan and make a purchase on our platform. And beyond the Xiao Tuan, we are also embedding AI deeper into some specific verticals.

A good example is Xiao Tuan Health Assistant, Xiao Tuan Jiankang Guanjia, our dedicated AI product for health care services. It's built on years proprietary real-world data from pharmacies transactions and online medical consultations on our platform. And it's developed in close partnership with professional medical teams because that's where you don't want to have any hallucination by AI. It brings health consultations, medication guidance, medical report interpretation all into one seamless experience where users can consult and can order medication or book appointments all within the Meituan app.

And looking ahead, Xiao Tuan will be one of our key AI products on the consumer side. We will continue to deepen its integration into Meituan app. And beyond improving the effectiveness of user agent interactions, we will deploy Xiao Tuan's agentic task execution capabilities progressively across our business verticals. And our partnership between Meituan AI Assistant Xiaomei and the Tencent's AI chatbot Yuanbao will also be launched soon. And when the user submit local services related requests in Yuanbao, it will trigger an agent-to-agent communication with Xiaomei. And this seamlessly connects the user to our services, such as online food ordering and delivery. This collaboration will facilitate a streamlined one-stop local service transaction experience for users.

I think going forward, we will need to build capabilities not just for 2C, to consumers or 2B, to businesses and 2A, to agents is actually becomes more and more important. And as I've said in the past Q&As, we try to play offense, not defense in AI. And we consider AI to be a very important opportunity to deepen our moat and unlock new values, and we have been investing in our own large language model, LongCat.

We are improving our agentic capabilities. But what really sets us apart is our -- the foundation, the data we have. We have full spectrum local services coverage and verified merchant information, authentic user reviews and fulfillment infrastructure. Putting AI on top of these structural advantages, we will deliver superior AI-powered local service experience to users.

Your next question comes from Kenneth Fong with UBS.

Given the evolving industry and regulatory trends in the travel industry, could management share the recent performance of the company hotel and travel business as well as its development strategy for the full year?

Thank you, Kenneth. The hotel and travel industry has entered into a new phase in terms of regulation and competition. Consumer preference has increasingly shifted toward value-for-money options, offpeak travel, lower-tier cities and local leisure short distance getaways. In first quarter, our hotel travel business delivered steady growth, and we further consolidate our leading position in the lower star hotel area. Riding on strong travel momentum during Spring Festival holiday, including home visits and leisure travel, we offer well-priced high-quality accommodation with outstanding user experience, which effectively lifted transaction conversion rates.

We also continue to deepen our presence across the industry supply chain, catering to the differentiated needs of merchants at various operational stage, we provide end-to-end solutions covering brand establishment, targeting marketing, revenue enhancement, room renovation and PMS system support. These tailored solutions help merchants improve online operational efficiency and achieve long-term sustainable growth.

On the high-star hotel front, amid the evolving regulatory environment, we expand our high-star hotel portfolio to enrich accommodation choices for consumers. Earlier this April, we launched the 2026 Must-Stay List, featuring thousands of premium hotels across more than 200 cities nationwide. This list has become a credible curated guide for user seeking high-quality lodging experience. We partner with selected hotel merchants on the list to offer exclusive presale products for leisure travelers, bringing exclusive benefits, unique experience and one-stop high-quality vacation services. Furthermore, we remain focused on strengthening our membership ecosystem.

On the internal front, we ramped up cross-selling between accommodation and other businesses, provide high-tier Meituan members with exclusive perks, including complementary room upgrades, free breakfast, late checkout, early check-in and special discounts. Externally, we continue to promote joint membership programs with global high-end hotel brands, such as Marriott and launched exclusive membership benefit in partnership with Shanghai [indiscernible].

Looking ahead to the full year, we recognize that the recent hike in airline fuel surcharge will bring near-term vulnerability to hotel and travel industry. Long-distance travel and high-star hotels are likely to face headwinds, while short-term distance leisure travel, local accommodations and low-star hotels will remain resilient. Our structural advantage in these resilient domains position us well to navigate the current market cycle. In addition, we will fully capture opportunity brought by ongoing regulatory updates.

First, we will further solidify our core market leadership in the low-star hotel sector. Second, we will continue to expand footprint in the mid- to high-end hotels, deepen strategic partnerships with merchants, enrich our offerings and strengthen our ecosystem synergies. We will also continue to leverage the Meituan membership program to deliver targeted services to high-value users and push for further progress in the high-star hotel domain. We are confident in driving healthy, sustainable and high-quality growth for our hotel and travel space.

Your next question comes from Charlene Liu with HSBC.

I would like to ask about the Middle East situation. Can you help us understand the operational impact on Keeta so far? On UE, are the UE improvement trends in Hong Kong and Saudi Arabia still on track for the quarter? Finally, given the heightened geopolitical uncertainties globally, how are you thinking about Keeta's expansion and investment pace going forward?

Thank you. Regarding the Middle East, we have seen some near-term fluctuations in our growth metrics given what's happening in this region. However, the impact has been manageable so far and our long-term conviction for this market is unchanged. We still believe Middle East is one of the most attractive on-demand delivery markets globally. The market is still growing fast, penetration remains low, and consumers there have strong willingness to pay.

Notably, even in this challenging environment, we continue to see a clear acceleration in the transition from offline to online. Consumer mind share for on-demand retail continues to strengthen and industry-wide online penetration is accelerating. On-demand delivery has clearly become an essential infrastructure. This shows the structural resilience of this business model. Broadly speaking, going global is a long-term goal for us and navigating geopolitical complexity is what we need to learn.

We will keep sharpening our risk management and building an organization that is better suited for global operations. As we do so, we will continue to grow alongside local players and create value for users, merchants and riders in the local markets. Operationally, Keeta maintained solid growth across all markets in Q1. Following Hong Kong's unit economics breakeven in Q4 last year, we delivered further efficiency gains in both Hong Kong and Saudi Arabia this quarter. This also is encouraging to see that the efficiency in ramp-up in other Middle East markets and Brazil has been even faster, thanks to the operational experience accumulated earlier.

We will prioritize operation improvement this year over new market expansion. In the longer term, we are confident in Keeta's potential to deliver on both scale and bottom line growth. In many global markets, food delivery is still an occasional service for a small segment of consumers, not a daily necessity for the mass market. This demonstrates significant growth potential.

Going forward, we will explore market expansion opportunities thoughtfully, and we will be financially disciplined. Food delivery, it's a proven business model globally and Keeta's steady efficiency gains across existing markets validates our operational playbook. As we grow and keep optimizing our operations, we are confident we will eventually achieve sustainable profitability at scale. Thank you.

Your next question comes from Alicia Yap with Citigroup.

I have a question related to your grocery retail Xiaoxiang Supermarket business. So amidst the on-demand delivery price war, we have seen fresh people maintain a rapid growth recently. Could management provide some color on Xiaoxiang Supermarkets recent performance? And then specifically, how do you view the strategic value of the 1P model like the Xiaoxiang Supermarket within the Meituan's on-demand delivery ecosystem? And what are your long-term targets for this business?

Thank you, Alicia. Well, to answer your question, yes, we know that all our peers are growing fast. I could say Xiaoxiang is growing even faster. So thank you for paying attention to Xiaoxiang Supermarket. In today's very competitive online environment, we need to make sure we have the best supply on our platform. For average consumers, they don't understand, and they don't care about whether it's a so-called 1P model or 3P model. So they only care about what they can buy from the platform and whether the suppliers, the stores can provide good quality and also an equally important predicted reliability.

So here Xiaoxiang is competing on a level playing field on the Meituan platform. But it's very important that as everything now becomes the new normal for more and more users, and they are raising their expectations on product variety, quality and value, they know they can get the same very fast delivery from any seller, but they are expecting more from the sellers. And we believe the future growth of on-demand retail markets will be driven by a hybrid model, including the so-called 3P model or like -- or initiatives by Meituan Instashopping and together with a 1P model like a Xiaoxiang Supermarket. And Xiaoxiang provides a very consistently high-quality supply with a very competitively priced product fulfillment.

So this positions us strongly to capture the substantial growth potential in this evolving space. We think it's a model built directly on our core strengths and has a clear path to profitability. But on the other hand, we have a lot to learn in this grocery business. On the operational side, Xiaoxiang has delivered a very robust GTV growth in 2025, significantly outperforming the whole industry. And I'm glad to say that this momentum continued into Q1. And recently, we accelerated our expansion. Now Xiaoxiang covers 55 cities as of the end of Q1 with the plans to enter more markets in the coming quarters.

Meanwhile, we continue to strengthen our merchandising capability and go deeper into the entire supply chain. And as an example, our private brand product, PB products are gaining greater recognition from consumers and now account for a growing share of our sales. In our more established cities like Beijing and Shanghai, we have seen a notable increase in AOV over the past few quarters. This reflects our success in capturing more wallet share by expanding our high-quality competitively priced product offerings.

And also to further strengthen our omnichannel capabilities, we are actively launching new physical stores. And you may be aware that we -- Xiaoxiang started as a pure online dark store model. But last December, we have opened our first physical store in Beijing in Harbin. And building on the success of our first physical store, we opened a second one in Ningbo in this past April. We believe physical stores can broaden our user reach and allow the consumers or potential customers to see more directly our high-quality physical goods. Because when you enter a physical store, you are going to have a much broader of view compared to any screen. And you can not only see more, you can smell it, you can touch it. So this is much more attractive than any online presentations.

So physical store will be a very good channel to strengthen Xiaoxiang's brand awareness over time. And on the other hand, even with this very rapid expansion, we remain very focused on ROI because grocery retail is a long game. And this reflects in our continued year-over-year improvement in margins in Q1. And looking ahead, we are confident that Xiaoxiang will become one of the leading players among online grocery stores. And we are targeting a sustainable low single-digit profit margin in the long run. But what's most important is that we want to build Xiaoxiang to become one of the most loved grocery brand in future. Because the mission of our company is to help people eat better. Besides food delivery, people who want to cook for themselves need to buy grocery, and we want to build Xiaoxiang to become one of the most loved grocery brands. That's our target.

There are no further questions at this time. I'll now hand back to Scarlett Xu for closing remarks.

Okay. Thank you all for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the Meituan Fourth Quarter and Full Year 2025 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 2025 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 2025 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 actual results in the future. This presentation also contains unaudited non-IFRS accounting standards, 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 standards measures, please refer to the disclosure documents 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 hello, everyone. And 2025 was a year of both opportunities and challenges for Meituan; and facing unprecedented intense competition, we stayed focused on serving our consumers, merchants, couriers and all ecosystem partners.

And we were committed to creating long-term value. In 2025, our platform GTV and transaction volume both achieved a double-digit growth and annual transacting users and user transaction frequencies and ARPU all reached a new high. And these key metrics reaffirmed our solid position as the preferred local service platform for Chinese consumers.

In 2025, we fully upgraded our Meituan membership program. This was our first consumer loyalty program covering nearly all categories. It helped us drive cross-selling and enhance core user stickiness. Meanwhile, leveraging our comprehensive advantages in local services, we launched our own AI assistant, Xiaomei and Xiaoguan.

We brought AI technology into real consumption use case, going forward, Meituan membership and AI will continue to be the key tools for us to deliver differentiated and enhanced local experience. No matter how the market environment evolves, we remain focused on strengthening our long-term moat and promoting the healthy and sustainable development of the whole industry.

We also actively pursued new growth opportunities. During 2025, we made a series of key progress. First, we accelerated our deeper penetration into the supply side and built a comprehensive cost-effective supply system, spanning a full price range and diverse categories through supply side innovation. This allows us to precisely meet users' comprehensive needs across food delivery, e-commerce and services retail.

It also strengthened our positioning as a one-stop local service platform. In food delivery, we focused on innovation in products, store formats and channels in collaboration with the merchants. Innovative formats such as branded satellite stores [indiscernible], have helped a large number of restaurant brands and small and medium-sized merchants improve operational efficiency and expand their businesses.

Through Pin Hao Fan, Shen Qiang Shou and other formats, we work with the merchants and launched the high-quality value-for-money megahit products across different price ranges, serving a broader consumer base.

In quick commerce, we deepened our presence in local supply, becoming an important partner for many leading brands in their omnichannel strategies. We continue to extend our reach in the supply chain. Our innovative supply format, including Meituan Instamart, Meituan [indiscernible] and branded flagship Instamart, [indiscernible] as well as our self-operated Xiaoxiang Supermarket, a micro fulfillment center have become important supply for quick commerce.

Wai Ma Song Jiu achieved rapid growth as we worked closely with top liquor brands. In health care and pharmaceuticals, we continue to strengthen local supplies of common household medicines, medical devices and supported the online launch of many innovative drugs and further expanded coverage of 24-hour pharmacies, online consultations and home testing services.

Xiaoxiang Supermarket accelerated its city expansion in the fourth quarter. Over the past few years, Xiaoxiang Supermarket has built a strong supply chain, upgraded fresh produce quality and developed industrial-leading product capabilities.

And our private label products now cover broader categories, contributing higher GTV shares. In our in-store hotel and travel business, we featured our high-quality merchant recommendation list and expanded our 6 series programs [indiscernible] to more categories such as education, fitness, health care and elderly care. Based on our deep insights into consumption trends, we further enriched offerings in sports events, cultural and other ticketing, home services and more.

In addition, we supported over 1 million independent artisans [indiscernible] in digitizing their profiles on our platform, enhancing our unique service ecosystem and connectivities. Second, we focused on enhancing our comprehensive service capabilities. Through product iteration and Meituan membership upgrades, we delivered a superior consumption experience for consumers.

In fulfillment, we upgraded on-time guaranteed [indiscernible] and one-on-one express delivery [indiscernible], significantly expanding their coverage in 2025. This provided consumers with a more reliable and higher quality fulfillment protection and strengthened our competitive edge in fulfillment.

In quick commerce, we launched the industry's first full cycle service assurance program, [indiscernible] with millions of merchants and brands. It offers free return shipping for high-tier Meituan members and selected brands products. It lift industry service standards across experience, fulfillment, delivery and aftersales support.

In health care, we expanded online consultation with Grade 3A hospital doctors. We upgraded the verification and service protection for dental care and medical aesthetics and other services. These efforts comprehensively improved the reliability of online health care services, and we deeply integrated these high-quality services with our fully upgraded Meituan membership.

We launched a series of exclusive benefits for our members, covering various consumption scenarios such as food delivery, hotel booking, lifestyle services, mobility, health care and more. Richer member exclusive benefits, activities significantly improved consumer mind shares and transaction frequency, allowing us to better serve our core user base.

As a result, a large number of mid-tier members advanced to higher membership tiers. Our high-value member base continued to grow steadily amid very intense competition with their transaction frequency and spending rising notably, they also make purchases across a broader range of categories. Our continuously enhanced Meituan membership program delivered strong multidimensional support.

It boosted traffic operations and transactions and growth. It also drives cross-selling among different categories and different scenarios within our core local commerce business. Overall, we have strengthened our leading position in user structure and consumer mind share even in a very highly competitive market.

Third, we stay focused on cultivating a sustainable ecosystem, and we are taking very concrete actions to drive high-quality growth for the whole local services industry. We continue to empower small and medium-sized merchants. For example, we increased the financial support, promoted the Bright Kitchen program [indiscernible] and use AI tools improve merchant operational efficiency. We aim to foster the healthy development of the food service industry and address structural challenges such as the marketing evolution nature and food safety governance.

We also made progress in courier welfare in 2025. We that the industry in providing pension insurance subsidy program for all types of couriers across the country. Our occupational injury insurance program has now expanded to 17 provinces and cities, covering more than 16 million couriers. This protection is provided at no financial cost to the couriers.

Additionally, we continue to enhance the multi-tier welfare system for couriers across health care, education, housing and other areas. Fourth, in our overseas market, Keeta accelerated its global footprint and delivered a good growth momentum in 2025. In Hong Kong, Keeta further solidified its leading position and achieved positive unit economics in the fourth quarter. In Saudi Arabia, Keeta's order volume keep growing throughout 2025, and it has become one of the top platforms for local consumers with higher-quality services.

In the second half of 2025, we launched our operation in Qatar, Kuwait, UAE and Brazil. All these new markets recorded strong growth momentum since business is launched. Going forward, we expect Keeta to continue leveraging its strength in products, technology and operational know-how. We will work closely with merchants and couriers in all markets around the world, jointly drive the digital transformation of the industry and enable consumers in more countries and regions to enjoy our high-quality and efficient services.

And moreover, in 2025, we embraced the opportunity brought by AI. We are committed to driving the AI transformation of the physical world by integrating AI innovation with our proven services advantages in the physical world. Over the years, we have made significant investment in AI technology. We combined the strength of our in-house multimodel LongCat model and that's a series of large language models. And we -- at the same time, we also used state-of-the-art third-party models.

We also leveraged Meituan's unique digital assets, including extensive merchant information and high-quality diverse offerings and real consumption behavior and user reviews. We first tested Xiaomei, a smart live assistant as a stand-alone app. What's more important is that we have rolled out Xiaoguan and our AI assistant embedded in the Meituan app to all users.

We have integrated AI technology with use cases on Meituan, covering all categories in local services on our platform. Xiaoguan, the AI feature in Meituan will fundamentally change how consumers use our apps. searching will evolve into simply making requests in natural language, not just keywords.

Then Xiaoguan draws on Meituan's rich supply and strong fulfillment capabilities. Combined with our mature native interface in the Meituan app, it brings consumers a brand-new easy-to-use and superior experience. In 2025 -- in 2026, we will continue to refine Xiaoguan's user experience.

Our goal is to make Xiaoguan the most consumer-centric AI agent for local services. Looking back on 2025, we faced a complex external environment and unprecedented fierce competition, but we remain committed to our mission to help people eat better, live better and we work hard to deliver real values for consumers, merchants, couriers and all ecosystem partners.

Looking ahead, we believe our core local commerce still has strong growth potential and very strong business resilience. We'll continue to deepen our supply -- our penetration into the supply side, enhance service quality, improve our Meituan membership program and invest in the ecosystem. We will further strengthen our position as the preferred local services platform for most consumers and drive the high-quality development of the industry.

Meanwhile, grocery retail and overseas market are long-term growth trend with a clear strategy and potential. We will actively explore these areas with investment discipline. More importantly, as we get into the AI era, we will firmly implement our retail plus technology strategy, utilizing AI to deeply empower the local services industry and deliver better experience for both consumers and merchants. With that, I will turn the call over to Shaohui for an update on our latest financial results.

Thanks, Xing. Hello, everyone. Now let's begin with our fourth quarter financial results. Please note that all comparisons are on a year-over-year basis unless otherwise noted.

In Q4, our total revenue was RMB 92.1 billion, up 4.1%. Cost of revenue ratio increased by 11.6 percentage points to 33.8%. This is primarily driven by 3 factors: more consumer incentives deducted from revenue, higher rider incentives to maintain leading service quality and increased overseas operational costs. Selling and marketing expenses ratio rose by 14.8 percentage points to 34.4%, largely due to our increased investment in promotion, advertising and user incentives to enhance our brand awareness and the core user engagement. R&D expenses ratio increased to 7.6%, reflecting our increased investment in AI, while the G&A expenses ratio saw a slight increase to 4%.

Fourth quarter total segment operating loss and adjusted net loss narrowed sequentially to RMB 14.7 billion and RMB 15.1 billion, respectively. This sequential improvement reflect our focus on quality growth and execution efficiency amid the intense competition. As of December 31, 2025, we held cash and cash equivalents and short-term treasury investments totaling RMB 166.8 billion. While operating cash flow was still negative, we achieved sequential improvement with operating cash outflow narrowing to RMB 6.6 billion.

Now let's look at the segment results, starting with the core local commerce segment. This quarter, we continue to see healthy growth in both order volume and GTV. Our leadership in both food delivery and Meituan shopping stayed strong, while our market position in core local in-store categories remained stable. Our core user base continued to show healthy growth and higher engagement on our platform. These users aren't just transacting more often. They are exploring more services across our platform during this quarter.

Their retention rate further improved in the fourth quarter compared with the third quarter. Multiple consumption categories, including medicine and health, leisure and entertainment, sports and fitness, pet services and most categories in the Meituan instant shopping maintained double-digit growth across both order volume and GTV.

On the financial side, segment revenue was RMB 64.8 billion in Q4, down 1.1%, while food delivery industry-wide subsidy slightly moderate from Q3, they were still at historical high levels. In Q4, we stayed focused on quality growth and further pull back resources from those low AOV and low-quality orders. This drove a sequential recovery in our food delivery average order value.

Although our food delivery net AOV is still well above the industry average, intensified competition did lead to a significant year-over-year drop in food delivery AOV, which weighted on our commission revenue growth. The impact of consumer subsidy on delivery service revenue also continued through Q4. Our online marketing revenue maintained stable growth. We continue to see merchants across categories from small- and medium-sized restaurants to offline retailers and other local service providers treat Meituan as a key marketing channel.

Our advertiser base continued to expand steadily. On the cost and expenses side, we increased marketing spending and promotions to enhance brand positioning and price competitiveness while driving engagement among core users. We allocated more resources to enhance our membership program. We also provide more incentives for our couriers to ensure deliver service quality and user experience alongside continued investment in ecosystem development.

Core local commerce segment operating loss was RMB 10 billion in Q4, with operating loss narrowing significantly from last quarter. This improvement was largely driven by meaningful loss reduction from our food delivery business. Turning to our new initiatives segment. In Q4, revenue reached RMB 27.3 billion, up 18.9% year-over-year, primarily driven by the expansion of Keeta and grocery retail business. However, segment operating loss widened to RMB 4.6 billion, reflecting both seasonal headwinds in business like bike-sharing as well as strategic investments in overseas expansion and grocery retailing.

During this quarter, we expanded Keeta into 4 new markets, which required meaningful upfront investment. However, we are encouraged that in established markets like Hong Kong and Saudi Arabia, unit economics are already showing healthy improvement driven by order density growth and operational efficiency. We are optimistic that Keeta and new markets will follow this positive trajectory for grocery retail. It remains a key long-term priority for Meituan. Xiaoxiang Supermarket has made solid progress over the past few years with key metrics trending positively.

In Q4, we accelerated its expansion into new cities and expanded it's warehouse network to capture growing online grocery demand. We also grew our physical presence with the launch of our first Xiaoxiang Supermarket offline store in Beijing and the opening of multiple new Happy Monkey stores. In addition, we recently announced our plan to acquire the domestic assets of Dingdong Grocery, which we expect to further enhance Meituan's overall capability in on-demand grocery retailing. We are confident that these strategic investments will solidify our competitive advantage and create long-term value in the grocery sector. Looking ahead, we are still confident that in the company's long-term sustainable growth trajectory will continue.

We are firmly against industry evolution, and we believe the competition will gradually be normalized with the regulation guidance. We will focus more on driving greater efficiency and higher quality growth and continue to invest in technology, service quality and ecosystem development. With that, we are now open for Q&A.

[Operator Instructions]. Your first question comes from Ronald Keung with Goldman Sachs.

So I want to ask about the battle on AI gateways or entry points as this kind of new era has begun. So how does the company think about this trend and the future development? On the risk side, will this lead to a loss of kind of position as the main traffic gateway in the app era? And what strategies or plans do management -- does management have to address the risk? And could you also share the latest progress on your AI agent and LongCat model?

Thank you, Ron. So in the past earnings call, I have made it clear that I think while AI is going to revolutionize everything. And in this AI revolution, the only strategy that makes sense is to play [indiscernible] instead of just defense. But that doesn't mean we are going to rush to try to become one of the token factories, not at all.

We view AI as a strategic opportunity to improve and strengthen or even revolutionize our product offerings in local services as our core business. So I will elaborate a little bit. First, I think AI takes big investment. So since early 2023, we have been investing a lot in both the CapEx and also the AI talent to build our in-house model. So other than those cloud companies, we have probably made the largest investment in AI among all Chinese companies other than those cloud companies.

And we -- while we have been doing this for more than 3 years, it has -- obviously has an impact on our balance sheet and cash flow. We will remain committed to developing our in-house large language models from Cat because we believe in order to better understand the physical world, do it in a more precise way based on our own massive proprietary data, we need to have the capability to build an in-house model.

But at the same time, we are also working with sort third-party model. And we are striving to take the lead in upgrading our Meituan app into an AI-powered app in order to better fulfill the end-to-end needs of our consumers in local services and quick commerce. So in our view, the battle for the so-called Super Gateway is fundamentally about the capability to accurately understand the user needs and then efficiently execute the task.

But here, it is much more complicated than [indiscernible] chatbot. The local service industry features highly complex use cases. And there's a massive amount of very fragmented information and a lot of real-time information from small and medium-sized merchants. Those merchants are not fully digitized. So a lot of the data on the merchant side and some on the consumer side has not been effectively digitized.

In order to benefit from AI, I think it has to be first digitized. So that's what we have been doing for many years. A lot of merchants run on our digital system. So we have the unparalleled access to their data. But moreover, local service platform also need to be able to deeply involved in the management of the fulfillment services. Otherwise, it's just a chat bot. And here, I don't think the general AI can reliably manage and guarantee the real physical world service experience.

And we -- Meituan has been -- have built up, it tends to be physical world data, including merchant POI data, dynamic and real-time merchant operation data and the most comprehensive authentic user reviews for local services. I believe our deep expertise in food delivery network, the on-demand delivery network and our business development operation, our retail supply as well as our -- in future, our drone and unmanned driverless vehicles and other embodied AI technology will give us significant advantages in connecting AI with the physical world.

And our in-house model is catching up with those open source sort of models. And our agents are evolving rapidly that will help us seamless integrated digital and physical world information. So to give you some example, so we have recently made our AI assistant Xiaotuan available to all users within our Meitu app.

Before that, we have released a stand-alone AI app that's Xiaomei. But with Xiaotuan, all existing hundreds of millions of Meituan app users will benefit from these new AI features. Xiaotuan covers all local service categories on our platform. The user can express their needs in a more natural way. In the past, most people have gotten used to search through a few keywords.

But now with the enhanced AI capability, Xiaotuan can -- understand the query -- longer query in natural language and Xiaotuan can access all data within Meituan app. So I'll give you one example. It's very common for a user to use Meituan app to find a restaurant. But sometimes you need to be able to better understand the use case. For example, maybe one day, I'll give you one very concrete example. So I would like to ask Meituan, okay, here, I'm in the office in Wangjing, that's the northeastern corner of Beijing.

And I have a friend who is working in [indiscernible] on the west side of Beijing. And we plan to have lunch together. We only have 2 hours' time. So could you help us find a restaurant with a good [indiscernible] spicy food in the middle, and it needs to have a convenient parking space. I think that's a very natural real need. But in the past, with very limited keyword search, the user will not be able to ask these kind of questions.

So now with enhanced AI capability, it has become possible. It's a very real use case. But in order to really answer that question, you need to understand -- you need to have the mapping information, the POI information or even the traffic information. And also you need to know there are -- you need to know more than just there are restaurants. You also need to understand the offering of the restaurant or the real-time capacity of the restaurant.

Otherwise, you will recommend a very popular restaurant, but the user will not be able to reserve a table or a private room. So that's not what you need. So to really fulfill this need, we need -- our system need to have access to a lot of information in the physical world. And AI is helping us to bring all those data, physical world data together and offer a much better user experience to our users. So leveraging Meituan's comprehensive and authentic merchant database, [indiscernible] can now quite actually answer those specific questions about not only merchant location, business hours, the store facilities and more. And [indiscernible] can also utilize our authentic user reviews and recommendations to deliver valuable insights. So with this enhanced reasoning capability, [indiscernible] can fulfill more personalized queries and generate the one-stop guides for dining, entertainment, travel and more.

We are pleased to see the Xiaotuan feature effectively addressed users requests during spring festival, but that's just the beginning. It received a positive feedback and further strengthened user engagement. In the future, I think the model will become better, and we will continue to deepen the integration of [ Xiaotuan ] feature in the Meituan app.

So we want to use the new AI technology to make Meituan app, the go-to destination for the local needs, local services needs of all users. We'll enhance the AI search capability, and we will enhance the execution capability, and we strive to upgrade Meituan to make it a leading AI-powered app and AI gateway for local services needs in the future. Thank you.

Your next question comes from Ya Jiang with Citic Securities.

And regarding the State Council's investigation into the food delivery market competition, which started in early January, has our business strategy changed? And what changes are we seeing in the competitive environment recently? And looking ahead, how do we plan to sustain or expand our competitive advantages on the current regulatory environment? And can food delivery continue to loss narrowing trend from quarter 4 into quarter 1? That's my question.

Thank you, we believe the regulatory guidance is already quite clear. The authorities are firmly against the so-called evolution nation and want to foster a healthy and orderly market. Subsidy-driven or price-driven competition in the food delivery sector is a very typical -- the so-called irrational competition is a very typical evolution.

And so we take this issue very seriously and want to reiterate our position. We are firmly against evolution. We will actively work with the regulatory investigations. And meanwhile, we are putting back resources on the low-quality orders while striving to defend our market leadership.

So in 2026, no matter how the market environment evolves, our strategy for food delivery stays clear and consistent. First, we will stay focused on doing the right thing to enhance our core strength as expanding high-quality selections, ensuring fast and reliable deliveries and offering consistently affordable prices. Second, like I said before, we will maintain our leadership while focusing our resources on driving quality growth and improving operational efficiency.

And third, we will keep creating value for the whole industry. Beyond our ongoing work in supply side innovations, fuller support and welfare improvement, food safety, and we are also pushing product and services upgrades, innovation in AI and all other technologies to drive efficiency and experience improvement across the industry.

So looking ahead, we believe competition will shift toward deepening users' lifetime value, improving supply quality varieties and delivering a seamless end-to-end user experience. During recent months, even with the continued intense competition and quite irrational subsidies, Meituan is still the top choice for high-value consumers when it comes to food services because we deliver a better overall experience. We have held our competitive advantages in mid- to high average order value orders with average order value consistently well above industry peers. And driven by our focus on quality growth and an improved order mix, we are on track to see a more meaningful sequential improvement in our food delivery per order loss in Q1 versus Q4 last year.

And we believe a more regulated market can help shift competition from pure subsidy wars toward innovation, service experience and efficiency. These are the areas in which we are better positioned. But we will keep sharpening our core strengths through better operation, product innovation and iteration.

This will help us reinforce our structural advantages in mid- to high AOV orders and high-value users and efficient delivery network. We remain confident in the competence and long-term potential of our food delivery business. Thank you.

Your next question comes from Kenneth Fong with UBS.

We noticed that [indiscernible] has substantially increased the subsidies for in-store business since fourth quarter last year and its subsidies is expected to remain high in 2026. So I just want to see what's your view about the current competitive landscape in the local service and compared to the competition cycle back in 2022 to '23, how does Meituan's current strategy differ this time?

Thank you, Kenneth, for the question. The short answer from a short-term perspective to your question is that, yes, we see the competitors' recent ramp up investment, this may negatively impact our short-term profitability. That's something we are facing, and we would like the market to understand. But I would spend more words on our long-term strategy for this business.

I think it's key to understand that the competitive landscape now is evolving quite a lot. The whole in-store industry has seen significant changes in the last few years. On the competition side, the industry participants are now having quite differentiated focus on categories, merchants and consumption scenarios. Leading players are now focusing more on efficient operational strategy. And for us, our priority has always been the sustainable long-term development of the industry rather than short-term winning a [indiscernible] battle.

We truly believe that in-store business still has high potential, but still need lots of investment and more innovation across the whole value chain. No matter how the landscape shifts, provide efficient and high-quality service to consumers and merchants and driving robust offline consumption growth is the key to succeed. Over the last few years, we have seen that customers' demand has evolved. They require more personalized experience and value for money dining and services.

Demand also for extended services such as online touring, reservation and online ordering with offline pickup continues to grow. On the supply side, offerings have continued to evolve in line with consumption trends with new supply formats and service categories emerging. This ongoing momentum is also a key driving force for digital transformation. On the technology front, both consumers and merchants have growing expectations and demand for AI-powered products. Under these trends, Meituan has always been very alert and continue to bring our extensive experience and understanding of the industry and to continue the innovation.

We have built and further enhanced differentiated advantage in areas such as category mix, merchant ecosystem and operational efficiency. For example, thanks to years of expertise and insights from Meituan and Dianping in dining sector, we have noticed a shift in the business logic of fine dining. We proactively share these insights with our fine dining partners and help them stay ahead of the curve and quickly adapt to changing consumer demands.

We also continue to track the industry trend and explore new supplies in areas such as self-service models, leisure and entertainment, sports, culture and art activity ticketing, self-operating home services and more. Our platform's years of accumulated authentic user reviews and integrated one-stop online services, including the group buying, online ordering, pickup now, [indiscernible], reservations and QR management have become our unique competitive advantages.

Additionally, more than 1 million skilled artists have become a unique supplier on our platform. Our technology side, the AI agent smart operator [indiscernible] helps merchants optimize their digital service. Merchants are able to deliver personalized service by leveraging AI to record and analyze consumer preferences and can also intelligently analyze consumer feedback for operational improvements. In addition, our AI agents such as digital employees and [ AIBD ] streamline merchant operations across store opening, daily operations and consumer acquisition.

We will continue to enable merchants with their own AI assistance. In '26, we will further differentiate our service and allocate more resources with higher ROI. We will strengthen our position in core categories and minimize inefficient investment in noncore areas. Looking ahead, we will remain committed to providing consumers with a seamless service loop that offers quick, precise decisions and one-stop experience.

We aim to develop a full life cycle merchant empowerment system that covers customer acquisition, conversion and retention. We will continue to foster sustainable industry growth through digital transformation. Thank you.

Your next question comes from Thomas Chong with Jefferies.

Why did Meituan acquire Dingdong and what synergies are expected with Meituan grocery retail business? How has Meituan strategy for self-operated grocery retail evolved?

Thank you, Thomas, for the question on Dingdong and on Meituan's grocery strategy. We recently announced the acquisition of Dingdong's Mainland China business for USD 717 million. But please note that this transaction is still subject to regulatory approval.

The reason, obviously, the most important reason is we have true confidence on China's grocery retail business, both online and offline. Besides that, there are 2 key reasons for this acquisition, particularly. First, it will enhance Meituan's overall capability in on-demand grocery retailing, particularly strengthening our supply chain capability. It will also contribute to further operational efficiency improvement of our grocery retail business.

Secondly, Dingdong has established itself as a strong player in the East China area. With this acquisition, it will significantly improve our coverage and our service quality in this region. Broad retail aligns closely with our company's mission and represents one of our long-term strategic priorities. As market dynamics evolve, we have observed that self-operating supplies like Xiaoxiang Supermarket are becoming increasingly important in the on-demand delivery ecosystem. Xiaoxiang Supermarket represents guaranteed high-quality supply on our platform, offering users a more reliable shopping experience. Given the industry's growth potential, we see substantial opportunities ahead.

Last year, we have already restructured our grocery retail portfolio, shifting to a more efficient way to drive sustainable growth. In the past few years, Xiaoxiang Supermarket has maintained strong growth momentum while continuously improve operational efficiency. We expanded our private brand merchandising offerings, cover nighttime consumption scenarios and maintain industry-leading fulfillment speed and experience.

We believe Xiaoxiang Supermarket represents a model where Meituan can leverage its strength with a clear path to profitability. Moving forward, we plan to expand this model to more cities and regions, bringing faster, fresher and more affordable on-demand grocery retail to more consumers. Thank you.

Your next question comes from Gary Yu with Morgan Stanley.

My question is related to Keeta. Keeta has made some progress in both Hong Kong and Saudi Arabia. But given the regulatory and competitive constraints, the road ahead looks quite challenging. Could management share if there are any updates to the company's overseas strategy for 2026. How much do you plan to invest in Brazil this year? Do you expect Saudi Arabia to reach breakeven in 2026?

Thank you, Gary. Before addressing the specifics of our 2026 international strategy, I want to take this moment to express my deepest gratitude to Keeta's employees, merchants, couriers and all ecosystem partners in the Middle East.

Thank you for your unwavering dedication to your work to provide essential services to our users during this difficult time. We are doing everything we can to safeguard your safety and livelihood to overcome these challenges together.

And now back to Gary's question. So first, I want to emphasize that Meituan's core philosophy in China has always been to create value for the whole ecosystem and drive long-term industry growth, not just evolution. That has never been what we want to do. And our international operations through Keeta will follow the same playbook. We want to grow alongside with local players.

We want to help accelerate the digital transformation of local services industry there, and we want to grow and serve a bigger market together. So ultimately, we want to create new value for users, merchants, couriers and other partners in these markets. In 2026, Keeta will mostly focus on our current markets because each market has a different dynamics.

So we will stay flexible. We will tailor strategies locally while balancing growth and profitability at every market and at every stage. It's very important that compliance will remain a top priority. So we are working very actively with the local regulators. So in the long run, we are committed to our global operation with a strategic focus on the on-demand delivery, the quick commerce, which can leverage our core strength.

And so for the market that you mentioned, -- and as I said in the last quarter, so Keeta has achieved first profitable month in Hong Kong in October '25. Allow me to remind you that Keeta launched in Hong Kong in May '23, and it has broken even in October '25.

So it took us 29 months to get to profitability. And this year, we will focus on further improving our operations there. For Saudi Arabia, -- and that's a very -- that market is very favorable for food delivery business and for the profitability there. Therefore, we expect Keeta to hit its first profitable month in Saudi Arabia much faster than in Hong Kong.

And definitely before the end of this year. Actually, I would say we are very close to that in the near future. We are already profitable in some -- we have get to breakeven in some cities. And I think other cities are following very fast. So because since we have recently cut the subsidy significantly in Saudi Arabia, -- but our order volume stayed resilient. So that means users are choosing Keeta for our better services, not for subsidy or lower price.

So in 2026, we will further refine our operations. In other Middle East markets and our orders are also growing fast. With our Saudi Arabia experience and regional brand recognition, I'm confident that we can improve our operational efficiency quickly in those new markets. However, our growth in this market in '26 remains subject to external risk, for example, the current regional conflicts.

And regarding Brazil, we see tremendous long-term value there, and we remain firmly committed to Keeta's long-term growth in this market. For now, our operations are focused on Sao Paulo, the largest city. And rather than a full nationwide rollout, we are prioritizing refining our business model in South Sao Paulo before we do a broader expansion.

Meanwhile, we will actively pursue business strategies to build differentiated advantages. So overall, Keeta's loss in 2026 will remain significant because we entered a lot of new markets, a lot of new countries in the second half of 2025. And orders in this market are still scaling up. And however, this will be offset by more efficient improvement in our domestic new initiatives. So as a result, we expect that the overall loss in our new initiative segment in 2026 will not be bigger than 2025. Thank you.

There are no further questions at this time. I'll now hand back to Scarlett Xu for closing remarks.

Okay. Thank you all for joining the call. We look forward to speaking with you next quarter. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the Meituan Third Quarter 2025 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 Third Quarter of 2025 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 third quarter of 2025 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 actual results in the future. This presentation also contains unaudited non-IFRS accounting standards 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 disclosure documents in the IR section of our website.

Now I will turn the call over to Mr. Xing Wang.

Thank you, Scarlett. Hello, everyone. We are in the third quarter, we actively responded to the shift in the competitive landscape of food delivery and quick commerce. Meituan remains the go-to platform of local services for Chinese consumers. Over 800 million consumers use our services, covering everything from food and dining, quick commerce to services retail and more. Specifically, the Meituan's app DAU jumped over 20% year-over-year in the third quarter. On average, users transact with us at least once a week and our top-tier and high-quality users engage with the platform every day. Across all local commerce businesses, we have stepped up product and service iteration to enhance user mindshare and strengthen our competitive advantages.

Thanks to our fully upgraded Meituan membership [ Mei tuán huìyuán ] we have effectively boosted for selling activities and enhanced the core user stickiness. We are also the primary platform for merchants' long-term growth, empowering them with the technology and supply innovations and helping them to integrate AI into their operation to improve efficiency.

First, let's talk about our food delivery business. Here, we continue to leverage our competitive strengths to deliver industry-leading operational efficiency and a superior consumer experience. Our sustained focus on service quality and the healthy development of the industry has enabled us to navigate a quite dynamic market, strengthen our consumer mindshare and reinforce our leadership in the food delivery sector.

Amid intense competition, we stepped up supply side innovation and service upgrades. For our innovative supply models like Ping Hao Fan, or Shen Qiang Shou or Pingbai Weiqing Dian as branded satellite stores. And we further deepened our collaborations with quality merchants. It allows us to offer consumers a wider range of high-quality products across all price bands. And we also selected top-tier restaurant merchants on [Foreign Language] based on real and authentic data and matched the quality offerings precisely with our high-quality food delivery users.

Additionally, we have rolled out premium services like on-time guarantee [ Zhunshí baozhèng ] and one-to-one express delivery, [ yi duì yi jí sòng ]. These measures have strengthened our core competitiveness in fulfillment and elevated the delivery experience for consumers and solidified our advantages in user structures. We remain as the Chinese consumers' go-to food delivery platform.

In the third quarter, both DAU and MTU as Monthly Transacting User for food delivery hit an all-time high. We further expanded our advantage in user structures. In addition, we stepped up our efforts to address ecosystem issues and invested in the ecosystem development, specifically for couriers' welfare, we expanded the courier pension insurance subsidy program to a nationwide publish beginning in November and extended an occupational injury insurance to 17 provinces and cities.

We have also implemented a comprehensive courier welfare scheme, which include critical illness support, educational funds for couriers' children and skill development and academic advancement opportunities for couriers as well as benefits such as work meals, health checkups and travel subsidies.

Moreover, we have built couriers homes [ qishou zhi jia ] rather stations across the country to provide our couriers with convenient facilities and services. Going forward, we will keep enhancing couriers' welfare and protection. And as consumers' preferred quick commerce platform, Meituan Instant Shopping continues to lead the industry's rapid growth and service upgrade. In Q3, both new user growth and core user purchase frequency further increased. As we continue to diversify supply, the proportion of users buying across multiple categories has been steady on the rise. This shows our everything now consumer mindshare is getting even stronger.

New supply formats like Meituan InstaMart, Shandiàn Sòng expanded rapidly, bringing this high certainty lifestyle to more regions across China. We also teamed up with the leading brands in the liquor and apparel categories, which reflected these top brands recognition of quick commerce's value and their trust in Meituan.

In October, we officially launched a branded flagship InstaMart Pingbai Guanqi Shandian Chang, providing retail brands with full quick commerce infrastructure, warehousing, on-demand delivery and the digital system. By leveraging our strengths in user traffic ecosystem and online capabilities, we empowered brands to drive user growth, boost sales and connect more deeply with younger consumers.

Beyond that, we are committed to continuously upgrading our quick commerce services. After rolling out the industry's first full cycle service assurance program, [ Anxin San Gou ] we recently introduced an end-to-end authentic product verification process for chinese [indiscernible] and launched the industry's first alliance for high-quality fresh-cut fruits brand [ Huo Qian ]. As the industry leaders, we will keep setting benchmarks that focus on premium quality and top-tier service. Overall, we have built the world's largest and most efficient intracity on-demand delivery network, delivering a best-in-class fulfillment experience to consumers.

Our platform has accumulated a large user base of high-quality users with a very strong purchasing power. We also provide merchants with industry-leading services and create the most diverse supply. These valuable assets built up over more than a decade will fuel the long-term growth of our food delivery business. They will also serve as a solid foundation for our efficient expansion in the broader quick commerce space.

Now let's turn to our in-store business. In the third quarter, both our merchant base and user base reached new highs with a nearly 20% year-over-year increase and user transaction frequency continued to grow robustly. We further refined our product and content ecosystem. Our goal is to give every consumer simple, more reliable reference for purchase decisions. To date, our platform has accumulated over 20 billion authentic user -- consumer reviews with nearly 3.5 billion new reviews added in the past 12 months.

Additionally, we are now using AI to filter out low-quality reviews and those manipulative contents. This way, we can ensure a comprehensive authentic review ecosystem that provides a truly useful decision-making support for consumers. We also expanded the reach and influence of our high-quality list, including the Black Pearl Guide, hidden Jewels and our Must-Eat list Bi Chi Bang. Currently, these 2 lists cover 34 and 144 cities, respectively.

Moving forward, we will expand to more regions and welcome more quality restaurants to join our list. Beyond that, we have iterated products like pickup now, [indiscernible] 12:26 smart ordering and one-click payments, extending coverage to more merchants and meeting consumers' more diverse and personalized needs.

Moreover, we further promoted our safe learning program, [ Anquán xuéxí jìhuà ] in the broader education space and expanded our safe series, [ Anquán xìliè ] to more categories such as fitness. We offer flexible redemption options, which has significantly boosted consumer trust in prepaid services. For self-service formats such as an unmanned chess and cards, playing cards rooms and self-service KTV, we upgraded our booking system to deliver a smoother hassle-free experience for consumers from reservation all the way to service fulfillment. In healthcare and pharmaceuticals, we expanded our video and phone consultation services to include more doctors from Grade 3A hospitals, [ San jí jia deng yiyuàn ] and offering -- we offered 24/7 instant consultations plus 30 minutes prescription drug delivery.

We improved in-store verification service for dental care and medical aesthetics and standardized supply chain management to build end-to-end consumer trust. During the third quarter, we launched the 2025 Polaris medical aesthetic guide [ Beijing Yi Mei Bang ] which has set industry standards and raised the bar for service quality. These are just a few examples.

Going forward, we will continue to leverage our deep industrial and consumer insights to turn more offline services transactions into trusted online transactions for consumers. And now let's turn to our new initiative segment. And this segment delivered another solid performance in the third quarter.

Our grocery retail businesses, especially for Xiaoxiang Supermarkets and Kuailvdian sustained a strong growth momentum. We not only solidified our market position, but also achieved improvement in operational efficiency. And additionally, Keeta accelerated its global coverage. After launching in Qatar in August, we entered Kuwait and the UAE in September, deepening our presence in these key Middle Eastern markets.

In October, Keeta also kicked off a pilot operation in Brazil. Going forward, we will continue to leverage our strengths in product technology and operation know-how to deliver superior consumer -- and delivery experience for consumers in more parts of the world. After 6 months of iterating our promoting Meituan membership, we have achieved good progress.

We added new member benefits and exclusive offers across multiple local service categories. This has notably strengthened our user mindshare and boosted member transaction frequency. Specifically, a large number of our mid-tier users have upgraded their membership tiers and the number of high-value members kept growing steadily even in the recent very fierce competitive environment.

It's a clear sign of our unique edge in serving high-value users. What's more, our enhanced Meituan membership program is driving growth across businesses in key areas. It supports user acquisition and traffic operation and transaction growth and marketing while also effectively fueling cross-selling among various businesses and consumption scenarios.

Moving forward, we will leverage our competitive advantages, broad coverage in local services, continue to refine the membership program and increase user engagement and transaction frequency. During the third quarter, we continued to invest in AI and achieved multiple milestones. For example, we launched several models in our LongCat-Flash series, all delivering leading performance. And we rolled out a range of AI decision-making and application tools tailored specifically for restaurant merchants.

And we also launched Xiaomei app, a smart life assistant for consumers. and currently is in larger-scale testing. Going forward, we will make our AI tools more industry-focused and service oriented. We will provide effective solutions for merchants across all operational decision-making scenarios and make consumers' decision-making process and consumption experience more intelligent, more convenient and more personalized.

Founded in 2010, Meituan has witnessed and led the digital transformation for China's local service industry. Since 2010, we have built the online purchase, offline consumption user mention in local services through group purchase model. And back in 2013, we stepped into the food delivery space and our intracity on-demand delivery network made food delivery services more accessible than ever, turning it into a key food consumption habit for Chinese consumers.

And as leading -- as industry competition keeps evolving, we are confident in maintaining our leading position by continuing to strengthen our core competitiveness. guided by our retail plus technology strategy. We will continue to refine our products and services to better meet consumers' very diverse local services needs while empowering merchants through technology innovation and AI application, altogether to drive the sustainable and healthy development of the whole industry.

So we are as ever committed to helping people eat better, live better. And with that, I will turn the call over to...

Thank you, Xing. Hello, everyone. I will now go through our third quarter financial results. During this quarter, our total revenue increased by 2% year-over-year to RMB 95.5 billion. Cost of revenue ratio increased 12.9 percentage points year-over-year to 73.6%. This was primarily driven by: first, higher incentives for our couriers to maintain industry-leading delivery service quality and experience; second, the increased cost in our overseas operations.

These factors were partially offset by the improved gross margin of our grocery retail business. Selling and marketing expenses ratio increased 16.7 percentage points year-over-year to 35.9%, driven by our increased investments in promotion, advertising and user incentives to enhance our brand awareness, user acquisition and core user engagement. R&D expenses ratio slightly increased to 7.3% as a result of our increased investment in AI, while G&A expenses ratio maintaining stable year-over-year at 3.1%.

This quarter, irrational competition within the on-demand delivery industry significantly distorted sector-wide profitability. Our deliberate strategy investments to sustain leadership and competitiveness resulted in a total segment operating loss of RMB 15.3 billion and an adjusted net loss of RMB 16 billion. However, we maintained uncompromised service standards while continuing to drive initiatives that foster the industry's sustainable development.

As of September 30, 2025, we held cash and cash equivalents and short-term treasury investments totaling RMB 141.3 billion. However, cash generated from operating activities turned to negative RMB 22.1 billion, primarily due to our investments in response to the intensified competition.

Now turning first to our core local commerce segment. Revenue declined year-over-year this quarter, primarily driven by 2 factors. First, intensified competition caused a significant drop in food delivery average order value, weakening commission revenue growth. Second, delivery service revenue saw negative growth due to substantially higher incentives deducted from delivery service revenue. Despite these headwinds, we strategically increased investment across our ecosystem to reinforce market leadership and drive sustainable growth.

For consumers, we strengthened marketing efforts to enhance brand positioning and price competitiveness while boosting user engagement. For couriers, we expanded incentives to guarantee deliver service quality and experience. Besides, supporting merchant partners remains a priority for us. Having empowered over 360,000 restaurant merchants nationwide, we recently committed an additional RMB 2 billion in merchant support funds. We hope to enable more restaurant partners to achieve efficient and sustainable operations.

While these investments waived on the segment profitability in this quarter, they solidified our leadership in both food delivery and Meituan Instashopping. Our market position in core in-store categories also remained stable throughout this period. We sustained our role as consumers go-to platform for local services. Both order volume and GTV for core local commerce maintained healthy growth this quarter. Notably, on-demand delivery saw accelerating order growth. Core user base grew steadily year-over-year with more low-to-medium frequency users moving up to high frequency. These users are transacting more often, staying more engaged and exploring more consumption scenarios.

I mean the recent demand boost from the intensified industry competition, we secured the highest quality incremental orders. Moving forward, we will keep focusing on consumption frequency and engagement of core users through better supply and fulfillment capabilities. In-store business also sustained its strong growth momentum with continued outperformance in lower-tier markets.

Turning to our new initiatives segment. During this quarter, segment revenue grew by 15.9% year-over-year to RMB 28 billion this quarter. Despite the impact of strategic transformation of Meituan Select, our revenue remained solid growth driven by the expansion of our grocery retail business and overseas business. The segment's operating loss and operating loss ratio both narrowed on a quarter-over-quarter basis to RMB 1.3 billion and 4.6%, respectively. Thanks to our efforts in improving operating and marketing efficiency in our grocery retail business and other new initiatives.

The year-over-year increase in operating loss was mainly due to our increased investment in overseas business. As we look ahead, we remain confident in our ability to navigate a dynamic and competitive environment. We are making deliberate investments in technology, service quality and our ecosystem. These investments will strengthen our competitive position and unlock new growth opportunity for the industry over time. We have full confidence in our ability to deliver healthy, high-quality growth over the long run when competition normalize. With that, we are now open for Q&A.

[Operator Instructions]

Your first question comes from Ronald Keung from Goldman Sachs.

So I want to ask, can management comment on any notable changes in the competitive landscape of the food delivery sector, particularly as we head into the fourth quarter. Have we seen any industry subsidies that is starting to scale back? And we've noticed your competition has stepped up investments in membership programs like 88VIPs and these membership programs. So how is the engagement and retention trending for your core customers? And sorry for a long question. But from a financial standpoint, I want to also ask how should we expect fourth quarter performance for the food delivery has there been any change in the long-term outlook for growth and profitability of the business?

Well, Ron, thank you for your questions. Before I get into the question, let me restate what we have said very clearly over the last 2 quarters. First, I think the food delivery price war is an example of evolution nature and low price, and low quality and essentially a race to the bottom. We are firmly against it. And the last 6 months have proved the one thing, and it doesn't create any real value for the industry, and it cannot be sustainable. And second, we are doubling down on curious rise and protections and on supporting for small and mid-sized merchants. That's the only way to keep the industry healthy in the long run.

And the third, we will focus on doing the right things, that's serving consumers, merchants and couriers as well. And we are fully confident in defending our leadership in on-demand delivery in creating real long-term value. In October and November in the industry, the subsidy level temporarily went down versus the summer peak season and especially after the Double 11 promotion period. And we are still closely monitoring the market dynamics and we'll adjust our strategy accordingly.

And recently, we have seen a rebound in our market share in order volume. We maintained a consistent leading addition in GTV market share for mid- to high AOV orders. For example, I think it's very important to focus on higher AOV sector. Our GTV market share for orders with a net AOV above RMB 15, it's more than 2/3, while our GTV market share for orders with a net AOV above RMB 30 is above 70%. I think those are more valuable sectors we want to focus on.

Our net AOV per order remained much higher than other platforms. And our core users continue to show high retention rate. with their consumption frequency, stickiness still growing steadily, I think this clearly reflects the strong user mind share we have built in the food delivery sectors and as well as our competitive edge in serving our core users.

It's common for consumers to have a multiple local service app installed on their phone. However, Meituan remains the go-to platform of food services for hundreds of millions of consumers. This is especially true among our core users. Their consumption frequency has been several times higher than that of the average consumers. Even in such a highly competitive market, they show strong brand recognition and deeper consumer loyalty. This is because high frequency or higher AOV consumers value the delivery experience and the supply quality, service reliability far more than just a lower price. Our faster and more reliable delivery provides greater certainty, particularly during extreme weather and holiday periods.

Our diverse and valuable money offerings across all price ranges allow us to precisely match consumers' needs. Through our Meituan membership program, we offer more attractive deals and exclusive service upgrades to our core users, and we are confident in our ability to deliver higher quality and more comprehensive services to our core users. This will help us further strengthen their stickiness and engagement in the long run.

In addition, continued investment by industry peers in the premium user segment will expand the overall addressable market benefiting us as well. We will leverage our strength in service quality and brand to further strengthen our position among a broader base of premium users.

In terms of financial data, and although I believe food delivery losses has peaked in Q3, and our food delivery business will still incur a substantial loss in Q4, we will make necessary investment to maintain our leadership. But we are not interested in engaging price war. So we would adjust our investment dynamically based on the competitive landscape. And we will continue to strengthen our advantage in service experience and operational efficiency.

In the medium to long term, the competitive landscape will remain dynamic; however, the business or industry revolution typically follows a clear trajectory from capital-driven to efficiency-driven, and ultimately to innovation-driven. China's food service has now entered a stage where supply-side innovation and service upgrades and technological solutions are critical for sustainable growth and traffic gain and scale expansion purely driven by very aggressive subsidy will not be sustainable.

And we believe the current irrational competition in food delivery will inevitably transit to a more rational and mature phase. Ultimately, the platform with deeper industrial insights and proven operational excellence and ability to sustain high-quality growth will be the industry leader.

Therefore, as I mentioned last quarter, Meituan will stay focused on doing the right things to expand high-quality selections to ensure a fast and reliable delivery and offer consistently affordable prices. We will defend our market position while continuing to create greater value for the whole industry. Food delivery has become a high society lifestyle for more and more consumers with clear long-term growth prospects. Our long-term target of reaching 100 million high-quality daily order remains unchanged. We remain confident in maintaining industry-leading unit economics with proven operational efficiency advantages. Long term, even with higher subsidy in a dynamic market, we expect food delivery profit to return to a reasonable level. Thank you.

Your next question comes from Gary Yu from Morgan Stanley.

I have a question regarding Instashopping. The other e-commerce platforms are doubling down on Quick Commerce and bringing more traditional e-commerce brands to this space. How does management view our competitive edge? And after our own Double 11 event, could you share Meituan Instashopping strategy going forward? Will you scale up investment in the fourth quarter?

Thank you, Gary, for your question. First of all, I would like to highlight that we have a particularly strong competitive advantage in our quick commerce native supply. That is even stronger than that of our food delivery business in which we are already a leader. From our perspective, quick commerce operates on a fundamentally different logic than traditional e-commerce as well as half-day delivery or next-day delivery.

Quick commerce means no stockpiling. You get what you see right way. Platform needs to identify real consumer needs and get the right supply in place. Leveraging years of understanding of the market demand and merchants pain points, we have digitized offline supply and deploy our InstaMarts to better address the quick commerce demand.

Simply shifting traditional e-commerce supply to the quick commerce channels creates no incremental value for either merchants or consumers. To better serve the lifestyle shaped by quick commerce, we are also driving industry-wide upgrades in infrastructure and the service experience. For example, we extended 207 Meituan InstaMarts and pharmacies, roll out chilling facility for alcohol and beverages and introduced quality guarantee services for fruit cart such as Bright Kitchen [ míng chú liàng zào ] and damage guarantee Huabei pay.

More importantly, our food delivery business has already cultivated a group of users who highly rely on 30-minute certainty. Our platform is the best fit for quick commerce. We delivered the highest conversion rates and incremental sales for merchants. As such, we managed to solidify mindshare among our core user group and defend our leadership across categories despite intensified competition.

Under the new competitive landscape, we are deepening omnichannel partnerships with brands beyond physical stores and Meituan InstaMart. We also launched branded flagship InstaMart Pingbai Guanqi Shandian Chang, which operates 24 plus 7 operations for 30-minute delivery of diversified and quality brand products through the native quick commerce channel.

We provide brands with 4 quick commerce infrastructure, warehousing, delivery and digital systems. Hundreds of brands have already joined during Double 11. We also stepped up user education for this initiatives. On the first day of the Double 11 event,[ Hangzhou's ] brand saw 300% sales growth in their branded flagship InstaMart. We hope to help brands move beyond the evolution in traditional e-commerce and tap into new growth opportunities in quick commerce.

Our branded flagship InstaMart enables lower operating costs, faster turnover, stronger brand awareness and more sustainable repurchase for brands. We are also enhancing our brand service tools. For instance, we offer smart distribution tool and AI-powered decision hub for our FMCG partners. We will keep working to remain the go-to platform for brands to unlock growth in quick commerce.

In Q4, we will keep investing in supply side operations while ensuring best-in-class user experience. We also stepped up our investment in user education around Double 11 and other campaigns. Operating loss for Meituan Instashopping in Q4 may slightly widen versus Q3. That said, our competitive moat across supply, user base and fulfillment will allow us to sustain leadership with higher subsidy and operational efficiency. We are confident in restoring profitability and achieving a reasonable and sustainable margin in the mid- to long term. Thank you.

Your next question comes from Kenneth Fong with UBS.

Recently, AMAP has introduced a 3 Star initiative. Taobao also launched the group buy deals. So how do management view the impact of this move on the competitive landscape to our in-store business? And under this new competitive environment, what specific measures will the company implement to address these challenges?

Thank you, Kenneth, for the question about our in-store business. Our in-store business model and operational strategy differ from roles of competitors across category mix, merchant scale and type of marketing of ROI. By building authentic, accurate and easily accessible POI data over time, we have established a dominant consumer mindshare as the go-to platform for local services. Consumers complete most of their local service transactions on our platform.

On the other hand, AMAP has a very clear consumer image as a navigation tool. It's a navigation tool that make it difficult to cultivate consumer mindset for searching for local services. We have built a comprehensive user review ecosystem based on our operation in the past decade, accumulating over 25 billion of [indiscernible] reviews. This constitute one of the key reasons why consumers trust and consistently choose Meituan as their go-to platform for local services.

We also have the broadest category coverage and selections in the local service space. We offer consumers one-stop service and seamless experience, including table reservation, diverse group buy deals coupons, in-store ordering, payment and membership benefits. Moreover, we maintain industry-leading merchant coverage, leveraging our experienced offline business development team and deep industry insights, we deliver best-in-class service to merchants. These are all the core competence that we believe other people cannot be quickly replicated in response to the evolving and dynamic competition.

We continually iterate our product and operational capabilities to provide more diversified and personalized services to more quality merchants and consumers. First, we continue to cultivate an ecosystem conductive to quality merchants by expanding the coverage of our Must Eat list, Must Visit list, Black Pearl Guide and by introducing more specialized leads, we are able to provide merchants with more targeted traffic promotion and better transaction conversion.

Second, we have also refined our rating criteria to encourage merchants to focus on product and service quality rather than just the number of consumer reviews. We utilize big data to intelligently identify and help merchants automatically drop abnormal reviews, significantly optimizing both merchant and user experience.

We believe with the AI technology further penetrate into our business, we will be able to further improve the system. Additionally, we roll out more consumer-friendly products such as VR merchant tool for reservation, preorder while querying and smart in-store ordering. This digital solutions further enhance consumer experience and improve merchant operational efficiency. The above are just a few examples.

In the future, we will continue to focus on 3 key directions: ecosystems optimization, service innovation and operation upgrade. We will drive to provide consumers with a seamless merchant fuller life cycle empowerment across customer acquisition, conversion and retention.

We will continue to foster sustainable industry growth through digital transformation. Competition may temporarily impact margins for our in-store business, but we expect long-term competitive landscape for in-store business remain unchanged. With full confidence, we believe we can maintain our leading market position and continue to lead the evolution of the industry ecosystem. Thank you.

Your next question comes from Thomas Chong with Jefferies.

Company has rolled out AI agent Xiaomei for testing. What's the current progress and future plan for Xiaomei? Additionally, will Meituan app integrate in that AI agent directly in the future. Could management share more about our future plans and investment strategy in AI? Thank you.

Thank you, Thomas. In this quarter, we continue to iterate our AI capability across 3 core dimensions. The first is training our in-house LLM. The second is AI in products and the third is AI at the work. So we have rolled out multiple open source LongCat-Flash series model. So we trained that LongCat and large language model in-house. So these models continue to get quite favorable feedback from the broader developer communities. So I think that's the beauty of open source model.

And our LLM are deeply integrated with our core application use cases. It drives effective innovation based on our real-world needs to support our long-term strategic growth and the online to offline convergence. For AI applications, we have upgraded a bunch of AI tools for local services and offering smarter and more tailored services to our merchants. For example, our Kangaroo Advisors Diashu [Foreign Language] can help restaurant merchants with product selections and location planning. And another application, our smart operator, [Foreign Language] integrates multifunctional capabilities such as an AI reception, AI operational analysis and AI review responses, enabling intelligent and efficient store operations for merchants.

And we also launched our Smart Life assistant Xiaomei app for users, which is now in quite a large-scale testing period. We also introduced our AI agent [Foreign Language] in our Meituan app. So that answers your question. We are testing both stand-alone AI agent app. But at the same time, we are going to integrate AI agent function in our main Meituan app. And these 2 agents now cover various aspects of local services, including dining, accommodation and transportation, travel, entertainment and shopping. And they can complete the process from searching to price comparison and to order placement, which can provide the users with a more intelligent and more personalized service.

We will also continue to develop tools like AI coding and we have an application that's no code to help employees improve their work efficiency. And looking further forward, we will further enhance our competitiveness in our in-house foundational model and explore more AI agent applications in local services. We will also iterate our AI agent strategy based on operational insights and user feedback and driving deeper AI-enabled empowerment in our ecosystem.

Your next question comes from Ya Jiang from Citic.

And my question is about the new initiatives and related businesses and for your Keeta in Hong Kong, is it on track to reach breakeven thing? And additionally for the Middle East following our Q3 expansion into several new GCC countries. How is performance shaping up in this market?

And also with recent reports about Keeta entering Brazil, even when there are strong existing payers like iFood and BD what will Keeta do differently in Brazil to take [indiscernible] even shares there? And lastly, given the particularly intense competition in domestic market, what strategic rationale supports accelerating over and base expansion at this juncture? And how does this align with our overall capital allocation framework? How should we project losses for new initiatives segment next year? Lots of questions. Thanks.

Thank you, Jiang. And thank you for your interest in our new initiatives. In this October, Keeta in Hong Kong has turned profitable. So I think that's a major milestone for us. Remember that we launched Keeta in May 2023, and it become profitable in October 2025. So it took us 29 months to get to that milestone. So it's actually ahead of our original 3 years plan.

So I think that proves what really works in this industry is a customer-centric approach, and it proves our deep operational know-how and strong technology capability can bring to better unit economics in and we are going to keep improving on that basis. It will bring more meaningful quarter-over-quarter improvement. So -- and also, we expect to follow the similar path in other markets, for example, in Saudi Arabia and other GCC markets. Regarding the GCC region, building on our foundation in Saudi Arabia, we launched in several additional markets in GCC. For example, right now, they are still in very early stage. It's important to point out, we launched in Qatar in August and launched in Kuwait and UAE in September. Again, still in very early stage. So I think it's premature to share more details. But given the common market structure and user behavior across the Gulf region, I think it's reasonable to believe it remains one of the most attractive markets for food delivery.

And also compared to Saudi Arabia, consumers in some other GCC countries not only have more mature food delivery habits, the penetration there is already higher, but they also benefit from more diverse and more richer restaurant supply. So that suggests there's a lot of untapped penetration potential in this market.

Regarding our latest market, Brazil, I have already shared some thoughts in previous earnings calls. Brazil ranks among the top 5 food delivery markets in terms of GMV globally, and it's still growing at over 20% annually. But when we did the market research in Brazil, we noticed that the transaction fulfilled through more traditional channels such as through WhatsApp or very older way, phone calls or websites, they are still a very big portion, maybe even exceeding the online food delivery platforms. This indicates immense potential for online penetration over the next few years. And I think it provides an opportunity for Keeta to enter this market in spite of already -- there are already some incumbents.

So in the past, our food delivery operation in China have established the world's most efficient tech platforms, including algorithms and the whole tech system. So that system can support over 150 million peak daily orders for very organized and very fast on-demand delivery. And furthermore, Keeta's early success growth in Hong Kong and Saudi Arabia over the past 2 years, that further proves our capability to localize our operation for different markets.

So I think we are confident in bringing a better experience service to those markets, because I believe in this industry, it's always important to go back to the basics because there are different stakeholders in the industry. What do consumers want? Maybe they have different preference for different cuisines. But I think in any market, the consumers always want a big selection, a good selection and they want affordable prices, and they want to have reliable and faster deliveries. I think that's the common need across different markets, no matter it's in China -- Mainland China or Hong Kong or Saudi Arabia or other GCC countries or Brazil or in other markets. That's what consumers want.

And for merchants, they want to have more businesses and they want to have a reasonable commission rate and they want to have a good delivery experience. And also, we need to think about what regulators want or the general society want. So there, I think they are interested in more job creation. Regulators want to see happy consumers, want to see happy merchants. They want to see more job creation and want to see more talent development. I think we are going to do all that in those markets where we do business.

And regarding capital allocation, we should emphasize that Keeta is a part of our new initiatives. Our other new initiatives also includes grocery retail, which is another long-term strategy for us. We scaled back the Meituan Select by the end of Q2, but we will expand our Xiaoshan supermarket that's doing very well. And we will try other offline retail format like [ Happy Monkey Kuai Lu ] in 2026 to further improve our supply quality in grocery.

So Keeta and grocery retail, I think these 2 represent a high conviction long-term opportunity for us, given this proven model and our transferable expertise from China to some other markets. But near term, our expansion into GCC markets and Brazil requires a substantial upfront investment in Q4. But given our early success in Keeta in Hong Kong, I think we are confident that we can see a quite good trajectory in those markets, including Saudi Arabia and other GCC markets. There, we already see a rapid improving unit economics and I think those markets are big enough to have multiple players. And yes, overall, we expect Keeta in GCC countries and Brazil to follow a similar unit economic improvement trajectory as we have seen in Hong Kong. And overall, we don't expect to see a bigger loss in -- for new initiative segment in next year compared to 2025. Thank you.

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 everyone next quarter. Thank you so much for your support.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.