Meituan is at a pivotal stage of business model transformation, balancing near-term cost pressures in food delivery profitability against a long-term bet on AI reshaping the platform-merchant relationship.
During the August 28 earnings call, Meituan's management noted that the company further strengthened its leading advantages in user mix, order structure, and operational efficiency during the second quarter. Looking ahead to the third quarter, food delivery unit economics (UE) are expected to show significant year-on-year improvement, though sequential declines are anticipated due to seasonal factors, with UE still likely to remain positive.
The third quarter coincides with the peak summer season, when on-demand delivery demand hits its annual high and platform marketing investments reach seasonal peaks. To ensure fulfillment stability during peak periods and extreme weather conditions, Meituan expects to increase courier subsidies, with per-order delivery costs rising above second-quarter levels. Additionally, starting July 1, Meituan's new occupational injury insurance for riders has been rolled out nationwide, with premiums fully covered by the platform, adding incremental costs.
On the AI front, Meituan is extending its AI capabilities from the consumer side to merchant operations. Chairman and CEO Wang Xing stated that the company is launching dedicated AI agents across multiple verticals, including food and beverage, services, retail, pharmaceutical and health, as well as hotel and travel, to help merchants optimize daily operations and improve business efficiency.
Wang Xing indicated that as AI capabilities penetrate deeper into merchant operations, Meituan's relationship with merchants is evolving from a traditional online channel toward an AI business partnership. The company's long-term goal is to serve as a "digital co-pilot" for merchants on its platform.
Meanwhile, Meituan continues to expand consumer-facing AI applications, leveraging new features to connect more service scenarios and enhance cross-scenario user experiences. The collaboration with Tencent is also deepening, with both teams jointly refining products and services to further improve service delivery efficiency.
Food Delivery Recovery and Cost Pressures Coexist
Food delivery has become the key to this quarter's recovery. Management stated that delivery revenue has returned to positive year-on-year growth, with strategic adjustments focused on high-average-order-value (AOV) orders, core users, and operational efficiency beginning to yield results. The company has further expanded its market leadership in both order volume and gross transaction value (GTV), with network-level AOV recovering year-on-year and order mix continuing to improve.
However, third-quarter delivery profitability still faces certain pressures. Wang Xing noted that the third quarter enters the peak on-demand delivery season, with increased marketing investment and additional courier subsidies during hot weather. Furthermore, the nationwide rollout of occupational injury insurance starting July 1 will bring new costs. Combined, these factors are expected to put sequential pressure on third-quarter delivery unit economics.
The on-demand retail business continues to grow rapidly, with revenue growth outpacing order volume growth, driven primarily by the expansion of the first-party (1P) business and increased marketing investment from retail brands on the platform. The in-store, hotel, and travel businesses maintained stable growth, with the company extending its competitive advantages in core categories.
New Business Expansion Accelerates, Keeta Profitability Continues Validation
New business revenue reached RMB 33.1 billion in the second quarter, up 25% year-on-year, with operating losses narrowing sequentially to RMB 1.7 billion. Management expects new business segment losses for the full year 2026 will not exceed 2025 levels.
Xiaoxiang Supermarket continues to accelerate its expansion, now operating in 68 cities, with GTV maintaining rapid growth and operational efficiency steadily improving. Wang Xing stated that the company is advancing its online-offline integration strategy: following the opening of its first physical store in Beijing last December, it launched in Ningbo in April, entered Hangzhou in July, and continued opening stores in Ningbo and Shenzhen in August, bringing the total number of physical stores to five.
Wang Xing believes physical stores offer consumer experiences that digital screens cannot replicate, helping to strengthen consumer trust in products and brands. The company's long-term goal is to establish Xiaoxiang Supermarket as one of China's most trusted fresh food brands.
The community fresh food business "Kuailehou" had opened 40 stores by the end of the second quarter. Management stated that this business differentiates and complements Xiaoxiang Supermarket, characterized by smaller store formats, more flexible operating models, a higher share of private-label products, and curated SKU selection.
In overseas markets, Keeta's profitability progress further validates the replicability of its model. The Hong Kong market achieved unit economics profitability in October 2025, taking approximately 29 months. The Saudi market achieved profitability in July this year, taking only 22 months, with a significantly larger market size than Hong Kong.
The Brazil market currently adopts a "deep cultivation first, expansion later" strategy, with resources concentrated primarily on São Paulo. This market accounts for approximately 25% of Brazil's overall food delivery market. The company plans to establish differentiated competitive advantages before considering broader coverage expansion.
AI Transitions from Models to Business Operations, LongCat-2.0 Accelerates Deployment
On AI, Meituan's strategic focus spans three main pillars: large language models, AI-enabled organization, and AI-integrated products.
Management indicated that LongCat-2.0 is Meituan's next-generation self-developed foundational model and one of the first trillion-parameter models trained entirely on domestic infrastructure. The model has been open-sourced and is being promoted across internal scenarios including software development, operations, customer service, and AI agents, with progress made in coding, reasoning, tool calling, and complex task execution capabilities.
Rather than simply chasing model scale, Meituan emphasizes the integration of AI with actual business operations. Management stated: "We will not compete to become a computing power factory." The company aims to improve user experience, enhance merchant operational efficiency, and boost organizational productivity through AI.
On the user side, Meituan's AI assistant "Xiaotuan" has seen increasing adoption, driving higher in-app user engagement. On the merchant side, the company is launching specialized AI agents through the CatPaw platform for industries including food and beverage, services, retail, pharmaceutical and health, and hotel and travel, helping merchants improve daily operational efficiency.
As AI becomes further embedded in transactions, fulfillment, and merchant operations, Meituan is transforming from a traditional online traffic gateway into an "AI business partner" for merchants.
Where to Begin
Thank you for waiting, and welcome to Meituan's second quarter 2026 results conference call. All participants are in listen-only mode. The call will begin with a presentation, followed by a Q&A session. (Operator instructions) I will now hand the call over to Ms. Xu, Vice President of Capital Markets. Please go ahead.
Xu Sijia, Vice President and Head of Capital Markets: Thank you, operator. Good evening, and good morning to everyone. Welcome to our second quarter 2026 results conference call. Joining us today are Mr. Wang Xing, Chairman and Chief Executive Officer, and Mr. Chen Shaohui, Senior Vice President and Chief Financial Officer. During today's meeting, management will first review our second quarter 2026 results, followed by a Q&A session. Before we begin, we would like to remind you that this presentation contains forward-looking statements that involve many risks and uncertainties that may differ materially from future actual results. This presentation also contains unaudited non-IFRS financial measures, which should be considered as supplemental to, rather than a substitute for, the company's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS accounting measures, please refer to the disclosure documents on the investor relations section of our website. Now, I will turn the call over to Mr. Wang Xing. Please go ahead, Wang Xing.
Wang Xing, Founder, Executive Director, Chief Executive Officer and Chairman of the Board: In the second quarter, our total revenue grew 14.4% year-on-year, and net profit turned positive. Both core local commerce and new businesses delivered solid results. We continued to focus on our "Retail + Technology" strategy, improving business quality and driving quality growth across the industry as the preferred local services platform, with our ecosystem continuously strengthening. We advanced product and business innovation while increasing investment in the ecosystem and technology to build long-term value. We also expanded our retail, grocery, and overseas operations, with operational efficiency steadily improving.
On the AI front, we made further progress in both foundational models and AI agent applications. Now let me provide more details. In the second quarter, the on-demand retail industry shifted its focus toward improving marketing and operational efficiency. In this context, our strong consumer mindshare and core competitive advantages translated into healthier financial results. Food delivery order volume and user quality continued to improve steadily, with core user stickiness further strengthening, and purchase frequency, retention rates, and average order value all trending upward.
Meituan Instashopping maintained healthy new user acquisition, with particularly rapid growth among the post-2005 generation, while existing users increased order frequency. Despite the high base from last year and changing consumption trends, we actively sought new growth opportunities, improved supply, strengthened product competitiveness, and deepened our understanding of user needs across different consumption scenarios. In food delivery, "Pinhaofan" enhanced its ability to identify consumer demand and accelerated the promotion of best-selling items from chain merchants. "Shenqiangshou" continued to raise the quality threshold of supply, catering to mid-to-high-end consumers pursuing quality upgrades. We also steadily expanded innovative store formats such as satellite stores, creating incremental value for merchants.
For Meituan Instashopping, Meituan Lightning Warehouses maintained rapid growth and remain a key growth engine. Waima Songjiu quickly expanded to most provinces in China and launched more private-label products. In June, it introduced an anti-counterfeiting verification system to ensure the authenticity of high-end alcoholic products. Squirrel Wine also accelerated market penetration, leveraging customized product development and factory partnerships to enhance product competitiveness and better serve users in nighttime and travel scenarios.
We also took more proactive measures to strengthen the platform ecosystem, deepening merchant support and empowerment. We maintained industry-leading food safety governance and improved rider welfare. In the second quarter, we fully rolled out ten key initiatives and the "Rest Assured Eating" program, establishing an end-to-end food safety system covering four pillars: onboarding review, process monitoring, fraud and illegal activity crackdown, and social co-governance. In response to evolving industry demands, we launched the first comprehensive AI solution designed specifically for the on-demand retail industry.
We also expanded AI-enabled tools to help merchants optimize online operational efficiency. During the holiday peak period, we provided support to 220,000 small and medium-sized restaurant merchants in funding, operational supplies, equipment upgrades, AI tools, and store renovations. In the second quarter, we also launched a special program to stimulate demand in lower-tier markets and activate county-level economies. In the second half of this year, this program will expand to nearly 400 counties nationwide, helping more than 500,000 small and medium-sized merchants achieve digital operations.
Regarding rider welfare, we have expanded the occupational injury insurance program nationwide, covering every order and every rider. Additionally, we continue to optimize algorithms and recently pioneered the "Wait for Green Light" feature in Beijing. Going forward, occupational injury insurance, pension subsidies, and a critical illness care plan for riders and their families will collectively form a robust and comprehensive welfare framework.
This quarter, we further strengthened our position as the preferred platform for local services, maintaining high-quality growth in the in-store, hotel, and travel businesses. Despite changing consumer spending conditions and intensifying industry competition, we continued to enrich supply through more diversified high-quality offerings while enhancing overall user experience. At the same time, we are driving the industry further from choosing the right merchant toward choosing the right craftsman and the right experience.
We see local service consumption clearly shifting from standardized consumption toward more personalized, experiential, and emotion-driven consumption. Authentic experiences and deep engagement are playing increasingly important roles in consumer decision-making. This quarter, we released the new "Bichibang" (Must-Eat List), curated from 1.5 billion real user reviews, now covering 264 cities and regions globally, with 120 new cities added. Through genuine user recommendations, more long-standing local restaurants, specialty eateries, and hidden culinary gems have been discovered. The "Mustin" (Must-Play List) also continued to expand into more immersive, interactive, and interest-driven scenarios.
We believe that in the AI era, authentic experiences, genuine reviews, and real trust will continue to be the most important infrastructure for the local services industry, and we will continue to strengthen our unique advantages in this area. Additionally, we are leveraging AI to enhance consumer experience and merchant operations. For complex local service decisions, consumers are increasingly turning to our AI assistant "Xiaotuan." As adoption grows, we see significant increases in user activity on the Meituan app. We continue to enhance consumer experience by integrating services such as "table reservation," "online ordering," "smart queuing," and "in-store smart ordering," providing seamless experiences for consumers across a broader range of scenarios. Our collaboration with Squirrel is progressing rapidly, with both teams optimizing products to deliver faster, more convenient services.
Beyond serving consumers, we are extending Meituan's operational expertise to various industries through AI agents on the CatPaw platform. We are launching dedicated AI agents for restaurants, services, retail, pharmaceutical and health, and hotel and travel, helping merchants improve daily operations and achieve tangible efficiency gains. This marks our evolution from being an online channel for merchants to becoming an AI business partner. Looking ahead, we aspire not only to be a platform connecting consumers and merchants but also to serve as the digital co-pilot for merchants on our platform.
Now let's turn to new businesses in the second quarter. Grocery retail and Keeta both maintained very rapid growth while further improving operational efficiency. For grocery retail, Xiaoxiang Supermarket accelerated expansion, now covering 68 cities. We continue to strengthen our supply chain and enhance product capabilities, with private-label products' share of GTV continuing to grow. We also expanded our physical store presence. In July, we opened our third Xiaoxiang Supermarket physical store in Hangzhou.
We expanded the "Kuailehou" model to serve community scenarios, with 40 stores in operation as of the second quarter. For Keeta, we maintained strong growth momentum across markets while continuously improving efficiency. Hong Kong has achieved stable profitability. The Middle East market showed further sequential improvement in operational efficiency. In Brazil, we are focused on the São Paulo market. Going forward, we will continue to leverage our advantages in products, technology, and operations to deliver exceptional shopping and delivery experiences for Keeta users.
Reflecting on the second quarter, our focus was on building core operational capabilities. We continuously improved supply quality, expanded consumption scenarios, and achieved high-quality growth while steadily improving efficiency. Looking ahead, we see broader growth space across the industry. Many fundamental local service needs remain underserved, and there is enormous potential to improve service experiences and operational efficiency. We will act decisively to seize these growth opportunities, continuously iterate our products and services, and actively deploy AI in real-world consumption scenarios. Our goal is to further expand our competitive advantages in supply diversity, user experience, and operational efficiency. At the same time, we remain committed to fulfilling our social responsibilities, strengthening food safety governance, improving rider welfare, and empowering small and medium-sized merchants. We will continue to drive the industry toward higher quality and more sustainable development. Thank you.
Chen Shaohui, Senior Vice President and Chief Financial Officer: Thank you, Wang Xing. Hello everyone. As the on-demand delivery industry gradually shifts toward efficiency improvement, our focus on operational execution and structural advantages translated into significant financial improvements. Revenue growth accelerated, and the business achieved profitability in the second quarter.
Now let's review the financial results in detail. Unless otherwise noted, all comparisons are year-on-year. Total revenue grew 14.4% this quarter, reaching RMB 104.6 billion. The revenue cost ratio slightly decreased to 66.5%. The acceleration in revenue growth and improvement in cost ratio were mainly driven by improved marketing efficiency. This reflects our continued focus on high-quality growth in a dynamic and competitive environment. Sales and marketing expense ratio also decreased to 23.6%, primarily due to more disciplined marketing spending. R&D expense ratio increased to 7.3% as we ramped up investment in AI, while G&A expense ratio remained stable at 3.1%.
We achieved profitability this quarter, with total operating profit and adjusted net profit reaching RMB 3.9 billion and RMB 2.5 billion, respectively. As of the end of June, we held cash and cash equivalents and short-term treasury investments totaling RMB 168.3 billion. As of June 30, our investment portfolio was close to RMB 77.3 billion. Additionally, in this quarter, fair value changes of certain investments were recognized in other comprehensive income of RMB 22.2 billion rather than in profit or loss. We will prudently and disciplinedly evaluate exit opportunities for our investment portfolio to provide more capital resources for our business and shareholder returns.
Now turning to segment results. For the core local commerce segment, second-quarter revenue reached RMB 71.5 billion, with year-on-year growth accelerating to 10.1%. Both delivery service revenue and merchant services revenue accelerated their growth pace this quarter, while product sales achieved solid year-on-year growth of 78.9%. We are pleased to see food delivery return to positive revenue growth this quarter. Our strategic focus on high-AOV order segments, core user groups, and operational efficiency continues to yield results. We strengthened our leadership in both order volume and GTV this quarter. A healthier order mix drove year-on-year recovery in per-food-delivery-order AOV. We also improved marketing efficiency.
However, industry subsidy levels remain significantly higher than 2024 levels, and we expect normalization will take time as the market evolves. For Meituan Instashopping, it continued to achieve steady growth, with revenue growth outpacing order volume growth year-on-year. This is driven by two main factors: the rapid expansion of our 1P business and strong advertising appeal as more retail brands allocate marketing budgets to our platform. Revenue from our in-store, hotel, and travel businesses also grew steadily, and we maintained our lead in core categories. In terms of profitability, segment operating profit turned positive, reaching RMB 5.7 billion. Per-order unit economics (UE) for on-demand delivery turned positive, and we significantly outperformed industry levels in both food and non-food categories. The significant sequential improvement in UE was driven by seasonal tailwinds and substantial reductions in subsidies. With our strategic focus on high-quality growth and ROI-driven resource allocation, our in-store, hotel, and travel operating margin also improved sequentially despite intensifying industry competition. These gains were sufficient to offset our increased investment in brand marketing and promotional expenses.
Now looking at the new business segment. Second-quarter revenue grew 25% year-on-year to RMB 33.1 billion. Segment operating losses narrowed sequentially to RMB 1.7 billion. The rapid expansion of the grocery retail business made an important contribution to segment revenue growth. While retail losses increased sequentially as the business scaled rapidly, we continue to see overall improvements in operational efficiency, with its margin also improving.
For Keeta, growth momentum remained strong in the Hong Kong and Middle East markets. Losses narrowed sequentially as operational efficiency improved in both markets. Hong Kong has achieved sustained profitability, and the Middle East's per-order unit economics continue to move in the right direction. After a year of intense competitive environment, the results we see today are achieved through our execution on high-quality growth and operational efficiency improvements. The path ahead lies in accumulating our advantages in products, services, technology, and ecosystem to create more value for all stakeholders. We remain confident in the long-term potential. Thank you. Now, let's begin the Q&A session.
Q&A Session Highlights
Operator: The first question today comes from Thomas Chong at Jefferies. Please go ahead.
Thomas Chong, Analyst: Hi, good evening. Thank you management for answering my questions. How does management view the competitive landscape in food delivery and on-demand retail? Specifically, what are Meituan's market share trends in the mid-to-high AOV order segment? Looking at the third quarter, as industry subsidies gradually normalize, how do you expect food delivery UE to change sequentially versus the second quarter? Thank you.
Wang Xing, Founder, Executive Director, Chief Executive Officer and Chairman of the Board: Thank you, Thomas, for your question. Let me first share some views on industry trends in food delivery. First, we see the entire industry shifting toward greater emphasis on marketing and operational efficiency. We believe that as regulators provide further guidance on subsidy behavior, competition will gradually return to what really matters—quality, service, and innovation—which will drive healthier industry development and create a level playing field for companies with genuine core competitiveness, and we are already seeing this happen. Over the past few months, our advantages in user structure, order structure, and operational efficiency have continued to strengthen. Our leadership in order volume and GTV expanded sequentially, especially in the mid-to-high AOV segment. We are focused on enhancing membership benefits, expanding quality supply, and improving service quality, and these efforts are paying off. We see deepening engagement and mindshare among high-value users toward our brand.
For Meituan Instashopping, we also maintained industry leadership. On-demand retail has fundamentally changed consumer expectations for convenience and reliability. This is an irreversible lifestyle shift, and penetration across different consumer groups is still in its early stages—we see enormous long-term opportunities. While we recognize pressures from last year's high base and the broader macro environment, we are focused on strengthening operational capabilities to build a solid foundation for long-term high-quality sustainable growth.
Over the years, we have built a diversified on-demand retail supply network covering a wide range of offline retailers and front-end warehouses, which provides a solid foundation for us to meet evolving consumer demands and drive broader adoption of instant consumption. Going forward, we will continue to invest in product competitiveness, supply chain integration, and supply diversity to deepen consumer mindshare across different categories. Regarding the UE outlook, we expect food delivery UE to improve significantly year-on-year but still be subject to sequential impact from seasonal factors.
Even so, we expect third-quarter UE to remain positive as we continue to optimize operational efficiency. Specifically, industry subsidy levels remain significantly higher than 2024 levels, and normalization may take several quarters. At the same time, seasonal headwinds will have a significant impact on our UE. As we mentioned before, the third quarter is the peak season for on-demand delivery, driven by summer activities. It is also a period when we sequentially increase marketing spending to capture the highest demand window of the year. We will also provide additional subsidies to riders to ensure delivery service quality during peak season and extreme hot weather. Therefore, per-order delivery costs in the third quarter will be higher than in the second quarter. Additionally, the nationwide rollout of occupational injury insurance effective July 1 adds another layer of cost.
But I want to emphasize that short-term UE fluctuations are mainly driven by seasonal factors and our proactive strategic decisions to balance scale, profitability, and ecosystem. We are confident in maintaining market leadership and maintaining UE levels far exceeding industry benchmarks in both food and non-food categories, and this confidence is built on our continuously improving user structure and operational efficiency. Our ongoing investments in the ecosystem are also deepening our moats. In fact, in the current market environment, we are well-positioned to focus on the strategic priorities that matter most for the long term. Our UE recovery has clear visibility and will gradually return to reasonable levels in the medium to long term. Thank you.
Thomas Chong, Analyst: Thank you.
Operator: The next question comes from Ronald Keung at Goldman Sachs. Please go ahead.
Ronald Keung, Analyst: I'd like to ask about AI, specifically regarding LongCat-2.0. Now that it has been open-sourced and internally deployed, how does management view its role in the broader AI strategy? Besides internal efficiency gains, is there a path to commercialize the LLM? How should we think about the financial impact of AI investments in the short term versus the medium to long term? Thank you.
Chen Shaohui, Senior Vice President and Chief Financial Officer: Thank you, Ronald. Let me start by saying that LongCat-2.0 is an important foundation for our "Organization, AI, Strategy," but what we truly focus on is developing our AI to connect the digital and physical worlds and build long-term deep competitiveness in local services.
So for us, AI is more about competing on models is not the point—it's about using AI to reshape our organization, products, and workflows. As we've explained in the past, Meituan's AI strategy has three pillars: building LLMs, AI-enabled work, and AI-enabled products. LongCat-2.0 is our next-generation self-developed foundational model, and it is one of the first—if not the first—trillion-parameter models trained entirely on Chinese infrastructure. It is open-sourced, and we have deployed it across our core internal needs, including software development and operations, customer service, and AI agents. LongCat-2.0 has made significant progress in core agent capabilities, particularly in coding, reasoning, tool calling, and complex task execution, and has received positive feedback from the global developer community.
We believe that AI creates lasting value only when deeply embedded in real workflows and able to solve real problems as reliable infrastructure. Our fully self-developed domestic training and inference infrastructure gives us structural advantages in long-term cost and infrastructure control. On the product side, we continue to upgrade AI products, including the AI assistant "Xiaotuan" built into the Meituan app. The direction is very clear: from understanding complex multi-constraint 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 to transaction and fulfillment. The key is to deeply integrate this with real-world local service scenarios. On the organizational side, AI adoption is deepening and driving productivity gains across various areas. A growing number of employees now consistently use AI tools, and the share of AI-generated code in total output continues to rise.
At this stage, our priority is to continuously build AI capabilities and drive practical AI applications across our business operations. As I've said before, we will not compete to become a "token factory." Our focus is on using our models and AI products to strengthen our core business. We want to deliver better experiences for consumers and merchants while improving our internal operational efficiency. We will evaluate our AI strategy with an ROI-driven approach and maintain discipline in capital allocation. Thank you.
Ronald Keung, Analyst: Thank you, Mr. Chen.
Operator: The next question comes from Kenneth Fong at UBS. Please go ahead.
Kenneth Fong, Analyst: Hi, good evening management, congratulations on the strong results. I'd like to ask a question about the in-store business. Can management update us on the competitive landscape in the in-store business? Are you seeing competitors rationalize toward monetization and profitability? Is the macro headwind weighing significantly on the business? Looking at the second half, how does management balance growth and margins? Is there a clear path for margin recovery? Thank you.
Chen Shaohui, Senior Vice President and Chief Financial Officer: Thank you, Kenneth, for your question about the in-store business. The competitive landscape in the in-store sector looks very different from a few years ago. The market is larger, with new players, more players, and different players. We see market participants increasingly differentiating on user demographics, consumption scenarios, and merchant segments.
For us, our one-stop local services offering and authentic review system are well-positioned and continue to create value for both consumers and merchants. Our operational focus is very clear: we do not chase subsidy-driven low-quality orders. We focus on strengthening our competitive position in core categories, serving core users and merchants better, pursuing high-quality growth, and allocating resources in a more ROI-driven manner.
Over the past few quarters, we have seen competitors increase their investment in the local services sector through dedicated shelf-based apps. They have been heavily subsidizing to redirect traffic from their content-driven model to the new apps, accelerating their adoption. Aggressive subsidies have indeed attracted many price-sensitive users, especially in lower-tier cities, but these users typically exhibit weaker repeat purchase behavior.
We have not seen significant impact on our core users or core merchants, and our in-store GTV quality and verification rates continue to lead major competitors significantly. While the macro environment has pressured AOV in certain categories, the local services industry overall has shown stronger resilience compared to the e-commerce industry. Online penetration in the services retail category remains relatively low, so the runway ahead is long. We now serve over 8 million merchants across more than 200 categories, and we continue to see new demand emerging, whether it's new consumption scenarios, new service products, or more merchants seeking digitalization. For example, we recently saw categories such as sports and fitness and immersive entertainment services accelerating their online adoption. Therefore, we remain confident in the long-term growth trajectory of the in-store business.
At the same time, looking at the second half, we will further invest to capture growth opportunities. We will continue to strengthen our competitive position in core categories, core user groups, and core merchant segments. Beyond that, we will help more local merchants achieve digital operations. Our goal is not just to be a traffic source for merchants. We want to build a platform where they can operate their business, and ultimately become an AI-driven partner that helps them operate more intelligently and grow faster. Meanwhile, we will continue to cut low-ROI spending and improve resource allocation efficiency. We will continue to realize synergies between the in-store business and the on-demand retail business.
Regarding margins, since we are increasing investment in the in-store business in the third and fourth quarters, operating margins may decline from second-quarter levels. As competition gradually normalizes in the future, we believe our focus on ROI-driven investment and operational efficiency will translate into gradual margin improvement in the medium to long term. Thank you.
Kenneth Fong, Analyst: Thank you.
Operator: The next question comes from Charlene Liu at HSBC. Please go ahead.
Charlene Liu, Analyst: Good evening management, congratulations on the excellent results. Thank you very much for answering my questions. Can management update us on the latest developments of Xiaoxiang Supermarket and Kuailehou? What stage is your omnichannel strategy at? Any updates on future expansion plans? Thank you.
Wang Xing, Founder, Executive Director, Chief Executive Officer and Chairman of the Board: Thank you, Charlene. First, let me be clear about one thing. Meituan's mission has always been to "help people eat better and live better." We believe more and more people will order food online, but if you still want to cook for yourself, you need to buy groceries. That's why we believe Xiaoxiang Supermarket and Kuailehou are very important parts of our retail business.
Retail aligns deeply with our mission, so they are among our key strategic priorities for the past decade and the next decade, and doing it well takes a long time. Online penetration here is still very low. We see enormous growth opportunities, but we believe the right approach is omnichannel, integrating online and offline stores on the same platform.
On-demand retail is gradually changing the way consumers buy groceries. In the past, people used to go to wet markets in the morning, or stock up at hypermarkets or warehouse membership clubs weekly or every few days. Now, more and more consumers are adopting on-demand delivery services. They simply order what they need when they need it, because they are confident they can receive it within 30 minutes. Therefore, once this habit forms, their purchase frequency will increase significantly over time, and we believe the long-term consumption potential per user will be enormous. Talking about Xiaoxiang Supermarket, we continued to accelerate coverage expansion in the second quarter. Xiaoxiang now operates in 68 cities. GTV growth remains very strong, and we are seeing steady improvements in operational efficiency. As we are committed to executing our omnichannel strategy, we are also actively exploring physical stores for Xiaoxiang.
We opened our first physical store in Beijing last December, the second in Ningbo in April, and the third in Hangzhou in July. This August, we opened the fourth in Ningbo, and today we opened the fifth in Shenzhen. We believe the online front-end warehouse model allows us to expand rapidly across cities and cover most target consumers. At the same time, a select number of physical flagship stores will also play a very important role in the overall ecosystem. Walking into our physical stores, consumers can see, smell, and touch products—a sensory experience they cannot get from digital screens. It builds strong trust in our products and brand. In-store shopping naturally exposes consumers to a broader range of products over time. We hope this omnichannel strategy will help Xiaoxiang become one of China's most trusted and recognized fresh grocery brands. Now let's talk about Kuailehou.
This is our community fresh grocery model. As of the second quarter, we have opened 40 Kuailehou stores. Unlike Xiaoxiang's physical flagship stores, Kuailehou is built around a different value proposition. Its store format is smaller and more flexible, with a high private-label ratio and curated SKU selection, focusing on providing high-cost-performance products within communities. We view these two businesses as complementary differentiated models. However, Kuailehou is still at a very early stage, and we will continue to refine our operations and merchandising capabilities as we move forward.
Regarding our long-term investment plans, we believe the real moat in retail lies in organizational and supply chain capabilities. These take time to build, but once built, they will unlock a very large addressable market. What gives us confidence is that consumer demand for high-quality groceries extends far beyond top-tier cities. Consumers in many medium-sized cities and even more developed county towns have good spending power and strong demand for better products, especially groceries. That's also why we are exploring different grocery models to better serve different cities and different consumer needs. Looking ahead, we will continue to strengthen merchandising capabilities and deepen supply chain collaborations in our grocery retail business to build more differentiated advantages. We have enormous long-term opportunities in this area, and we will develop these businesses in a disciplined and sustainable manner. Thank you.
Charlene Liu, Analyst: Thank you.
Operator: The next question comes from Gary Yu at Morgan Stanley. Please go ahead.
Gary Yu, Analyst: Hello. Thank you management for giving me the opportunity to ask questions. Can you update us on Keeta? It seems Keeta's traffic and iFood have been growing continuously. How are you thinking about the pace of expansion and investment budget in Brazil? More broadly, how should we think about overseas investment in the second half? Thank you.
Wang Xing, Founder, Executive Director, Chief Executive Officer and Chairman of the Board: Thank you, Gary. Before talking about Brazil, I think we can review our earlier-entered markets, because the progress we've seen there has proven our operational approach in overseas markets. In Hong Kong, we launched KeeTa in May 2023. UE turned profitable in October 2025. So it took us about 29 months to reach that milestone.
In our second market, Saudi Arabia, we entered in September 2024. I am very pleased to report that it has already achieved profitability in July this year. This means it took us 22 months to reach this milestone, even faster than Hong Kong. More importantly, Saudi Arabia is a much larger market than Hong Kong, and we were unfamiliar with the local market initially, but we were able to expand faster, achieve profitability faster, and do so under various headwinds. This demonstrates that our operational approach scales well across different overseas markets. I think the key here is to always focus on fundamentals. Consumer and merchant needs are actually quite consistent across different markets. In every market, consumers care about better selection, better prices, and more reliable, faster delivery. Merchants care about incremental order volume, commission rates, and reliable fulfillment services.
Our goal is always to create incremental value for both parties, and that's how we ultimately build trust and genuine advantages in the market. For Brazil, I believe it is a very attractive market in the long run because Brazil is one of the top five food delivery markets globally, and the market is still growing rapidly with low penetration.
However, this market is quite different from the other markets we have entered. We will remain flexible and iterate our strategies as we gain more on-the-ground experience. For now, we will continue to focus on São Paulo, which already accounts for 25% of Brazil's overall food delivery market. We want to improve operations there and build differentiated competitive advantages before broader expansion.
Wang Xing, Founder, Executive Director, Chief Executive Officer and Chairman of the Board: Regarding the investment pace for the second half, the focus will be on operational optimization and efficiency improvement in existing markets. Considering our investments in Keeta and grocery retail, we expect 2026 full-year losses for the new business segment will not exceed 2025 levels. Thank you.
Unidentified Participant: Thank you.
Operator: The next question comes from Ya Jiang at CITIC Securities. Please go ahead.
Ya Jiang, Analyst: Hello, good evening management. Congratulations on the outstanding quarterly results. My question is, as food delivery competition shifts toward efficiency, how should we think about your future capital allocation priorities? How do you balance investment across different businesses, AI-related capital expenditure, and shareholder returns? Would you consider monetizing some of your investment assets? Regarding buybacks, should we expect them to continue? Thank you.
Chen Shaohui, Senior Vice President and Chief Financial Officer: Thank you for your question on capital allocation. We are always ROI-driven and grounded in long-term value creation. Core businesses come first. We are committed to maintaining their high-quality growth and market-leading positions. On that basis, we dynamically evaluate investments in other projects and channel resources to areas most important for our long-term development.
We do not believe irrational competition is sustainable in core local commerce. We will continue to focus on high-quality growth and operational efficiency improvements. For overseas expansion, KeeTa has shifted to focus on operational optimization in Hong Kong and Saudi Arabia. We will continue to plan the pace of expansion in each country based on ROI.
For grocery retail, we are excited about the long-term potential of Xiaoxiang Supermarket and are confident in driving its continued efficiency improvements. AI is a very important strategic opportunity, but we are very prudent about where and how we invest. Our focus is on embedding AI into real business scenarios to improve user experience, merchant operational efficiency, and organizational productivity. We have no plans to aggressively compete in the so-called "token factory" business. Regarding shareholder returns, share buybacks have been our primary method of returning capital to shareholders. We have conducted meaningful buybacks over the past few years and will continue to do so based on the competitive environment, cash flow, and offshore capital availability.
Regarding investment assets, we will regularly evaluate monetization opportunities for our high-quality investment portfolio. We hold stakes in some truly excellent companies. At current valuations, our stakes in these companies are worth more than RMB 70 billion. Beyond financial returns, some of our investments provide significant strategic value—they give us deeper insights and allow us to stay close to cutting-edge technological developments. In the future, we will weigh market conditions, valuations, capital needs, and broader capital allocation priorities. When the time is right, we are very willing to exit or monetize selected positions to unlock capital. This will give us greater flexibility to reinvest in our own business and create value for shareholders. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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