Meituan: Acquisition Represents Commitment Toward Generative AI, but Cost and Benefits Unclear

On June 29, Meituan 03690 acquired an artificial intelligence startup company called Light Year for USD 233.7 million and agreed to assume liabilities of CNY 366.9 million (USD 50.7 million). As of June 29, Light Year had USD 285 million cash on its balance sheet, which implies that Meituan acquired Light Year for less than USD 1 million. While the acquisition does not change the composition of Meituan’s balance sheet much, it symbolizes Meituan’s entrance into the generative AI industry which is Light Year’s main focus.

We do not believe that this acquisition will dramatically change our estimates in the near term, but there is a possibility that Meituan could incur greater cash burn should it begin to commit more resources toward generative AI, which is not part of its core business. Light Year lost CNY 22.7 million and CNY 19.2 million in 2021 and 2022, respectively, and its financial results will be wholly incorporated into Meituan results from here on out. Light Year’s losses do not have a major impact on Meituan results, but we believe that further cash burn into generative AI without clear monetization could further lower the fair value estimate in the long term. Meituan is already incurring heavy cash burn due to its community group buying business, which is still incurring about CNY 4 billion per quarter loss and does not have much visibility toward breakeven. It is unclear how exactly generative AI will complement Meituan’s food delivery and in-store operations, and thus we do not believe the acquisition will provide any major cost savings in the near term.

Light Year was founded by Meituan cofounder Wang Huiwen who officially left Meituan’s board 4 days prior to focus on his generative AI business.