Wall Street views Meituan: Below expectations "as expected," the extent "beyond expectations," management emphasizes "core areas are stable"

Meituan's latest quarterly report confirms the market's widespread concerns about its profitability under pressure, but the astonishing decline in profits still exceeded Wall Street's expectations.

Meituan's second-quarter report shows that its operating profit under Non-IFRS plummeted 87% year-on-year to 1.84 billion yuan, which was more than 80% lower than Bloomberg's market consensus. Although revenue grew 12% year-on-year to 91.84 billion yuan, this figure also failed to meet expectations.

After the earnings report was released, Meituan's management sent a more cautious signal during a conference call, warning that its core local commerce (CLC) segment, which includes food delivery and in-store services, may record "significant losses" in the third quarter ending in September. This forecast stands in stark contrast to the 14.6 billion yuan profit recorded in the same period last year.

According to news from the trading desk, JP Morgan stated in a quick comment on Meituan's performance that the lower-than-expected results were anticipated, but the extent was beyond expectations. In the second quarter, Meituan's actual investment in food delivery and flash purchase was 10 billion yuan more than its previous forecast, indicating that irrational competition may be much more intense than the market expected.

JP Morgan believes the core risk lies in that Meituan's financial resources are more limited compared to Alibaba, putting Meituan at a disadvantage in a prolonged cash-burning battle and facing the risk of market share loss.

Nomura also mentioned in its report that in the face of an increasingly heated subsidy war with Alibaba, Meituan's management is warning of expanding short-term losses while attempting to convey a message of "core positions being solid," stating that it still maintains a 70% dominance in the "core restaurant-related orders" sector.

The Delivery Subsidy War Escalates, "Burning Money" to Exchange Volume Erodes Profits

The most concerning aspect of the earnings report for investors is the sharp deterioration in profitability of Meituan's core local commerce segment.

According to Nomura's report, the operating profit of this segment in the second quarter plummeted 76% year-on-year, which is 70% lower than market expectations. JP Morgan analyst Alex Yao was more direct in his report, pointing out that the actual operating profit of this segment was about 10 billion yuan lower than his forecast, indicating that "irrational competition may be much more intense than the market expected."

This pressure is being transmitted from the second quarter to the third quarter. Meituan's management's forward guidance paints a more severe picture: the core local commerce segment is expected to turn from profit to loss in the third quarter. Nomura Securities analysts Jialong Shi and Rachel Guo specifically pointed out in their report that just a year ago, in the third quarter of 2024, this segment had generated a profit of 14.6 billion yuan.

Nomura's calculations show that the competition's erosion of Meituan's financial metrics is clearly visible. Although order volume achieved a steady growth of 10%, the revenue growth rate of the food delivery business plummeted from 15% in the first quarter to 1.4% in the second quarter. The report explains that this is because a large amount of subsidies was recorded as "contra revenue," directly pulling down revenue and profitsThe more critical indicator is the Unit Economic Model (UE). Nomura estimates that Meituan's delivery business's UE turned negative in the second quarter, recording -0.12 yuan, compared to 1.9 yuan in the same period last year and 1.5 yuan in the first quarter of this year. Meituan revealed that competition further escalated in July, and although the intensity has slightly eased since August, it remains well above normal levels. Due to the competitive landscape being dominated by rivals, the situation in September and beyond remains unclear.

Meituan Defends Its Core Territory, but Financial Resources Are More Limited Compared to Alibaba

In the face of Alibaba's aggressive attack, Meituan's management strategy is to defend its core advantageous areas.

According to Nomura's report, Meituan's management stated that compared to fluctuations in overall market share, the company is more concerned about the share of "core dining-related orders" and claims to maintain a dominant position of 70% in this area. Meituan believes that Alibaba's market share growth is primarily driven by low-priced beverage orders that are highly sensitive to subsidies, raising doubts about the sustainability of their demand.

However, Nomura's estimates present another side. The firm believes that in the broader "delivery and flash purchase" market, Meituan's share may have dropped from the past 70% to over 50%, while Alibaba's share has increased from 30% to over 40%. This suggests that Meituan faces strong challenges in some emerging instant retail scenarios.

This fierce price war began on July 2, 2025, when Alibaba announced a subsidy plan of up to 50 billion yuan. Meituan quickly followed suit, launching a series of subsidy measures, including "zero yuan milk tea," in response.

The flames of the delivery battle have also spread to Meituan's other businesses. Nomura's report pointed out that due to generous subsidies in the delivery sector, some orders have shifted from in-store consumption, compounded by the macro environment's impact on high-end dining and weak average hotel booking prices, leading to a slowdown in in-store business revenue growth from 20% in the first quarter to 15%, with profit margins also declining by 2 percentage points.

JP Morgan explicitly pointed out the core risk of this war of attrition: Meituan's financial resources are more limited compared to Alibaba. This unequal resource reserve may put Meituan at a disadvantage in a prolonged cash-burning battle and face the risk of market share loss.

However, the financial report also highlights some positives. The operating loss of the new business segment narrowed by 43% year-on-year to 1.9 billion yuan, better than market expectations. Both JP Morgan and Nomura noted that the loss of Meituan Preferred narrowed from 2 billion yuan in the same period last year to 1.6 billion yuan. But Meituan also stated that due to restructuring costs from business adjustments and the expansion of its overseas business Keeta in the Middle East, it expects the loss of new businesses in the third quarter to widen to 2.3-2.4 billion yuan