Meituan: Sunny Skies Before the Storm? Food Delivery Wars Cloud Growth Prospects

After the Hong Kong market closed on May 26, the last player in this round of food delivery competition—$MEITUAN(03690.HK)—also released its Q1 results. Overall, both total revenue and adjusted profit metrics exceeded expectations by approximately 1 billion. While there were no particularly eye-catching highlights, it was a solid performance. However, the guidance for Q2, when the food delivery battle is in full swing, is clearly more important. The key takeaways from this quarter's results are as follows:

1. This quarter, the delivery revenue under the core local commerce segment grew by 22.1% YoY, accelerating significantly compared to the previous quarter. It also exceeded expectations by about 600 million, making it the biggest contributor to Meituan's overall revenue beat. Since Meituan no longer discloses instant delivery order volume data, we cannot simply infer whether the growth in instant delivery orders accelerated sequentially (this requires attention to information from smaller meetings).

According to the company's disclosure, the main reason for the increase in delivery revenue was a reduction in delivery fee subsidies recorded as revenue deductions. For a more detailed explanation, please refer to the main text.

2. The YoY growth rates of commission and advertising revenue in the core local commerce segment continued to slow, with increases of approximately 20% and 15%, respectively, both decelerating by more than 2.5 percentage points compared to the previous quarter. This suggests that as the strong recovery cycle for domestic service-related consumption gradually comes to an end, the growth trajectory of the industry and Meituan's domestic business is likely to stabilize and slow down.

Another noteworthy point is that the growth gap between commission revenue and advertising revenue still exists this quarter. Dolphin Research believes that possible reasons include merchants reducing advertising budgets focused on promotion, or renewed competition from platforms like Douyin or others diverting merchant ad spending.

3. The revenue of the innovation business, which includes Meituan Youxuan and Xiaoxiang Supermarket as well as overseas operations, grew by 19.2% YoY this quarter, slightly higher than the sell-side's expected growth rate. A closer look reveals that the growth rate of other revenue, mainly reflecting self-operated fresh food, slowed down significantly further (by more than 5 percentage points).

Meanwhile, the YoY growth rate of commission revenue accelerated significantly to 85%, reflecting the contribution of the overseas Keeta business. However, the total commission revenue remains below 1.2 billion, indicating that the absolute contribution of overseas operations is still very limited.

4. In terms of profitability, Meituan's operating profit for the quarter was 10.6 billion, initially appearing to exceed Bloomberg consensus by about 2 billion. However, approximately 1 billion of the profit beat was due to non-operating factors such as investment gains and losses.

Excluding this impact, as mentioned earlier, the actual profit beat was around 1 billion. The Non-GAAP net profit metric more accurately reflects the magnitude of the profit beat.

5. By segment, the operating profit of the core local commerce segment was 13.5 billion, slightly exceeding Bloomberg sell-side expectations by about 1.3 billion, making it the main source of the actual profit beat. The operating profit margin was 21%, showing a clear YoY improvement. However, this was partly due to the low base effect from last year when the company was competing with Douyin in the in-store business.

Meanwhile, losses in the new business segment expanded slightly QoQ to nearly 2.3 billion, in line with management's previous guidance. This is likely the result of expanding losses in overseas operations offset by continued narrowing of losses in domestic Youxuan and Xiaoxiang Supermarket.

6. From a cost and expense perspective, Meituan's gross profit this quarter reached 32.4 billion, largely in line with expectations. The gross margin was 37.4%, continuing to decline sequentially. According to the company's explanation, this was mainly due to Q1 being a seasonally low point for gross margins, coupled with the impact of overseas operations.

Marketing expenses grew by 12% YoY, without a significant increase. Unlike challengers like JD.com and Alibaba, Meituan did not noticeably increase subsidy spending in Q1. It will be important to monitor whether Meituan follows up with subsidies in Q2.

R&D and administrative expenses grew by 15% and 14% YoY, respectively, which is not low in absolute terms, reflecting Meituan's willingness to ramp up investments, likely mainly in overseas operations.

Dolphin Research's View:

Overall, Meituan's performance this quarter was solid, with both revenue and profits slightly exceeding expectations. While there were no particularly eye-catching highlights, none of the metrics fell short of expectations. It was a case of steady execution across the board, with each metric slightly outperforming.

As Meituan discloses less and less information in its financial reports, there is limited inferences we can make before obtaining information from smaller-scale communications. Looking at the performance trends beyond the expectation gap, growth is gradually slowing (this is already evident from the synchronized growth rates of service and goods consumption in retail sales data, no longer showing a relative advantage); meanwhile, profit margins continue to improve slightly (partly due to the low base effect from last year's in-store business competition).

As for the innovation business, losses have indeed expanded due to overseas investments, although the magnitude is not large. However, as overseas operations scale up further, it is highly likely that losses will continue to expand.

Looking ahead, Dolphin believes that Meituan's competitive moat, centered on offline instant fulfillment capabilities, and its positioning in the relatively stronger growth segment of service-oriented consumption, are long-term bullish arguments that will not simply be overturned by the entry of competitors like JD.com. Historically, Meituan's superior execution suggests it will likely remain one of the winners in this round of instant retail competition.

However, from a short- to medium-term or marginal perspective:

① Although the market, including us, questions the sustainability of JD.com's aggressive subsidy-driven approach (which leads to significant losses), we still believe the market may be underestimating JD.com and Alibaba's willingness to invest in the food delivery—or more accurately, instant retail—market, as well as the duration of this competition.

For JD.com and Alibaba, which are primarily product-based e-commerce platforms, expanding into food delivery (and instant retail market as a whole) serves as a defensive move against Meituan's encroachment on product shopping mindshare. More importantly, it allows them to use high-frequency food delivery to drive low-frequency but high-value instant retail, ultimately helping to activate user stickiness and frequency for their main platforms. This ultimate goal is evident from both companies placing food delivery as a first-level entry on their homepages and Alibaba management explicitly stating that food delivery subsidies can be viewed as customer acquisition costs for the main platform.

In other words, even if these two companies continue to lag behind Meituan in terms of market share, fulfillment efficiency, and unit economics (Meituan still holds an execution advantage and leading position), the key point is that JD.com and Alibaba do not need to (and may not intend to) defeat Meituan in the food delivery market.

In contrast, as long as JD.com and Alibaba can achieve near break-even or slight losses in instant retail (given that Ele.me was near break-even before this round of increased investment and JD.com's daily orders have already exceeded 20 million, we believe it is not impossible for these two companies to achieve near break-even), subsidies and competition in food delivery will only ease but not disappear entirely. In other words, the battle among JD.com, Alibaba, and Meituan in food delivery and instant retail will persist for a long time.

② Due to the lack of notable achievements in business diversification over the past few years, Meituan's belated international expansion, while indeed expanding the company's TAM and potential revenue and profit ceiling in the long run, will likely lead to a resurgence of significant losses in the innovation business in 2025 as overseas operations scale up, especially with the recent announcement of expansion into Brazil and South America.

③ Earlier this year, the issue of rider social insurance raised by JD.com also prompted Meituan to clarify that it will gradually expand social insurance coverage for active riders. While the final coverage scope and additional costs per rider remain unclear, it is certain that this will drag down per-order profits for Meituan's instant retail business (the company preliminarily estimates a drag of around 0.1 yuan per order).

After listing these three "mountains" facing Meituan (though the market has already partially digested these issues, and they are somewhat reflected in the stock price), from a valuation perspective, pre-earnings market expectations for Meituan's 2025 core local commerce operating profit were around 55-60 billion, translating to a post-tax valuation of about 15x. From an optimist's perspective, this is a reasonable, neutral valuation.

From a more conservative perspective, based on the company's overall net profit (including innovation business losses and headquarters costs), the valuation is around 17x-18x PE. In absolute terms, this is relatively high, at least not cheap; considering Meituan's increasingly intense external competitive environment in the short to medium term, it is hard to say this provides sufficient valuation cushion.

Therefore, for long-term investors who firmly believe in Meituan's competitive moat and are unfazed by short- to medium-term volatility (and losses), initiating a position now and holding long-term is not necessarily a wrong choice. However, for more cautious investors, Dolphin Research recommends waiting until the negative impacts of JD.com and Alibaba's competition in food delivery and the entire instant retail industry, as well as Meituan's overseas investments on profits, are fully reflected before entering the market.

Detailed Earnings Review:

1. Reduced Subsidies and Accelerated Delivery Revenue Growth, the Biggest Highlight

First, looking at delivery revenue, this quarter, delivery revenue under the core local commerce segment grew by 22.1% YoY, accelerating by 2.6 percentage points sequentially. In terms of expectation gaps, delivery revenue exceeded expectations by about 600 million, making it the biggest contributor to Meituan's overall revenue beat. However, since Meituan no longer discloses instant delivery order volume data, we cannot simply infer whether the growth rate of instant delivery orders (including food delivery and flash sales) accelerated sequentially. Moreover, as seen later, the growth rates of commission and advertising revenue slowed sequentially.

The main reason was the increase in delivery revenue per order, as the company disclosed that it primarily reduced delivery fee subsidies recorded as revenue deductions. Based on current judgment, this is due to accounting treatment: after users purchase memberships (recorded as other revenue), subsidies related to members are first deducted from membership revenue, with any excess then deducted from delivery fees.

2. Continued Slowdown in Commission and Advertising Growth, with the Growth Gap Persisting

Unlike delivery revenue, the YoY growth rates of commission and advertising revenue in the core local commerce segment continued to slow this quarter, with increases of 20.1% and 15.1%, respectively, both decelerating by more than 2.5 percentage points sequentially. This indicates that, overall, the growth of the core local commerce business (including home and in-store services) is slowing (as the relative recovery of service-related consumption in recent years gradually ends).

Another noteworthy point is that the growth gap between commission revenue and advertising revenue still exists this quarter, with no narrowing of the gap. Dolphin believes this may indicate: ① Due to macroeconomic factors, merchants are reducing advertising budgets focused on promotion, preferring instead to pay commission fees more directly tied to transactions (similar to shifting budgets from brand advertising to performance advertising); ② it cannot be ruled out that platforms like Douyin or others are once again diverting merchant ad budgets;

In aggregate, the core local commerce segment's total revenue this quarter was nearly 64.3 billion, growing nearly 18% YoY and exceeding Bloomberg consensus by about 900 million, mainly due to the contribution from delivery revenue.

3. Innovation Business: Cautious with Youxuan, More Aggressive Overseas

The revenue of the innovation business, which includes Meituan Youxuan, Xiaoxiang Supermarket, bike-sharing, and overseas operations, reached 22.2 billion this quarter, growing 19.2% YoY, slightly better than the expected growth rate of 18%.

Looking deeper, the growth rate of other revenue, mainly reflecting Xiaoxiang Supermarket, slowed significantly, decelerating by more than 5 percentage points sequentially. Meanwhile, the YoY growth rate of commission revenue accelerated sharply to 85%, mainly reflecting the contribution of the overseas Keeta business. However, its total revenue remains below 1.2 billion, indicating its absolute contribution is still very limited.

4. Solid Core Local Profits, No Major Impact from Competition Yet; Innovation Business Losses Expanded Slightly as Expected

In terms of profitability, Meituan's operating profit this quarter was 10.6 billion, initially appearing to exceed Bloomberg consensus by about 2 billion. However, approximately 1 billion of the profit beat was due to non-operating factors such as investment gains and losses (this quarter's investment gains were 800 million, compared to a loss of 500 million last year, creating a significant swing).

Excluding this one-time impact, Non-GAAP net profit was 10.9 billion, exceeding expectations by about 1.2 billion, which better reflects the actual profit beat.

By segment, the operating profit of the core local commerce segment was 13.5 billion, exceeding Bloomberg sell-side expectations by about 1.3 billion. The actual operating profit margin was 21%, improving by 3.4 percentage points YoY and also higher than expected. This reflects that Meituan's local commerce profitability is still in an expansion cycle, mainly due to the recovery of in-store business margins, as last year's margins were depressed due to competition with Douyin in the in-store business.

As for losses in the new business segment, they expanded slightly QoQ to nearly 2.3 billion, in line with management's previous guidance. This is likely the result of expanding losses in overseas operations offset by continued narrowing of losses in domestic Youxuan and Xiaoxiang Supermarket. The difference from expectations was minor.

Additionally, it is worth noting that unallocated losses at the headquarters level were less than 700 million this quarter, about 800 million better than expected, also due to the aforementioned investment-related expectation gap.

From a cost and expense perspective, Meituan's gross profit this quarter reached 32.4 billion, largely in line with expectations. The gross margin was 37.4%, continuing to decline sequentially. According to the company's explanation, this was mainly due to Q1 being a seasonally low point for gross margins, coupled with the drag from overseas operations.

In terms of expenses, marketing expenses grew by 12% YoY, below total revenue growth and not exceeding expectations. Unlike challengers like JD.com and Alibaba, Meituan did not noticeably increase subsidies or other spending in Q1. It will be important to monitor whether Meituan follows up with subsidies in Q2.

R&D and administrative expenses grew by 15% and 14% YoY, respectively, which is not low in absolute terms, reflecting Meituan's willingness to ramp up investments (and new business losses). This is likely mainly due to overseas investments. However, relative to revenue growth, expense ratios are still passively diluted.

Dolphin Research's Past Reports on [Meituan]

Earnings Reviews:

March 21, 2025 Review《Meituan: Just as the Battle Subsides, It’s Time to Explore a "Second Curve"?》

March 21, 2025 Minutes《Meituan (Minutes): No Plans for Markets Beyond Saudi Arabia Yet》

November 29, 2024 Minutes《Meituan: Can Growth Remain Strong?》

November 29, 2024 Review《Meituan: The "Heaviest" China Internet Stock Finally Has the Last Laugh?》

August 28, 2024 Earnings Call《How Did Meituan Achieve Growth Against the Odds?》

August 28, 2024 Earnings Review《Back to "Sweetheart," Is Meituan the Real Anchor?》

June 6, 2024 Earnings Call《What Has Changed After Meituan's Reorganization?》

June 6, 2024 Earnings Review《Post-Rally Meituan: Has It Truly Regained Its Glory?》

March 22, 2024 Earnings Call《Meituan:New Business Losses Under Control, Core Business Faces Adjustments》

March 22, 2024 Earnings Review《Two of Three Mountains Gone, Is Meituan About to Turn Around?》