The warm-up match has already swallowed billions in profits! Is Meituan really facing a 'wolf at the door' this time?

The second company in the 'Takeaway Battle Trio'—$MEITUAN(03690.HK) also released its Q2 results after the Hong Kong stock market closed on August 27. Overall, its performance is very similar to JD.com, similarly wiping out the previous single-quarter profit of over 10 billion yuan, with actual operating profit this quarter being only 200 million yuan, far below expectations. The impact of the takeaway battle is far greater than expected, with the following key points:

1. Subsidies offset delivery income: This quarter, delivery income growth rate plummeted to only 2.8% year-on-year. Although the reduction in shipping fees for merchants/consumers is reflected as a deduction in delivery income, the market had anticipated this, but the actual decline was greater than expected. According to Dolphin Research's preliminary estimates, the net income per delivery this quarter should have decreased by more than 1 yuan quarter-on-quarter.

This reflects that the massive subsidies leading to a surge in order volume required a significant increase in rider delivery income to ensure deliveries were completed, which also resulted in a noticeable decline in gross margin.

2. In-store business is not worry-free: This quarter, the growth rates of commission and advertising income in local commerce both slowed significantly quarter-on-quarter, increasing by only 13% and 10.5%, respectively, which are about 7 percentage points and 4 percentage points lower than market expectations. This suggests that the performance of the in-store business this quarter is likely below expectations.

Although nominally Meituan's in-store business was not directly affected, due to the certain substitution effect between takeaway and in-store consumption, the 'takeaway battle' actually impacted Meituan's core businesses of home delivery and in-store services.

3. If Q2 is already like this, how terrifying will Q3 be?: If the revenue miss is not shocking enough, then Meituan's profit this quarter being nearly 'zero' is undoubtedly a significant bombshell. The core local commerce segment's operating profit this quarter was only 3.7 billion yuan, although research indicates that Meituan's instant retail business profits may have already been nearly zero in May and June, Bloomberg's consensus expectations are not very valuable.

Even so, considering that the in-store business should still have around 5 billion yuan in operating profit this quarter, it means that takeaway + flash sales should have lost over 1 billion yuan this quarter. In Q2, when mainly competing with JD.com's takeaway, the profit was already so poor, which is undoubtedly far below expectations.

4. Innovative business shifts growth track, investment has already been reduced: This quarter, innovative business revenue was 26.5 billion yuan, with a significant increase in revenue scale, and year-on-year growth rate also rose to 23%. Mainly due to the continued rapid expansion of overseas Keete business and the large-scale adjustment of Meituan Select to make way for Xiaoxiang Supermarket and Meituan Flash Sales. (Select records income as net commission, while Xiaoxiang records income as total sales).

Although revenue scale accelerated growth, this quarter's new business losses unexpectedly decreased rather than increased. Besides the benefit of Meituan Select's exit, it should be 'forced' to reduce investment in new businesses to concentrate resources on more critical core business competition.

5. Delivery costs surged, gross margin plummeted: This quarter's gross margin was only 33.1%, a significant year-on-year decline of 8 percentage points, resulting in gross profit of only 30.4 billion yuan, while revenue growth was accompanied by both year-on-year and quarter-on-quarter declines in gross profit.

The sharp drop in gross margin is partly due to the significant increase in rider delivery costs caused by the takeaway battle, and also due to the expansion of self-operated businesses like Xiaoxiang Supermarket, leading to increased costs confirmed in financial terms. (Income is recorded as total sales, so product costs and delivery are included in costs).

6. The battle affects all aspects, profit returns to zero: On the expense side, the main impact is marketing expenses reaching 22.5 billion yuan, an increase of 7.7 billion yuan from last year, and 3.8 billion yuan higher than market expectations. This is also due to the fierce competition in takeaway + flash sales leading to a significant increase in promotions and user subsidies. The takeaway battle simultaneously led to income deductions, increased delivery costs, and increased marketing subsidies, affecting all aspects.

Ultimately, Meituan's overall operating profit this quarter was only 200 million yuan, a year-on-year plunge of 98%, nearly zero, far below market expectations. Excluding one-time impacts, Non-GAAP net profit was only 1.5 billion yuan, also a year-on-year plunge of 90%. The home delivery business unexpectedly turned to loss, the in-store business was also squeezed and performed below expectations, and new business, although reducing losses, still had a loss of 1.9 billion yuan, causing concern.

Dolphin Research's View:

From the above analysis, it is evident that the trends revealed by Meituan's performance this time are unfavorable across the board. On one hand, in the second quarter, Taobao Flash Sales had not yet fully exerted its strength (although there was some impact starting in late June), Meituan was still mainly competing with JD.com's takeaway (considered by the market as a non-threatening opponent) and had nearly exhausted all of the group's profits, with takeaway + flash sales already losing money.

It is evident that the impact of the takeaway battle is far greater than expected, and the performance of JD.com and Meituan both confirm this point. Therefore, in the third quarter, when Meituan and Taobao Flash Sales are in a real 'white-knuckle battle', the losses will undoubtedly be more exaggerated, and the management conference call also indicated that the group as a whole will have significant losses.

Another important signal is that the in-store business, originally considered by the market to be worry-free, was actually affected to some extent by the takeaway battle. While each company subsidizes takeaway, it also erodes the performance of the in-store business, which could have been a source of profit. In this regard, compared to core businesses that can at least generate profits of over 10 billion yuan, and with higher cash + short-term investments on the books, JD.com and Alibaba clearly have a significant advantage over Meituan.

Meituan's experience and combat capability in the instant retail market are undoubtedly stronger than its opponents, but in terms of resources available for combat, Meituan's opponents are stronger. (It is rumored that Meituan is preparing to meet with bond investors, and it is not ruled out that it may conduct bond financing to address the funds needed for competition and new business development). Correspondingly, we also see Meituan reducing losses in new businesses, and if core business competition further deteriorates, it is not ruled out that it may 'cut off an arm to survive'.

Looking ahead to future performance trends:

1) In the most closely watched takeaway business, since late June, Taobao Flash Sales has entered the takeaway/flash sales market with a '50 billion subsidy plan' with greater subsidies than JD.com's takeaway, the market's view of this 'takeaway battle' has shifted from the JD.com vs. Meituan period's 'indifference' believing that competition will soon end and Meituan's advantage will not be shaken, to believing that competition in the takeaway field will continue but it is still unclear how much it will affect Meituan's takeaway/flash sales profitability prospects.

From this quarter's performance, it is clear that the impact is greater than originally expected, and it is now basically certain that the average profit per order in Meituan's takeaway business for the entire third quarter will have turned deeply negative, with more detailed management guidance to be watched. Although Taotian's entry was relatively late this quarter, the losses may not be very large, but whether Taotian will also see profits return to zero in the third quarter will provide important guidance on whether the intensity of takeaway competition will significantly decrease in the medium term.

From a longer-term perspective, Alibaba previously announced that the '50 billion investment plan' would be extended to three years, and recent reports from LatePost indicate that the significant increase in DAU after takeaway subsidies has satisfied Alibaba internally, and Taobao Flash Sales' daily order volume in some regions and time points has already matched Meituan. From these points, it is clear that Alibaba, with its funding advantage, will not easily withdraw, even if the intensity of competition marginally decreases after the third quarter (it may not decrease significantly), competition will be ongoing.

After all, this 'takeaway battle' is not just about takeaway; it is essentially a further blurring of the boundaries between far-field e-commerce and in-field retail, leading to another round of competition among e-commerce companies for new traffic entry points and incremental space.

Therefore, Dolphin Research currently judges the direction of Meituan's instant retail business as, due to competition and subsidies, it will also promote faster growth in industry scale and penetration rate, the subsequent growth in Meituan's overall instant retail order volume may not significantly decline (even if market share declines), but the significantly higher profit margin than peers that Meituan could achieve in a near-oligopoly (70% market share) is unlikely to be maintained in a multi-party competitive environment.

Beyond competition issues, the government recently announced that any agreements not to pay social security are invalid, and Meituan also announced in July that it has extended social security subsidies nationwide. According to sell-side estimates, if full social security subsidies are implemented, the drag on Meituan's per-order profitability could reach 0.3~0.4 yuan per order, but the actual impact remains to be seen (only if recognized as a labor contract will social security be mandatory, and not all riders are willing to pay social security).

2. Beyond core business, Meituan has also made several major moves in innovative business recently, first by closing a large number of Meituan Select stores, retaining only businesses in Hangzhou and Guangdong. In contrast, the deployment of front warehouses for Meituan Flash Sales and Xiaoxiang Supermarket will accelerate to replace Select.

Additionally, Meituan and JD.com have both announced projects to build self-operated centralized takeaway stores, with Meituan planning to build 1,200 'Raccoon Canteens' within three years to cultivate exclusive food supply in the takeaway battle.

Besides multi-line investments domestically, the company also claims to maintain an active expansion pace overseas, expecting to cover six Gulf countries within three years, and is currently expanding into the Brazilian market to compete directly with Didi and Nasper's iFood platform. According to research, due to significantly higher labor and customer acquisition costs overseas, Keeta's per-order loss remains high.

In this view, innovative business also requires substantial capital investment, but currently, due to threats to core business, losses in new business may 'temporarily' shrink.

From a valuation perspective, Dolphin Research conservatively expects that the growth of instant retail business will not significantly decline, but profit margins will narrow, with a conservative expectation of 0.92 billion daily retail orders in 2026, a net profit of 0.5 yuan per order, contributing approximately 17 billion yuan in net profit. Although the in-store business is also affected to some extent, it is generally expected to maintain stable growth, contributing about 24 billion yuan in profit in 2026. Without considering new business losses, a 12x PE corresponds to a market value of RMB 492 billion, corresponding to a per-share price of approximately HK$ 88, which can be initially regarded as a safe price. However, in the short to medium term, it is still necessary to observe whether Alibaba and JD.com's subsequent investment intentions and intensity will change.

Below is a detailed commentary on the financial report:

I. Subsidies offset income, delivery income growth returns to zero

Since the company no longer discloses instant retail order volume data, it is temporarily impossible to know before the conference call how much the subsidies have boosted order volume this quarter. However, delivery income growth rate this quarter plummeted to only 2.8% year-on-year. Although the market had learned from last quarter's communication that the reduction in shipping fees for merchants/consumers would be reflected as a deduction in delivery income, the actual decline was still significantly greater than expected. According to Dolphin Research's preliminary estimates, the net income per delivery this quarter should have decreased by more than 1 yuan quarter-on-quarter.

Dolphin Research believes that this reflects, from a business logic perspective, that the massive subsidies leading to a surge in order volume required an increase in rider delivery income to ensure deliveries were completed, which also resulted in a noticeable decline in gross margin.

II. In-store business worry-free? Actually, it was significantly affected

However, if only the instant retail business was impacted by competition, with a significant increase in subsidies, the impact should mainly be reflected in delivery and commission income. However, this quarter, the growth rates of commission and advertising income in local commerce both slowed significantly quarter-on-quarter, increasing by only 13% and 10.5%, respectively, which are about 7 percentage points and 4 percentage points lower than market expectations.

This suggests that the performance of the in-store business this quarter is likely below expectations. On the consumer side, due to subsidies, online takeaway consumption became more cost-effective, leading some consumers to shift their original in-store consumption to takeaway. On the merchant side, some merchants faced capacity bottlenecks in handling takeaway orders and also needed to share some takeaway subsidies, possibly reducing in-store advertising spending.

This reflects the issue that, although nominally Meituan's in-store business was not directly affected by competition, it should have performed steadily according to logic. However, due to the certain substitution effect between online and in-store consumption, the 'takeaway battle' actually impacted Meituan's core businesses of home delivery and in-store services.

Summarizing in-store and home delivery, the core local commerce total revenue this quarter was nearly 65.3 billion yuan, a year-on-year increase of 7.7%, about 2.2 billion yuan lower than Bloomberg's consensus expectations. Besides the takeaway subsidies being more than expected, the impact on the in-store business was also more significant than expected.

III. Select makes way for Xiaoxiang Supermarket, Keeta continues rapid growth

With Meituan Select and Xiaoxiang Supermarket as the core, including bike-sharing and overseas business, innovative business revenue this quarter was 26.5 billion yuan, with a significant increase in revenue scale, and year-on-year growth rate also rose to 23%, higher than market expectations. Specifically, commission income surged 112% year-on-year, continuing to accelerate, reflecting the continued rapid expansion of overseas Keete business. Meanwhile, other income (mainly Xiaoxiang Supermarket, recorded as gross sales income) also increased by nearly 4 billion yuan year-on-year.

Combining this quarter's accelerated growth in innovative business revenue with the narrowing of losses, Dolphin Research believes it is mainly due to Meituan Select (recorded as commission income) exiting the market on a large scale, making way for the self-operated model of Xiaoxiang Supermarket, resulting in a significant increase in financial income.

IV. Core business profit nearly zero, forced reduction in new business investment

If the revenue miss is not very large, then Meituan's profit this quarter being unexpectedly 'zero' can be considered a significant bombshell.

First, the core local commerce segment's operating profit this quarter was only 3.7 billion yuan. Although, research had previously indicated that Meituan's instant retail business profits may have already been nearly zero in May and June, Bloomberg's consensus expectation of 12 billion yuan was clearly significantly too high. Even so, the in-store business, even if it performed worse than expected this quarter, likely still had around 5 billion yuan in operating profit for the single quarter. In other words, takeaway + flash sales should have lost over 1 billion yuan this quarter. In Q2, when Meituan was mainly competing with JD.com's takeaway, the profit was already so poor, which is undoubtedly far below expectations.

As for this quarter's new business losses unexpectedly decreased rather than increased, although there is the benefit of Meituan Select's large-scale cessation of operations, due to the need for increased investment in front warehouses for flash sales and Xiaoxiang Supermarket, and overseas Keeta and Raccoon Canteen are also in the investment period, market expectations were for new business losses to increase quarter-on-quarter. However, in reality, due to the core business losses far exceeding expectations, Meituan should have 'been forced' to reduce investment in new businesses, concentrating resources on core businesses.

V. Delivery costs and marketing expenses both surged, affecting all aspects

From the cost and expense perspective, the reasons for profit being below expectations are, first, this quarter's gross margin was only 33.1%, a significant year-on-year decline of 8 percentage points, far below Bloomberg's consensus expectation of 38.5%. This resulted in gross profit of 30.4 billion yuan, a year-on-year decrease of 3.5 billion yuan. Combining the company's explanation, the sharp drop in gross margin is partly due to the significant increase in rider delivery costs caused by the takeaway battle, and also due to the expansion of self-operated businesses like Xiaoxiang Supermarket, leading to increased costs confirmed in financial terms. (Xiaoxiang records income as total sales, so product costs and delivery are included in costs).

On the expense side, the main impact is marketing expenses reaching 22.5 billion yuan, an increase of 7.7 billion yuan from last year, and 3.8 billion yuan higher than market expectations. This is also due to the fierce competition in takeaway + flash sales leading to a significant increase in promotions and user subsidies. The takeaway battle simultaneously led to income deductions, increased delivery costs, and increased marketing subsidies, affecting all aspects.

As for R&D expenses and management expenses, although they also increased by 17% and 10% year-on-year, respectively, the growth is not low, but generally within market expectations, and the absolute scale is relatively small, with limited impact.

Ultimately, due to the sharp decline in gross margin and the significant increase in marketing expenses, Meituan's overall operating profit this quarter was only 200 million yuan, a year-on-year plunge of 98%, nearly zero, far below market expectations.

Excluding one-time impacts, Non-GAAP net profit was only 1.5 billion yuan, also a year-on-year plunge of 90%. The home delivery business unexpectedly turned to loss, the in-store business was also squeezed and performed below expectations, and new business, although reducing losses, still had a loss of 1.9 billion yuan, causing concern.

Past Dolphin Research on [Meituan]

Financial Report Commentary:

May 26, 2025 Commentary《Meituan: Sunshine Before the Storm? Takeaway Battle 'Clouds' Approaching》

May 26, 2025 Minutes《Meituan (Minutes): Winning the Competition at All Costs, 2Q Profit Will Significantly Decline Year-on-Year》

March 21, 2025 Commentary《Meituan: The Battle Just Calmed Down, Yet Another 'Second Curve'?》

March 21, 2025 Minutes《Meituan (Minutes): Overseas Plans Beyond Saudi Arabia Not Yet Determined》

November 29, 2024 Minutes《Meituan: Can Growth Continue Strongly?》

November 29, 2024 Commentary《Meituan: The 'Heaviest' Chinese Concept Stock, Ultimately Laughing Last?》

August 28, 2024 Conference Call《How Did Meituan Achieve Growth Against the Wind?》

August 28, 2024 Financial Report Commentary《Returning to 'Sweetheart', Meituan is the True Stabilizing Force?》

June 6, 2024 Conference Call《What Changed After Meituan's Restructuring》

June 6, 2024 Financial Report Commentary《After the Surge, Has Meituan Truly Revitalized?》

March 22, 2024 Conference Call《Meituan:New Business Controls Losses, Core Business Faces Adjustment》

March 22, 2024 Financial Report Commentary《Two of the Three Mountains Gone, Meituan's Turnaround Imminent?》

November 29, 2023 Conference Call《Meituan: Unyielding, Will Continue to Invest》

November 29, 2023 Financial Report Commentary《Constantly Struggling, Can Meituan Still Afford It?》

In-depth:

June 2, 2023《Facing Douyin, Meituan Cannot Repeat Alibaba's Mistakes》

December 16, 2022《Finally Opened Up, Can Meituan Return as a King?》

September 22, 2022《Have Alibaba, Meituan, JD.com, and Pinduoduo All Accepted Their Fate? Still Betting on Luck》

April 22, 2022《Meituan, JD.com, Why Are They Outstanding in Stock Competition?》

April 13, 2022《In the Cycle 'Decay', How Much Value Do Alibaba and Tencent Still Have?》

October 22, 2021《Paying Fines, Joining Social Security, How Much Faith Does Meituan Have Left?》

Risk Disclosure and Statement of This Article: Dolphin Research Disclaimer and General Disclosure