Zhenzhuo Institutional View: Meituan (03690.HK): Intense Competition Leads to a 98% Sharp Decline in Quarterly Operating Profit

$MEITUAN(03690.HK) The Q2 2025 results showed a dilemma of "revenue growth without profit growth." Although total revenue increased by 11.7% year-on-year to RMB 91.8 billion, operating profit plummeted by 98.0% to only RMB 226 million due to fierce market competition. The core reason for this stark contrast lies in the company's significant increase in user incentives and rider subsidies to solidify its market position in food delivery and instant retail, leading to a notable rise in sales costs and marketing expenses. While this strategy temporarily stabilized business expansion, it has raised deep concerns about its sustainable profitability.

From a business segment perspective, the core local commerce, which is the profit pillar, saw its revenue growth slow to 7.7%, with operating profit sharply declining by 75.6% year-on-year. The evaporation of profits was mainly due to continuous adjustments in business strategies to cope with competition, resulting in increased transaction user incentives and promotional expenses. Meanwhile, the new business segment, which includes overseas operations like Keeta, saw revenue grow by 22.8% year-on-year, but its operating loss also expanded by 43.1% to RMB 1.9 billion due to rising costs associated with overseas operations, indicating severe profitability challenges in both old and new markets.

Looking ahead, Meituan's strategy focuses on trading short-term profits for long-term market share. Its prospects highly depend on three key factors: whether industry competition can become more rational, whether new businesses like Keeta can transition from high-investment phases to profitability, and whether the company can leverage technology to improve operational efficiency and control costs. Investors need to closely monitor changes in its cost structure and the progress of new businesses, as these will be decisive indicators of whether the company can navigate the intense competition cycle and rebuild healthy profitability.

Source: KGI Securities