Meituan's Profit Dives as Price War Intensifies

Meituan's (03690.HK) shares fell as much as 13% on Thursday after the company released its Q2 earnings report, revealing a sharp decline in profits due to the fierce price war in the food delivery market. This has led to a market value evaporation of approximately 30% since 2025, and rating downgrades and target price reductions from several analyst firms.

Q2 Financial Performance

Despite achieving revenue of RMB 91.84 billion, a year-on-year increase of 11.7%, operating profit plummeted by 98% to just RMB 230 million. Adjusted net profit stood at RMB 1.49 billion, significantly lower than the market expectation of RMB 9.85 billion, a year-on-year drop of 89%. Meituan attributed this to the "irrational competition" that erupted during the same period and warned of potential future losses.

Target Price Downgrades

Citigroup downgraded Meituan's rating from "Buy" to "Neutral" and lowered the target price from HK$188 to HK$133, expressing caution about when the company would be able to restore profitability. HSBC also lowered Meituan's target price from HK$160 to HK$125.

Competitive Challenges

The profit plunge highlights the significant challenges Meituan is facing. JD.com is seeking growth amid slowing consumption, and Alibaba's Ele.me has also joined the subsidy war, forcing Meituan to fight on multiple fronts in its core business.

Meituan's Response to the Price War

Meituan CEO Wang Xing addressed the heated competition during a post-earnings conference call. "First of all, let's be clear, we are firmly opposed to destructive competition." Wang Xing stated that competition in the food delivery market is intensifying, and Meituan will continue to defend its market position, meaning the company will prioritize investment to expand market share in the short term, rather than pursue profitability.

Future Outlook

Despite the current challenges, Wang Xing emphasized that the company maintains its long-term 2025 assumption of "RMB 1 per order and a profit margin of approximately 3%." The company expects that increased strategic investment in the third quarter will put pressure on some financial indicators in the short term, but management believes that competition will eventually return to rationality. CFO Chen Shaohui indicated that the company expects the "core local business," including food delivery, to experience a "significant loss" this quarter, and that fierce competition will continue to negatively impact financial performance in the short term. However, the company expects the food delivery sector to return to a reasonable level of profitability when subsidies gradually return to reasonable levels.

Further Analysis

It's crucial to understand the competitive dynamics in the food delivery market. While Meituan views food delivery as a core business, competitors may see it as merely an entry point to a broader platform transformation. This means they may be willing to tolerate larger losses in this specific segment, aiming to gain overall market share. Meituan needs to adapt to this dynamic to maintain its competitive edge. The key questions now are how long can these subsidies persist and what the true cost of customer acquisition looks like in this new environment.