Business Model

Meituan (3690): The Franchise That Detonated Its Own P&L

Meituan reports in Renminbi (RMB, ¥) — the currency of every figure below and of every filing cited. A USD translation of this page is published separately.

The one thing to understand. Meituan is the dominant operating system of Chinese local commerce — the platform that connects roughly 600 million consumers to restaurants, shops, hotels and couriers, and clears over 150 million on-demand delivery orders a day [1]. In 2024 that franchise proved its economics beyond doubt: ¥45.1 billion of segment operating profit, a 20.7% return on equity, and ¥46 billion of free cash flow. Then, over 2025, management deliberately set fire to those economics — pouring subsidies into food delivery and instant retail to repel simultaneous invasions by JD.com and Alibaba — and the company swung to a ¥23.4 billion net loss [2]. The entire investment case reduces to one question: is 2024 or 2025 the true picture of this business?

Source: FY2025 Annual Report, Chairman Statement [3]; ROE derived from reported financials.

How the money is actually made

Meituan runs two reportable segments, and they are economically opposite creatures.

Core Local Commerce is the profit engine: food delivery, Meituan Instashopping (quick commerce / instant retail), and the in-store, hotel and travel business [4]. New Initiatives is the investment bucket: self-operated grocery retail (Xiaoxiang Supermarket), B2B food distribution (Kuailv), overseas delivery (Keeta), plus bike/e-moped sharing, power banks and micro-credit [5].

The platform monetises three ways, and the mix tells you it is really an advertising-and-commission marketplace wearing a logistics coat:

• Delivery services (¥96.1B in 2025) — Meituan acts as principal, charging merchants and consumers a fee for on-demand fulfilment [6]. This is high-volume, thin-margin, and the front line of the price war.
• Commission (¥105.5B) — a percentage take-rate on the goods and services transacted across the marketplace [7].
• Online marketing services (¥51.9B) — pay-for-performance and display advertising sold to merchants; the highest-margin dollar in the business [8].
• Other services and sales (¥111.4B) — dominated by New Initiatives' grocery goods sales, recognised gross [9].

Source: FY2025 Annual Report, Financial Summary — total segment revenues by type [10].

The read-through: Core Local Commerce is where the margin lives — commission and advertising off restaurants, hotels and in-store merchants. New Initiatives is a low-margin retailer — ¥97 billion of grocery goods sold near cost to build scale. Blending them into one P&L is exactly what makes Meituan easy to misvalue.

The engine at full power — and then unplugged

Here is the whole story in one comparison. In 2024, Core Local Commerce earned ¥52.4 billion of operating profit on ¥250 billion of revenue — a 20.9% segment operating margin, the mark of a genuine franchise. In 2025 the same segment, on higher revenue, lost ¥6.9 billion. New Initiatives' loss widened to ¥10.1 billion as overseas spend ramped [11].

Source: FY2025 Annual Report, Financial Summary — FY2025 segment operating loss [12] and FY2024 segment operating profit [13].

A franchise that earns a 21% operating margin does not lose money because customers left — revenue grew. It loses money because it chose to. That choice was forced by the two largest e-commerce companies in China walking onto Meituan's turf at once.

2025: the war that broke the P&L

The trigger dates matter. In February 2025, JD.com launched JD Food Delivery [14]. At the end of April 2025, Alibaba rolled out "Taobao Instant Commerce," making 30-minute delivery a core strategic pillar of Taobao and Tmall [15]. Both attacked with subsidies, free delivery and blank-cheque marketing. Meituan chose to defend rather than cede share — and its quarterly profit fell off a cliff, bottoming in Q3 2025 at a ¥19.8 billion operating loss before beginning to recover.

Sources: Q2 FY2025 results (Q1–Q2 2025) [16]; Q3 FY2025 results (Q3 2025) [17]; Q1 FY2026 results (Q4 2025 and Q1 2026) [18].

What the shape tells you:

• The collapse was violent and self-inflicted. Core Local Commerce went from +¥13.5 billion (21.1% margin) in Q1 2025 to −¥14.1 billion in Q3 — a ¥27 billion swing in six months, driven by "record-high industry subsidies" and courier incentives, not lost volume [19].
• The recovery is already visible. By Q1 2026, Core Local Commerce's loss had narrowed to just ¥2.0 billion (−3.2% margin) from −¥10.0 billion (−15.5%) in Q4 2025, as selling-and-marketing spend fell 27.6% quarter-on-quarter [20]. The de-escalation, not the war, is the current trajectory [21].

Management's framing has been consistent and, so far, borne out: it called the price war "unsustainable" and refused a "race to the bottom," betting that scale and efficiency would force rationalisation "over time" [22].

Who actually paid for the war

Here is the counterintuitive part an investor must sit with. Meituan, the defender, bled the least. Its attackers spent multiples more to buy share they could not hold profitably.

Sources: Meituan FY2024 Core Local Commerce operating profit [23]; JD.com FY2025 20-F, segment operating results [24]; Alibaba FY2026 Annual Report, China e-commerce adjusted EBITA [25].

• JD.com's New Businesses swung from a ¥2.9 billion loss to a ¥46.6 billion loss in 2025 — the bulk of it JD Food Delivery — dragging total company operating income from ¥38.7 billion down to ¥2.8 billion [26]. JD burned nearly seven times Meituan's Core Local Commerce loss to gain a foothold.
• Alibaba's China e-commerce adjusted EBITA fell 44%, a ¥85.7 billion decline, explicitly "due to the investment in quick commerce" [27]. Alibaba frames instant commerce as "a necessary path" it must fund to defend its core marketplace as consumer behaviour shifts to 30-minute delivery [28].

This is the crux of the moat debate. Meituan's defence was cheap relative to its rivals' offence — evidence of a real efficiency edge. But the war also revealed that two of the deepest-pocketed companies in China are willing to lose ¥40–85 billion a year to sit on Meituan's lawn, because instant delivery is now strategic to their e-commerce flywheels. The moat held; it was never breached. But it can be rented — attackers can compress Meituan's monetisation for as long as they choose to fund the loss.

The moat: real, wide — and rentable

The defensible core is genuine and rests on three reinforcing advantages:

Source: Q2 FY2025 Earnings Call, Order Volume and User Growth [29]; margin derived from FY2024 segment results [30].

1. Density economics. More than 150 million orders a day — versus the 100 million long-term target set at IPO — means the shortest routes, the fullest courier batches, and the lowest cost per delivery in the industry [31]. A rider carrying three stacked orders is structurally cheaper than a rival carrying one; that is why Meituan defended at a fraction of its attackers' cost.
2. Two-sided network + supply innovation. The company keeps widening its supply moat with formats competitors cannot easily copy: Branded Satellite Stores partnered with over 1,000 brands, Raccoon Kitchen, Pin Hao Fan value meals, and Meituan InstaMarts / Xiaoxiang front distribution centres for quick commerce [32] [33].
3. Cross-category stickiness. The high-margin in-store, hotel and travel business rides on the daily-active habit created by food delivery; Meituan Membership, its first cross-category loyalty programme, is designed to lock that flywheel — the company reports annual users, frequency and ARPU all at historic highs during the war [34].

The honest verdict on the moat: wide and efficiency-based, but not impregnable to a strategic buyer of share. Meituan itself flags market-competition-and-innovation risk as its lead corporate risk — "the entry of well-funded competitors" that can challenge its business model [35]. The moat determines who wins; it does not, by itself, determine the take-rate, and 2025 proved the take-rate is contestable.

The balance sheet that wins wars of attrition

The reason Meituan could absorb a ¥36 billion negative swing without stress: it is one of the most over-capitalised platforms in China. It ended Q1 2026 with ¥117.0 billion of cash and ¥63.3 billion of short-term treasury investments — roughly ¥180 billion of liquidity — against a business that lost only ¥6.8 billion in the quarter [36]. At the war's peak management still described a net cash position of ¥171 billion [37].

Two things hide inside that balance sheet:

• A venture portfolio worth billions and largely uncounted in the operating story — a 12.73% stake in Li Auto, plus 3.86% of AI lab Z.AI and 7.61% of robotics firm Unitree [38]. These are real, marked assets sitting beside the loss-making P&L.
• A capital-allocation switch that just flipped. In 2024 Meituan returned ¥26.1 billion via buybacks; in 2025 it repurchased almost nothing (¥0.4 billion) — cash was redirected from shareholder returns to the war chest. Watch for the switch to flip back as losses narrow; a resumed buyback would be the clearest management signal that the war is won.

Capital-allocation figures derived from reported consolidated cash flow statements, FY2024–FY2025.

Three long-dated call options

Beyond the domestic core, three investments could each matter to terminal value — all currently inside the loss line, which is another way the consolidated P&L understates the business:

• Grocery retail (Xiaoxiang Supermarket). A self-operated, private-label front-distribution-centre network — nearly 1,000 DCs across 20 cities by mid-2025 — accelerating city expansion and improving efficiency [39] [40].
• Overseas (Keeta). The clearest proof point that the model travels: Keeta reached positive unit economics in Hong Kong in Q4 2025, is a top platform in Saudi Arabia, and expanded into Qatar, Kuwait, the UAE and Brazil in H2 2025 [41].
• AI. Self-developed LongCat multi-modal LLMs power consumer assistants (Xiaomei, Xiaotuan) and a merchant assistant already used by 3.4 million merchants — a genuine data-advantage play across the largest local-services dataset in China [42].

What could keep this business structurally lower

Not every headwind is temporary. Three are structural and belong in any base case:

• The competitor equilibrium may not fully reverse. Alibaba and JD have declared instant commerce strategically essential; even a "rational" peace likely leaves Meituan's food-delivery take-rate permanently below its pre-war ceiling.
• Courier social costs are rising. Meituan is now funding industry-first pension coverage for all courier types and occupational-injury insurance across 17 provinces covering over 16 million couriers — the right thing to do, and a permanent cost layer as China formalises gig labour [43].
• Regulatory grip. A ¥745.7 million SAMR fine over merchant-qualification and food-safety compliance in Q1 2026 is a reminder that the platform operates under active antitrust and consumer-protection scrutiny [44]. The shares also carry the standard China-platform overhangs: a Cayman-incorporated VIE structure and weighted-voting-rights control by founder-chairman Wang Xing.

How an intelligent investor should value it

Do not value Meituan off trailing earnings — 2025 earnings are a policy variable, not a demand signal. Value the normalised earning power of the franchise, adjusted for a permanently more competitive world, and add the assets the consolidated P&L buries.

A defensible way to frame it — a sum of the parts, not a P/E:

1. Core Local Commerce, normalised. Pre-war it earned ¥52 billion of operating profit at a 21% margin on a base still growing double digits [45]. Haircut the take-rate for a lower-margin peace; even a 12–16% normalised margin on a ¥270 billion+ revenue base is a very large, very durable profit pool. This is the anchor of the valuation.
2. New Initiatives, as options not liabilities. The ¥10 billion annual loss is investment spend; grocery and Keeta should be valued on the forward unit economics they are now proving (Keeta HK already positive), not capitalised as a perpetual drain.
3. Balance sheet and stakes. Roughly ¥180 billion of cash and treasury investments plus a marked venture book (Li Auto, Z.AI, Unitree) is real, separable value to net against the operating enterprise [46] [47].

The market is already underwriting a partial recovery, not the trough: consensus points to another small loss year followed by a sharp rebound in earnings toward — but not fully back to — the pre-war peak, and analyst price targets sit well above the recent share price (recently around HK$81, versus a consensus mean target near HK$107). (Consensus and price data as reported; not from a filing.)

The bet, stated plainly. If you believe the 2025 subsidy war was a peak — that Alibaba and JD moderate because losing ¥40–85 billion a year is unsustainable even for them, and that Meituan's density moat lets it re-monetise as the incentives fade — then the current price capitalises a temporarily broken franchise near trough economics, and the Q1 2026 recovery is the leading edge of a return toward ¥45 billion+ of segment profit plus buybacks. If you believe instant delivery is now permanently strategic to two larger flywheels — so the take-rate never fully recovers — then even Meituan's best-in-class efficiency only earns a structurally lower return, and the "cheap on normalised earnings" case is a value trap. The evidence in hand (a much cheaper defence than the attack, and a fast Q1 2026 margin recovery) tilts toward the first view — but it is a competitive-equilibrium judgement, not a spreadsheet output, and that is precisely where the money will be made or lost.