Home Risks & Bear Case

Risks & Bear Case

Risks & Bear Case — Meituan (3690)

Financial figures are in Meituan's reporting currency, RMB (¥); the share trades on HKEX in Hong Kong dollars (HK$), so price levels and targets are quoted in HK$.

Thesis

Two richer rivals turned Meituan's crown-jewel delivery profit into a structural loss, and Meituan cannot end the war alone.

The 4 strongest points against ownership

1. The cash cow is now a loss-maker

Core Local Commerce — the food-delivery and in-store engine that funds the entire company — swung from a ¥52.4 billion operating profit (20.9% margin) in 2024 to a ¥6.9 billion operating loss (−2.6% margin) in 2025. This is not the perennially loss-making New Initiatives segment; it is the moat itself bleeding. Group operating profit collapsed from +¥36.8 billion to −¥25.0 billion in a single year, driven by selling and marketing spend rising 61% to ¥102.9 billion (28.2% of revenue, up from 19.0%) to buy back share the platform used to own for free.

Evidence: Core Local Commerce operating loss of ¥6.9 billion in 2025 vs. ¥52.4 billion profit in 2024, group operating loss ¥25.0 billion vs. ¥36.8 billion profit [1]; full-year selling and marketing expenses ¥102.9 billion (28.2% of revenue) vs. ¥64.0 billion (19.0%) [2]. The FY2025 annual results attribute the swing to "user incentives, promotion and advertising … amid the intensified competition" [3].

2. It is a three-front war against two larger balance sheets

JD launched food delivery in February 2025 and drove its New Businesses operating loss from ¥2.9 billion (2024) to ¥46.6 billion (2025) to force entry into Meituan's market. Alibaba folded Ele.me into "Taobao Instant Commerce," and its China e-commerce adjusted EBITA fell 44% — roughly ¥86 billion — "primarily due to the investment in quick commerce." Meituan is defending a ~¥45 billion profit pool against two attackers each willing and able to lose ¥45–85 billion a year from vastly larger, still-profitable cores. The subsidy race cannot be ended unilaterally.

Evidence: JD "officially launched JD Food Delivery" in February 2025 [4]; JD New Businesses operating loss of ¥46.6 billion in 2025 vs. ¥2.9 billion in 2024 [5]; Alibaba China e-commerce adjusted EBITA down 44% to ¥107.5 billion "primarily due to the investment in quick commerce" [6]; Alibaba's stated "huge market opportunity in quick commerce" and strategic investment behind Taobao Instant Commerce [7].

3. The self-funding compounder is broken — cash flow reversed and capital return stopped

The story that sold this stock — a business throwing off cash it returns to holders — inverted in 2025. Operating cash flow went from +¥57.1 billion to −¥13.8 billion; free cash flow from +¥46.1 billion to −¥27.1 billion. Buybacks fell from ¥26.1 billion in 2024 to ¥0.4 billion, the board recommended no final dividend, and financing turned to issuing debt (+¥21.2 billion) to plug the hole. A company that once bought its own shares is now funding a subsidy war with borrowings.

Evidence: Net cash used in operating activities of ¥13.8 billion in 2025 [8]; no final dividend recommended for 2025 [9]. Free cash flow of −¥27.1 billion (2025) vs. +¥46.1 billion (2024), and buybacks of ¥0.4 billion vs. ¥26.1 billion, are from data/financials/cash_flow.json.

4. The "rationalization" recovery is a management narrative, not evidence — and depends on others

The bull case rests on a clean profit snap-back, but Q1 2026 was still a ¥4.1 billion segment operating loss and a ¥5 billion adjusted net loss. Management's own guidance is that second-half 2026 order growth "could turn negative year over year." Whether subsidies "normalize" is set by JD and Alibaba and by regulators policing "involution," not by Meituan — the recovery thesis outsources Meituan's earnings to its attackers' restraint. Consensus already reflects the doubt: FY2027 EPS estimates saw more downward than upward revisions over the past 30 days even as the stock rallied.

Evidence: Q1 2026 total segment operating loss ¥4.1 billion and adjusted net loss ¥5 billion, subsidies "became more rational," and management warning H2 order growth "could turn negative year over year" [10]; Q3 2025 described as an "intense, unsustainable price war" with a ¥15.3 billion total segment operating loss and ¥16 billion adjusted net loss [11]; Meituan's own report cites "irrational industry competition" and "marketing involution" [12]. FY2027 consensus EPS of ¥4.07 and its recent downward revision skew are from data/estimates/analyst_estimates.json.

Downside and trigger

  • Downside target: HK$55 per share (≈ −30% from ~HK$79), roughly the current Street low.
  • Method: Normalized-earnings haircut plus multiple de-rate. Assign mid-cycle EPS of ~¥3.5–4.0 — below the ¥4.07 FY2027 consensus snap-back, because a permanent third competitor (JD) and Alibaba's integrated Taobao Instant Commerce cap Core Local Commerce margins structurally below the pre-war ~20% — at a de-rated ~12–13× market multiple (¥3.75 × 13 ≈ ¥49; ×1.12 RMB→HK$ ≈ HK$55). This applies a market, not a premium-compounder, multiple to a business whose core profit pool just proved contestable.
  • Timeline: 12–18 months — through FY2026 results and into the FY2027 numbers the bull case is discounting.
  • Primary trigger: Two consecutive quarters where Core Local Commerce operating margin fails to recover toward high single digits while order growth turns negative — refuting the durable claim that Meituan's scale and service quality insulate its core profitability from subsidy competition. That forces analysts to cut the ¥4.07 FY2027 number and re-rate the multiple.
  • Signal that would force you to cover: Core Local Commerce operating margin back above ~8% for two straight quarters with stable-to-positive order growth, alongside a public, visible pull-back in JD and Alibaba food-delivery subsidies — evidence the war has actually ended on Meituan's terms rather than in management's forecast.

What the bull will say

The strongest bull argument is that this is a self-inflicted, temporary trough at a dominant franchise with a fortress balance sheet: Meituan still holds ~¥180 billion of cash and short-term investments, kept its lead in DAU, order volume and GTV through the worst of the war, turned Keeta profitable in Hong Kong ahead of plan, and — as management stresses — saw subsidies moderate in Q1 2026 with losses narrowing sharply quarter-over-quarter, consistent with consensus EPS rebounding to ¥4.07 in 2027; on that number today's ~HK$79 is under 20× a recovered franchise with optionality in overseas delivery and AI. That case is real, and if the war truly rationalizes it wins. What decides the dispute is narrow and observable: whether Core Local Commerce operating margin actually re-expands toward its pre-war level over the next two to three quarters without Meituan re-escalating subsidies — because JD and Alibaba have shown, in their own filings, both the appetite to lose ¥45–85 billion a year and the profit pools to keep doing it. Until the margin recovers on stable volume, the ¥4.07 is a hope, not a run-rate, and the stock is priced for the hope.