Meituan Loss Narrowing Beats Expectations, Food Delivery UE About to Turn Positive

Overview

Morgan Stanley published the latest research report on Meituan. Based on the company's better-than-expected Q1 results and management guidance, upward revisions were made to profit forecasts for the Core Local Commerce segment. The report notes that Meituan's unit economics (UE) improvement in food delivery business is significantly faster than expected, and overall break-even is expected in Q2 2026. Despite competitive pressure from platforms like Douyin in the in-store business, analysts believe Meituan's long-term moat remains solid, and maintain its 'Overweight' rating and HK$120 target price.

Core views

Demand and Supply Side: Meituan's core driver lies in its dominant position in the food delivery market. Research data shows Meituan maintains 70% market share in food orders with unit price above 30 RMB, with overall GTV share around 60%. Its UE gap with major competitor Alibaba has widened from 2 RMB per order in Q4 2025 to 3 RMB per order in Q1 2026, with competitive advantage continuously strengthening. Profit Path: The Core Local Commerce (CLC) segment is the core of profit improvement. Morgan Stanley expects CLC to achieve 3.1 billion RMB operating profit in Q2 2026, with food delivery business contributing 313 million RMB profit, while Instant Retail (Instashopping) business has a loss of 750 million RMB. The research particularly notes that food delivery UE achieved profitability in April and May, and June performance will depend on 618 promotion investment intensity. In-store Hotel & Travel (IHT) business remains stable, with Q2 2026 operating profit margin expected to remain at 25%. Although Douyin's competition poses downside risk to in-store dining, with regulatory support, Meituan is expected to further increase market share in high-star hotels. For New Business, losses are expected to slightly expand from 21 billion RMB in Q1 to 24 billion RMB in Q2, mainly due to Meituan Fresh expansion to 55 cities and continuous investment in overseas business Keeta. However, Keeta's UE improvement in Saudi Arabia is significant, expected to achieve break-even within 2026 and turn fully positive in FY2027.

Analysis framework

Morgan Stanley's analysis framework focuses on the profitability and competitive landscape of Meituan's business segments. First, by breaking down the Core Local Commerce (CLC) segment, focus is on changes in unit economics (UE) of food delivery and instant retail to judge the profit inflection point. Second, evaluate the profit margin stability and market share changes of In-store Hotel & Travel (IHT) business in the competitive environment. Finally, examine the investment pace and return outlook of new business, especially the progress of overseas business Keeta. On this basis, discounted cash flow (DCF) model is used for valuation, combined with options market implied probability to assess upside and downside risk scenarios.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  Using DCF as primary valuation method

  DCF (Discounted Cash Flow) model estimates intrinsic value by forecasting company's future free cash flow and discounting it using weighted average cost of capital (WACC) reflecting its risk level. This report adopts 12% WACC and 3% perpetual growth rate assumptions to derive HK$120 target price.

• Industry Analysis FrameworkVolume-Price Breakdown

  Analyzing by business segments (CLC, IHT, New Business)

  Volume-price breakdown is a common method for analyzing diversified companies, decomposing overall performance into revenue, cost and profit contribution of different business lines. This report conducts independent analysis on the three major segments of Core Local Commerce, In-store Hotel & Travel and New Business to more clearly grasp the drivers and profit outlook of each business.

• Financial Industry Specific MetricNet Interest Margin (NIM) Analysis

  Unit Economics (UE) Analysis

  In local services and e-commerce, Unit Economics (UE) is a key metric for measuring profitability per order or per user, similar to net interest margin in financial industry. This report tracks changes in per-order UE of Meituan's food delivery business (e.g., from loss of 1 RMB to profit) to judge the health of its business model and possibility of scaled profitability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meituan (3690.HK)

  Core coverage beneficiary, benefiting from UE improvement and clarified profit path

  Strengths

  Food delivery market dominance, rapid UE improvement, stable in-store hotel & travel business, overseas business showing initial results

  Weaknesses

  New business still in loss phase, in-store dining facing fierce competition from Douyin

  Risks

  Intensifying competition, new business investment returns falling short of expectations, weak macro consumption

Key data

• 2Q26 CLC Operating Profit Forecast3.1 billion RMBAchieving profitability, better than previous expectations
• 2Q26 Food Delivery UE StatusBreak-evenAchieved profitability in April-May
• Market Share in Food Orders Above 30 RMB70%Competitive landscape stable
• 2Q26 In-store Hotel & Travel (IHT) Operating Margin25%QoQ flat
• 2Q26 New Business Operating Loss2.4 billion RMBSlightly expanded from 1Q's 2.1 billion

Impact & implications

The report believes that the rapid profitability of Meituan's core business validates the resilience and efficiency of its business model, providing a solid financial foundation for resisting competition and investing in new business. Although in-store business faces short-term competitive pressure from Douyin, its leading position in delivery network and user mindshare constitutes a strong long-term moat. Maintaining 'Overweight' rating indicates institutional optimism about its relative market performance in the next 12-18 months.

Risks

• Intensifying competition in food delivery and instant retail
• Lower visibility of losses in new business (especially asset-heavy businesses)
• Macro consumption environment weaker than expected
• Antitrust and other regulatory policy risks

What to watch

• Impact of 618 promotion on June food delivery UE
• Douyin's competitive dynamics in in-store dining
• Keeta's UE improvement progress in Saudi Arabia and international markets
• Meituan Annual General Meeting on June 9, 2026