Meituan returned to profitability in Q2, but the Q3 battle for market share and higher investment will test the sustainability of earnings

Overview

The report reviews Meituan's Q2 2026 results and segment performance. Bernstein believes easing competition drove the company's return to profitability and results above market consensus, but renewed investment to regain market share in Q3 will bring higher spending, while long-term competitive friction may also recur cyclically.

Core views

Meituan's Q2 revenue was RMB104,643 million, up 14.4% year over year, 1.5% above Bernstein's forecast of RMB103,093 million and 3.5% above market consensus of RMB101,079 million. Gross profit was RMB35,095 million, up 16.7% year over year, with a gross margin of 33.5%, respectively 1.7 and 2.1 percentage points above Bernstein's estimate and consensus. Adjusted EBITDA was RMB4,098 million, 20.5% below Bernstein's forecast but 29.4% above consensus of RMB3,166 million. Non-GAAP net profit was RMB2,524 million, 10.6% below Bernstein's forecast but 641.7% above consensus of RMB340 million, marking the first profitable quarter in four quarters; the report also describes it as the company's first return to group profitability since Q2 2025. The earnings reversal was primarily driven by Core Local Commerce. Segment revenue was RMB71,531 million, up 10.1% year over year; operating profit reached RMB5,668 million, up 52.3% year over year, representing a significant improvement from a loss of approximately RMB2.1 billion in Q1 and exceeding consensus by 55.8%. The report believes cooling competition in food delivery was the main reason for the rapid profit recovery, particularly after Alibaba shifted more spending toward AI capital expenditure. Bernstein estimates Q2 food delivery transaction volume at approximately 6.1 billion orders, up about 1% year over year; food delivery revenue was RMB42.9 billion, up approximately 6% to 7% year over year, corresponding to revenue per order of about RMB7. Adjusted operating profit for food delivery is estimated at RMB1.1 billion, with a revenue margin of 2.7% and profit equivalent to approximately 40 basis points of GTV; Core Local Commerce merchant services revenue grew 4.0% year over year. Q2 revenue for the In-store, Hotel & Travel business is estimated at RMB17.0 billion, up 7.5% year over year, with operating profit of approximately RMB5.1 billion and a margin close to 30%. The report believes Meituan did not fully match ByteDance's subsidies for low-value in-store dining in Q2, thereby trading some market share for a better margin; however, this approach will partially reverse in Q3, as Meituan has chosen to compete for market share again. Q2 group selling and marketing expenses were RMB24.7 billion, up 11.5% year over year or RMB2.6 billion, despite the comparison base already including heavy subsidies during the food delivery battle in the prior year. Based on management guidance, Bernstein now expects Core Local Commerce revenue to grow approximately 16% in Q3 and group revenue to grow approximately 20%, while also expecting Q3 spending to exceed Q2. The macroeconomic environment continues to constrain revenue growth, while persistent competitive friction means improvements in growth and profitability will not be a one-way process. New Initiatives performed better than expected: Q2 revenue was RMB33,112 million, up 25.0% year over year; the operating loss was RMB1,739 million, significantly lower than Bernstein's forecast loss of RMB2,533 million, market consensus loss of RMB2,422 million, and management's previous guidance of approximately RMB2.5 billion. The Saudi business achieved profitability in July, taking 22 months from market entry to break even, faster than the Hong Kong business's 29 months. Unallocated losses were RMB1,238 million, also declining from the abnormally high level in Q1. On this basis, the report acknowledges the narrowing losses in New Initiatives and progress in overseas execution, but still identifies overseas strategy and international business losses as important valuation variables. Improved results prompted Bernstein to raise its forecasts across the board. Revenue forecasts for 2026 to 2028 were raised from RMB406,033 million, RMB477,924 million, and RMB550,823 million to RMB423,675 million, RMB524,175 million, and RMB607,115 million, corresponding to year-over-year growth of 16.1%, 23.7%, and 15.8%. Non-GAAP net profit forecasts for the same period were raised from RMB2,454 million, RMB26,500 million, and RMB45,604 million to RMB5,481 million, RMB34,911 million, and RMB50,654 million, with net margins of 1.3%, 6.7%, and 8.3%, respectively. Adjusted EPS forecasts for 2026 and 2027 were raised from RMB0.39 and RMB4.25 to RMB0.87 and RMB5.56, while the 2028 forecast is RMB8.07. The report expects adjusted EBITDA of RMB14,392 million in 2026, rising to RMB47,612 million in 2027 and RMB64,207 million in 2028. As the company returned to profitability, Bernstein switched its valuation methodology from 1x 2027E P/S back to forward P/E and assigned a valuation of HKD85 per share based on 12x 2027E P/E. Relative to the closing price of HKD77.50 on August 28, 2026, the report indicates 10% upside and assigns a Market-Perform rating. Its key reservation is that Meituan continues to prioritize market share, while the convergence of food delivery, e-commerce, and instant retail means competition will not disappear permanently and may instead recur cyclically; therefore, the Q2 earnings recovery does not mean that competitive and investment pressures have ended.

Analysis framework

The report first compares actual Q2 revenue, margins, EBITDA, and net profit item by item against Bernstein's original forecasts and market consensus; it then breaks down revenue and operating profit by Core Local Commerce and New Initiatives, further explaining earnings changes through food delivery transaction volume, revenue per order, In-store, Hotel & Travel margins, marketing expenses, and time to overseas break-even. Finally, the report rebuilds its 2026 to 2028 forecasts based on management guidance and switches the valuation basis from P/S to forward P/E following the return to profitability.

Methodology notes

• Valuation MethodP/E and PEG Valuation

  Valuation based on 12x 2027E P/E

  Following the company's return to profitability, the report no longer uses a revenue multiple as its primary valuation basis, instead applying a 12x P/E multiple to expected 2027 earnings to derive a target price of HKD85 per share.

• Industry Analysis FrameworkVolume-price decomposition

  Breakdown of food delivery transaction volume, revenue, revenue per order, and margin

  The report combines approximately 6.1 billion transactions, RMB42.9 billion in revenue, approximately RMB7 in revenue per order, and RMB1.1 billion in operating profit to distinguish the contributions from transaction growth, monetization, and profitability.

• Industry Analysis FrameworkSupply-demand framework

  Subsidy intensity, competitive investment, and changes in market share

  The report explains the transition from Q2 profit recovery to renewed spending growth in Q3 by examining competitor subsidies, whether Meituan followed them, and the trade-offs involving market share.

• (Method Outside the Vocabulary)

  Comparison of actual results, institutional forecasts, and market consensus, combined with a segment model

  The report compares actual results, Bernstein's model, and market consensus, then uses segment operating data to identify the sources of beats or misses and adjusts its multiyear forecasts accordingly.

Asset mapping & comparison

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

• Meituan (03690.HK)

  The only company explicitly covered in this report; it returned to group profitability in Q2 and received higher medium-term forecasts, but Q3 investment in market share and cyclical competition limit valuation upside.

  Strengths

  Q2 revenue exceeded both Bernstein's forecast and market consensus; Core Local Commerce profit recovered significantly; New Initiatives losses were below expectations; the Saudi business achieved profitability relatively quickly.

  Weaknesses

  The macroeconomic environment constrains revenue growth, the company continues to prioritize protecting market share, selling and marketing expenses continue to rise, and the earnings recovery may be affected by a new round of subsidies.

  Comparison

  Multiple Q2 metrics exceeded market consensus; in in-store dining, Meituan did not fully match Douyin's subsidies in Q2 and ceded some low-value market share, but it will intensify competition again in Q3.

  Risks

  Food delivery unit economics, user engagement, competition, regulation, macro consumption, and New Initiatives losses could all affect the target price.

Key data

• Q2 Group RevenueRMB104,643 millionUp 14.4% year over year, 1.5% above Bernstein's forecast and 3.5% above consensus.
• Q2 Gross Profit and Gross MarginRMB35,095 million; 33.5%Gross profit increased 16.7% year over year, while gross margin was 1.7 and 2.1 percentage points above Bernstein's estimate and consensus, respectively.
• Q2 Adjusted EBITDARMB4,098 million20.5% below Bernstein's forecast and 29.4% above consensus.
• Q2 Non-GAAP Net ProfitRMB2,524 millionThe first profitable quarter in four quarters, 10.6% below Bernstein's forecast and 641.7% above consensus.
• Core Local CommerceRevenue of RMB71,531 million; operating profit of RMB5,668 millionRevenue increased 10.1% year over year, operating profit increased 52.3% year over year, and the segment turned profitable from a Q1 loss of approximately RMB2.1 billion.
• Food Delivery Operating DataApproximately 6.1 billion transactions; revenue of RMB42.9 billionTransaction volume increased approximately 1% year over year, revenue increased approximately 6% to 7% year over year, and revenue per order was approximately RMB7.
• Food Delivery ProfitabilityAdjusted operating profit of RMB1.1 billion; margin of 2.7%The report estimates profit at approximately 40 basis points relative to GTV.
• In-store, Hotel & TravelRevenue of RMB17.0 billion; operating profit of RMB5.1 billionRevenue increased 7.5% year over year, with an operating margin close to 30%.
• New InitiativesRevenue of RMB33,112 million; operating loss of RMB1,739 millionRevenue increased 25.0% year over year, while the loss was below Bernstein's forecast and market consensus.
• Saudi Business Break-even22 monthsAchieved profitability in July 2026, faster than the Hong Kong business's 29 months.
• Q2 Selling and Marketing ExpensesRMB24.7 billionUp 11.5% year over year or RMB2.6 billion.
• Q3 Revenue ForecastCore Local Commerce growth of approximately 16%; group growth of approximately 20%The report also expects Q3 spending to exceed Q2.
• 2026 to 2028 Revenue ForecastsRMB423,675 million, RMB524,175 million, RMB607,115 millionPrevious forecasts were RMB406,033 million, RMB477,924 million, and RMB550,823 million, respectively.
• 2026 to 2028 Non-GAAP Net Profit ForecastsRMB5,481 million, RMB34,911 million, RMB50,654 millionPrevious forecasts were RMB2,454 million, RMB26,500 million, and RMB45,604 million, respectively.
• Valuation and Target Price12x 2027E P/E; HKD85.00The previous valuation methodology was 1x 2027E P/S; the report indicates 10% upside relative to the closing price of HKD77.50.
• Share Price PerformanceYear-to-date -25.0%; past 12 months -23.8%Relative to ASIAX, the corresponding figures were -45.6% and -55.8%.

Impact & implications

Bernstein believes that easing competition and narrowing New Initiatives losses demonstrate Meituan's ability to restore profitability relatively quickly, supporting higher revenue and profit forecasts for 2026 to 2028 and making earnings multiples a usable valuation basis again. However, the company will reinvest resources to compete for market share in Q3, while macroeconomic pressure and competition among local services platforms will continue to affect revenue growth and margins; the report therefore maintains a Market-Perform rating rather than adopting a more positive stance.

Risks

• Upside risk: If competition in the food delivery industry eases significantly, earnings could exceed the report's expectations.
• Upside risk: If adjustments to the overseas strategy result in lower-than-expected international business losses, the valuation could receive support.
• Upside risk: If instant retail revenue and profit grow much faster than expected, the overall earnings trajectory could improve.
• Downside risk: Deterioration in macroeconomic factors such as the credit environment or retail consumption could suppress revenue growth.
• Downside risk: User engagement with Meituan's platform could fluctuate.
• Downside risk: Changes in average order value, monetization rate, rider costs, and operating expenses could weaken food delivery unit economics.
• Downside risk: Competition from internet platforms such as Ele.me and Trip.com could increase subsidies and customer acquisition spending.
• Downside risk: Regulatory changes, including China's antitrust regulation, could affect business operations.
• Downside risk: Losses in New Initiatives such as community e-commerce could exceed expectations.

What to watch

• Monitor whether the Q3 revenue growth forecasts of approximately 16% for Core Local Commerce and approximately 20% for the group can be achieved.
• Monitor the increase in subsidies and selling and marketing expenses after Meituan resumes competing for in-store and food delivery market share.
• Track food delivery transaction volume, revenue, revenue per order, margins, and profit relative to GTV on a quarterly basis.
• Track In-store, Hotel & Travel revenue growth, the approximately 30% margin, and changes in market share relative to Douyin.
• Track whether New Initiatives losses continue to narrow and the sustained performance of the Saudi business following its achievement of profitability.
• Monitor whether the convergence of food delivery, e-commerce, and instant retail triggers a new round of cyclical competition.