BABA, Douyin losing steam? Still won't ease Meituan's anxiety.

Post market on Aug 28, $MEITUAN(03690.HK) reported Q2 FY26 results. At first glance, the print was solid, with revenue slightly beating and profit materially above Bloomberg consensus. As the food delivery price war fades, Meituan appears firmly on an earnings recovery track. However, Dolphin Research notes that the profit beat was aided by non-operating gains, making the quality of earnings less impressive than headline numbers suggest.

Specifically:

1) Profit looks stellar, but there is noise: As above, profit was the biggest surprise. At the group level, operating profit was approx. RMB 2.7bn, well ahead of Bloomberg’s expected loss of RMB 0.8bn. The group swung to profit and by a decent margin. But this quarter recognized nearly RMB 3.5bn in other gains due to shutting down the Youxuan business (plus other investment gains), while historically this item is only a few hundred mn to low bn. Excluding this non-operating boost, Meituan’s underlying operating profit is roughly at breakeven.

2) Delivery loss reduction met the market’s bar: By segment, the story is similar. The core Local Commerce segment delivered operating profit of RMB 5.7bn, also well above Bloomberg consensus. However, on more up-to-date major bank forecasts (e.g., Goldman Sachs), the number was RMB 5.8bn. While this estimate was on the high side among sell-side peers, it suggests the actual performance merely met the bullish money’s expectations.

On Dolphin’s breakdown, delivery likely earned just over RMB 2.0bn this quarter, with per-order UE around RMB 0.3–0.4 (closer to RMB 0.4). Versus Alibaba’s Flash Sales, the UE gap looks broadly stable and within RMB 2.

Using that major bank baseline, the profit beat mainly came from narrower losses in New Biz and Unallocated QoQ, both better than expected. Specifically, New Biz lost RMB 1.7bn, vs. over RMB 2.0bn last quarter and market estimates. Similarly, Unallocated loss was only RMB 1.24bn, vs. over RMB 2.0bn last quarter and expectations.

As mentioned, there was about RMB 3.5bn in investment gains distorting the picture. And we note equity comp inside Unallocated alone was RMB 1.9bn, while recent spend on AI model R&D and XiaoXiang expansion should also be sizable, implying booked losses look unusually low.

Although it is unclear how the RMB 3.5bn one-off was spread between New Biz and Unallocated, stripping it out, the combined losses likely did not improve much vs. last quarter.

3) War cooling: at-home improves, in-store less so: On revenue, as the delivery war cooled, Local Commerce growth recovered to +10% YoY vs. +0.2% last quarter.

The main driver was a sharp improvement in delivery revenue, from -6% YoY last quarter to +13% this quarter, largely due to lower rider subsidies booked as revenue deductions. Based on our checks, Meituan’s per-order fulfillment cost fell over 15% YoY recently.

Merchant services revenue growth also improved QoQ, but was only +4% YoY, indicating in-store growth remains soft. With a sluggish travel & hospitality backdrop and rising competition from Douyin in in-store, consensus expects in-store revenue growth to keep decelerating QoQ, now down to single digits.

4) New Biz growth keeps accelerating; XiaoXiang strong, Keeta softer: Meanwhile, Innovation/New Biz revenue growth continued to accelerate, +25% YoY vs. +21% last quarter. More specifically, self-operated businesses like XiaoXiang re-accelerated, suggesting a faster rollout rhythm lately.

Merchant services revenue, which largely reflects Keeta’s performance, saw a notable slowdown in growth. Absolute growth is still high, but overseas Keeta may be hitting some speed bumps.

5) Lower subsidies lifted GPM; opex still heavy: On COGS and opex, the key driver of profit improvement was GPM expansion, i.e., better operating fundamentals, while opex stayed elevated. That is why core operating profit remains negative after backing out one-off investment gains.

GPM reached 33.5%, improving meaningfully QoQ and slightly higher YoY, even vs. last year’s Q2 when the delivery war had not been too intense.

By segment, New Biz GPM was broadly stable QoQ, and the improvement came from Local Commerce GPM rising sharply from 32%+ last quarter to 40% this quarter, clearly reflecting lower subsidies. We find most subsidy reductions sit in revenue deductions, with limited change in marketing spend.

On opex, total opex ratio was 34.1%, only down 0.2ppt YoY. Marketing spend still rose about 10% YoY despite lower delivery subsidies. More importantly, R&D and G&A both increased over 20% YoY, likely driven by AI investment and the expansion of overseas Keeta and XiaoXiang.

6) Reporting tweak: From FY26, Meituan slightly adjusted disclosure for sub-revenue. Two main changes: within Local Commerce, commissions and advertising are unified under merchant services; within New Biz, self-operated retail revenue is carved out from 'other revenue' for stand-alone disclosure.

We think the main impacts are: a) harder to dissect at-home vs. in-store performance purely from financials; b) carving out self-operated retail helps track XiaoXiang Supermarket and other key self-operated initiatives.

7) Core highlights below; earnings call transcript here链接:

Dolphin Research view:

As discussed, with the delivery war easing, Meituan is in a healthy improvement cycle on both revenue growth and profit release, which is encouraging. That said, the surprise vs. expectations is more modest once you look past the headlines. The positives and negatives include:

a) Instant retail turned profitable as expected. The market had priced in this critical inflection, but per-order UE at RMB 0.3–0.4 looks slightly above the mid of expectations, meeting bullish forecasts.

b) Less favorable, merchant services growth shows in-store remains under pressure. Macro and competition both weigh.

c) More concerning, while the core business is improving, continued spend on overseas, XiaoXiang, and AI R&D persists. Ex-one-offs, these areas have not reduced losses much and still nearly consume all operating profit generated by the core.

2) Outlook:

In simple terms, Meituan’s earnings and share price will largely be driven by three things -- competition with Alibaba in instant retail, competition with Douyin in in-store, and Meituan’s own investment and progress in New Biz.

Previously, Meituan’s biggest pain point was fighting much larger rivals Alibaba and Douyin on two fronts in its core businesses, while also investing across multiple new directions with limited restraint.

The good news is AI compute and model R&D may be sucking up more capital than expected, often hundreds of bn per quarter. Domestic internet giants, including Alibaba and Douyin, are forced to pull back investment in non-AI areas. These two tough rivals appear to be consolidating their fronts, giving Meituan a window to repair the core.

1) Instant retail: Meituan’s outlook here is the clearest. In the near to medium term, Alibaba’s strategic focus will be on AI, and instant retail will likely see both sides continue to cut subsidies, improving UE. Still, we do not think Alibaba will fully exit delivery, and the offensive initiative lies with Alibaba.

Longer term, once AI spend normalizes, Alibaba could resume subsidy support. Its broader commerce units are now consolidated into one segment, implying ample resources and influence.

Recent checks also suggest delivery subsidies ticked up in Aug, with UE down QoQ, which has worried the market. Management’s outlook for Q3 and H2 UE deserves close attention.

2) In-store battle cooling? Similarly, there are frequent rumors that Douyin is cutting in-store investment, shifting from scale to profit, suggesting competition may be easing. However, this trend is less clear than in delivery.

On one hand, Douyin’s in-store business is not yet profitable, but unlike Alibaba’s Flash Sales, it does not lose over RMB 10bn per quarter. Douyin has less urgency to reduce in-store spend to fund AI. Another signal, reportedly raising monetization rates for certain in-store categories, is not definitive evidence of softer competition.

3) Heavy New Biz spend: Our main concern is overspending outside the core. Ex-one-offs, New Biz plus AI still burn at least RMB 4–5bn per quarter, which basically consumes core profits. It feels like external pressure is easing, yet the company keeps stretching itself.

3) Valuation: Dolphin Research continues to use SOTP. On an optimistic case for delivery, assume FY27 order volume is roughly flat vs. this year as consensus expects a slight decline, and per-order UE recovers to RMB 1. We assign 13x PE, which already embeds a premium vs. e-commerce names trading at 6x–8x given similar growth and competition dynamics.

For Flash Sales, assume FY27 orders grow 15% and UE reaches RMB 0.4 (likely too high near term, more a steady-state assumption). We apply 20x PE, making delivery plus Flash worth approx. HK$ 60.

For in-store, using FY26 profit forecasts (OPM at 26.5%, above market), and given weaker moats and competitive outlook, we apply 12x PE to get about HK$ 35 per share. Total SOTP is roughly HK$ 95, about 20% upside vs. current.

Dolphin Research believes that with continued UE improvement in delivery in the near to medium term, there is a reasonable shot to reach this target. The key risk is that Douyin does not actually pull back in-store subsidies.

Medium to long term, Meituan still faces the threat of Alibaba and Douyin. If either reignites the war, Meituan’s earnings would likely deteriorate again, and this risk is hard to foresee. Thus, if the stock approaches the target, taking profits may be prudent.

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Previous Dolphin Research on Meituan

Earnings comments:

Jun 1, 2026 comments Meituan: AI Diverts the War, Finally Catching a Breath?

Jun 1, 2026 transcript Meituan (Trans): Q2 UE Will Continue to Improve, Likely Turn Positive

Mar 26, 2026 comments Meituan: Three Mountains Pressing, Will Delivery Stay on Its Knees?

Mar 26, 2026 transcript Meituan (Trans): Q1 Delivery Keeps Reducing Losses, Douyin Is Indeed Investing More!

Nov 28, 2025 transcript Meituan (Trans): Q3 Losses Peaked, But Q4 Will Remain Loss-Making

Nov 28, 2025 comments Meituan: Nearly RMB 20bn Loss! Did Alibaba Successfully Raid This Time?

Aug 27, 2025 comments Warm-Up Ate RMB 10bn Profit! Is Meituan’s 'Wolf Is Here' Real?

Aug 27, 2025 transcript Meituan (Trans): Prevent Being Raided, Big Loss Next Quarter

May 26, 2025 comments Sun Before the Storm? Delivery War 'Clouds' Are Gathering

May 26, 2025 transcript Meituan (Trans): Win at All Costs, Q2 Profit Will Decline Significantly YoY

Mar 21, 2025 comments Meituan: War Just Eased, Yet Chasing a 'Second Curve'?

Mar 21, 2025 transcript Meituan (Trans): Overseas Plans Beyond Saudi Still Undecided

Deep dive:

Jun 2, 2023 Facing Douyin, Meituan Cannot Repeat Alibaba’s Mistakes

Dec 16, 2022 Finally Opening Up, Can Meituan Regain the Throne?

Sep 22, 2022 Alibaba, Meituan, JD, PDD All Accepted Fate? Still Betting on Luck

Risk disclosure and statement: Dolphin Research disclaimer and general disclosure