Morgan Stanley: Competition in the food delivery industry is becoming rational, rating Meituan and Alibaba as "Overweight"

Morgan Stanley published a research report stating that the worst competitive period for the food delivery industry has passed, but the rationalization process of the competitive landscape has been very slow. Stricter regulatory "anti-involution" efforts may help further promote competition rationalization and accelerate the narrowing of losses, but the execution has not met expectations so far.

Morgan Stanley expects Alibaba (09988.HK) to continue narrowing its Quick Commerce (QC) losses, reducing from RMB 35 billion in the second quarter of fiscal year 2026 to RMB 22 billion in the third quarter. The bank estimates that losses in the fourth quarter will further narrow to RMB 19 billion to RMB 20 billion, with an estimated total loss of about RMB 60 billion for the entire fiscal year 2027, averaging RMB 15 billion per quarter, lower than RMB 87 billion in fiscal year 2026.

The bank pointed out that Alibaba's management set a target during the fiscal year 2026 third quarter earnings meeting to achieve a total gross merchandise volume of RMB 1 trillion in local lifestyle business by fiscal year 2028 and to achieve profitability by fiscal year 2029. Morgan Stanley believes this is a clear roadmap and timeline for profitability, which helps alleviate market concerns about long-term cash burn, representing positive news. Morgan Stanley has given Alibaba an "Overweight" rating, making it one of its preferred stocks.

The bank believes that whether driven by Alibaba's roadmap to profitability or the regulatory body's anti-involution efforts, the potential rationalization of food delivery competition is positive news for Meituan (03690.HK). Meituan's management pointed out in the third quarter earnings meeting of 2025 that the company still holds two-thirds of the market share in the food delivery order amount exceeding RMB 15, while the market share above RMB 30 is 70%, maintaining a unit economic efficiency gap of RMB 1 to RMB 1.5 per order compared to competitors.

The bank expects that Meituan's full-year profit warning for 2025 also implies that the core local business operating loss in the fourth quarter will be RMB 10 billion, better than the market expectation of RMB 11 billion. However, the bank will pay attention to the intensified competition from Douyin's in-store business. Morgan Stanley has given Meituan an "Overweight" rating