Meituan 1Q26: Peak Losses Evident, Moat Solid Amid Ongoing Challenges

Introduction: Meituan is at a turning point, trading short-term pain for long-term control.

Meituan's Q3 2025 performance in the local life services sector was impacted by intense competition, with temporary pressure. The company achieved total revenue of RMB 95.5 billion, a year-over-year increase of 2%. However, the core local commerce segment turned to an operating loss of RMB 14.1 billion due to increased subsidies and investments; the overall adjusted net loss was RMB 16 billion. User metrics remained strong, with annual transacting users surpassing 800 million, daily active users (DAU) on the app growing over 20% year-over-year, food delivery monthly transacting users hitting a record high, and instant retail daily order peaks exceeding 150 million.

In the short term (Q4 2025–Q1 2026), the trend of losses is expected to continue due to heightened competition. Core local commerce and overall operating losses are projected to remain significant in Q4, but the peak of losses has likely been reached, and competition intensity may gradually return to rational levels. Flash Purchases, as the second growth curve, continued to grow rapidly, supported by clear policy backing for instant retail. In the medium to long term, Meituan, leveraging network effects, operational efficiency, and policy moats, is expected to transition from 'growth anxiety' to 'profit recovery + new business contribution.' Seasonal tailwinds during the Spring Festival in 2026, combined with easing competition, could lead to a stabilization and rebound in performance.

Highlights and Key Points from Q3 2025

Overall, this quarter marked the most competitive phase, with Meituan choosing strategic investments to defend market share. Its user base was further consolidated, though short-term profit sacrifices were evident.

Revenue Structure:Core local commerce revenue reached RMB 67.4 billion, a year-over-year decrease of 2.8%, mainly affected by intensified subsidy battles in food delivery; new business segments (including Flash Purchases, overseas Keeta, etc.) generated revenue of RMB 28 billion, up 15.9% year-over-year, with losses narrowing sequentially to RMB 1.3 billion.

Users and Orders:Annual transacting users surpassed 800 million, DAU grew over 20% year-over-year; instant retail order peaks exceeded 150 million, with average delivery times at 34 minutes, significantly enhancing user frequency and stickiness.

Reasons for Profit Pressure:To counter irrational competition, the company ramped up subsidies for delivery riders, merchant support, and ecosystem investments, causing sales costs to rise to 73.6% of revenue (up 12.9 percentage points year-over-year), while sales and marketing expenses surged 90.9% year-over-year.

Positive highlights:Flash purchasing leads instant retail, launching the 'Brand Official Flagship Lightning Warehouse,' with sales on the first day of Double 11 surging by 300%; overseas Keeta accelerates expansion, with Hong Kong operations already profitable, and the Middle East and Brazil markets rapidly expanding; R&D investment reached 6.9 billion yuan, a year-on-year increase of 31%, accounting for 7.3%.

Management statement:Emphasized opposition to low-quality, low-price internal competition, firmly consolidating core competitiveness, and iterating services around the 'Retail + Technology' strategy.

Outlook for the next few quarters (4Q2025–1Q2026)

Based on company guidance and industry dynamics, we believe that despite intensifying competition, Meituan’s 'irreplaceability' remains strong (fulfillment scheduling, rider network, policy platform status). Flash purchasing becomes the second growth curve, with precise policy support for 'digital consumption infrastructure.' Short-term losses are strategic investments; medium-term (2026Q1) outperformance is highly probable, driven by the Spring Festival and threefold New Year goods demand. Our outlook for the next few quarters is as follows:

Total volume forecast:

Total revenue for Q4 2025 is expected to reach 98-102 billion yuan (YoY +10-15%), with narrowing adjusted operating loss; Q1 2026 revenue at 105-110 billion yuan (YoY +18-22%), benefiting from seasonality and a low base, potentially seeing significant rebound.

Valuation:

The current share price corresponds to about 25-30x P/E for 2025 (considering loss impact), and post-profit recovery in 2026, valuation may drop below 20x. Amid policy countermeasures and high flash purchase growth, if Q1 2026 performance exceeds expectations, it could become a catalyst for valuation recovery. In the long term, if flash purchasing/overseas replicates the food delivery network effect, the company could upgrade to an 'all-category local instant retail infrastructure,' shifting the valuation center to a reasonable range of 30-35x P/E.

Risks:

1. Competition continues to exceed expectations: If subsidies from Douyin/Ali/ JD.com prolong, profitability of in-store ads and food delivery will face further pressure;

2. Rising rider costs: The implementation of social security policies in multiple regions may compress the unit economics (UE) of food delivery.

3. Long profitability cycle for new businesses: High fulfillment costs for on-demand purchases of 3C products, and large initial investments for overseas expansion (e.g., Brazil), making it difficult to contribute profits in the short term.

4. Weak macro consumption: Domestic demand recovery has fallen short of expectations, affecting overall order frequency and average order value.

Summary:Meituan is at a turning point, with short-term pain paving the way for long-term control. It is recommended to watch for signs of rational competition returning, and maintain an active allocation.

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