Meituan suffers a loss of 24.3 billion yuan amid pressure from Alibaba and JD.com

Meituan, China's leading O2O service provider, expects to record a maximum loss of 24.3 billion yuan in 2025, equivalent to a loss of approximately 15.7 billion yuan in the fourth quarter.

Key points:

Meituan reported a loss exceeding $2 billion in the fourth quarter, but this marked an improvement from the $2.7 billion loss in the third quarter.

Last week, Chinese market regulators held discussions with Meituan, Alibaba, and JD.com in an effort to cool down overheated competition in the emerging instant retail sector.

This article was authored by Yang Ge

It is difficult to put a positive spin on a loss amounting to about 15.7 billion yuan ($2.3 billion), which is based on estimates... $MEITUAN-W (03690.HK)$released last FridayProfit warning...indicating its approximate figure for the fourth quarter. The only silver lining is that this loss improved slightly compared to the third quarter when the company recorded a staggering loss of 18.6 billion yuan.

This may signal that Meituan’s toughest period could be bottoming out, but the company remains entrenched in a fierce battle for dominance in China’s emerging instant retail market against e-commerce giants... $Alibaba (BABA.US)$ and $JD.com (JD.US)$...a campaign that has persisted for nearly a year, starting in early spring last year when Alibaba and JD.com almost simultaneously made significant moves into the space.

Chinese market regulators have repeatedly intervened in attempts to ease competition. Previously, the three companies had spent billions of dollars subsidizing consumers, retailers, and restaurants to attract more transactions to their platforms. Signals sent by some merchants last autumn showed that Alibaba, JD.com, and Meituan were indeed dialing back their aggressive tactics, which might also explain why Meituan’s losses narrowed slightly in the fourth quarter.

However, if anyone thinks the war has ended, that would be overly optimistic. According to multiple media reportsreported, the State Administration for Market Regulation once again summoned six large internet companies last week to issue another warning about excessive competition. In addition to Meituan, Alibaba, and JD.com, Tencent, Baidu, and Douyin were also included in this round of regulatory discussions.

This shows that competition in this field remains extremely intense, and it is still unclear who will back down first. As instant retail is at the core of this battle, and given that this business is also Meituan’s main revenue source, Meituan appears to be the most vulnerable in this war of attrition; by comparison, Alibaba and JD.com still derive their primary income from their online e-commerce platforms. A sign reflecting changing times is that the instant retail business, referred to as 'delivery services' in Meituan's financial reports, fell from its largest revenue source to third place in the third quarter of last year.

According to the profit warning released last Friday, Meituan expects to record a net loss of between 23.3 billion yuan and 24.3 billion yuan for the whole of last year, compared to a profit of 35.8 billion yuan the previous year. The dramatic reversal of approximately 60 billion yuan (about $8.6 billion) in profit and loss within just one year fully demonstrates the ferocity of this price war.

A simple calculation shows that the midpoint of the loss range corresponds exactly to the 15.7 billion yuan loss mentioned earlier for the fourth quarter, which narrowed slightly from the even larger loss of 18.6 billion yuan in the third quarter. The company barely remained profitable in the second quarter of last year, recording a profit of 365 million yuan, but this figure plunged 97% year-on-year.

This price war has also severely impacted Meituan's stock price, with its market value halving over the past 52 weeks. By contrast, JD.com's share price fell by about 30% during the same period, while Alibaba's share price rose by about 30%.

“Unprecedented” competition

Meituan was quite direct in explaining the sharp reversal in its performance, attributing it to the “unprecedentedly fierce industry competition” last year and thus making a “strategic” increase in investment across its entire ecosystem. Meituan stated that these investments “include increasing marketing and promotional efforts, raising incentives for delivery riders to ensure service quality, and proactively allocating resources to support merchants in maintaining their operational efficiency.”

This substantial spending was already evident in Meituan’s third-quarter earnings report last year, where marketing expenses surged from 18 billion yuan (accounting for about 19% of revenue) a year ago to 34.3 billion yuan (accounting for about 36% of revenue). This is also reflected in the company’s cost of revenue, which rose 24% year-on-year due to merchant incentive programs, far outpacing the mere 2% growth in actual revenue.

Meituan also partially attributed this to its recent overseas expansion under the外卖 brand Keeta. Keeta has faced fierce competition abroad, including from local operators and at least one Chinese competitor — in Brazil.Didi Chuxing(DiDi Global). In addition to launching services in Brazil last October, Keeta has also entered markets such as Saudi Arabia, the UAE, Kuwait, and Qatar, and more recently began operating in Hong Kong. This business is personally overseen by Meituan founder Wang Xing, highlighting the company's emphasis on this segment.

Meituan stated that due to ongoing competition, losses are expected to continue into this quarter. However, the company also sought to reassure investors, stating that its operations remain stable and normal, adding that it has sufficient cash reserves to support business development. Despite this, Meituan’s stock price continued to weaken on Monday (the first trading day after issuing a profit warning), falling 2.2% shortly after the market opened.

In terms of mergers and acquisitions, Meituan has long been one of the most skilled and efficient companies in China’s internet sector, which is one of the reasons we are optimistic about it and believe it will ultimately emerge stronger from this round of price wars. Initially, the company gained recognition as China’s version of $Groupon (GRPN.US)$, focusing on group-buying discounts; significant progress was made after merging with "$Yelp Inc (YELP.US)$”Dianping in 2015. In 2018, Meituan again drew attention for acquiring Mobike, one of China’s leading bike-sharing operators. Both acquisitions have performed well and continue to maintain leadership in their respective fields.

Two weeks ago, Meituan once again made headlines for an acquisition when the companyannouncedacquired China’s leading online fresh grocery platform for $717 million, $Dingdong (DDL.US)$. Given that ordering fresh groceries online is one of the largest segments within instant retail, this deal is seen as a key step in the consolidation of China’s instant retail industry. Additionally, this acquisition complements Meituan’s own Xiaoxiang and Kuaidon online grocery services.

However, even though DingDong’s exit from the competition may ease pressures somewhat, a similar situation is unlikely to occur with Alibaba and JD.com. Both are large-scale players, and both appear determined to stay in the instant retail space in the short term. This means that although the price war in instant retail may cool slightly, the battle is still likely to persist through much of the year, even if Chinese market regulators attempt to lower tensions.

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