Barclays Maintains Underweight on Meituan: Earnings Recovering but Margins Unlikely to Return to Peak
nashnova research
Meituan's core local commerce swung back to profit after three straight losing quarters, but the 7.9% margin is barely two-fifths of the ~20% peak before the subsidy wars. Barclays holds its underweight rating and $10 target, seeing downside defense but limited upside.
It's profitable again — so why does the broker say sell?
Q2 revenue rose 13.9% year-on-year to RMB 104.6 billion, slightly beating expectations. Core local commerce margin turned positive at 7.9%.
Yet adjusted net profit was only RMB 2.5 billion — 41.1% below Barclays' estimate. The gap came almost entirely from sales and marketing expenses overshooting forecasts by 38.6%.
This means → Meituan is making money again, but most of it is flowing straight back into subsidies and marketing. The margin is nowhere near the ~20% pre-subsidy-war peak.
Food delivery is recovering — can it last?
Delivery revenue returned to high-single-digit growth, driven by higher order frequency, better retention, and rising average order value. Unit economics — whether each order makes money — also turned positive.
Management itself flagged a warning: Q3 margins may soften sequentially. Peak-season marketing, higher rider incentives, and a nationwide rider injury-insurance mandate effective July 1 will structurally lift costs.
In plain terms = delivery just started earning per order, but a fresh wave of cost pressure is arriving immediately. Normalizing subsidy levels will take several more quarters.
In-store and travel has the best margins — but those are headed down too?
In-store, hotel, and travel posted a 30% margin in Q2, the highest among all segments, improving quarter-on-quarter.
Management expects margins to dip in Q3 and Q4 as it ramps up investment. Douyin (TikTok China) keeps pressing in quick-service restaurant deals, though Meituan still leads in total in-store dining transaction value.
This reflects a reality: even in its most profitable segment, Meituan cannot coast — competitors aren't backing off, so spending can't stop.
Are the new businesses making money overseas?
The new-initiatives segment grew revenue 25% year-on-year in Q2. Losses narrowed to RMB 1.7 billion, a -5.3% margin, improving 2.6 percentage points sequentially. Management expects full-year 2026 losses to stay at or below 2025 levels.
Overseas highlights: Keeta's Hong Kong operation turned profitable in October 2025; Saudi Arabia broke even in July this year, less than a year after launch. Brazil is focused on São Paulo — roughly 25% of the country's delivery market — with broader expansion on hold.
Domestically, Xiaoxiang Supermarket has expanded to 68 cities with 5 offline stores. Community-grocery brand "Happy Monkey" has opened 40 stores, emphasizing small formats, high private-label penetration, and local delivery.
What is Barclays' valuation logic?
Barclays slashed its 2026 adjusted EBITDA forecast by 54.5% to RMB 7.8 billion, mainly reflecting core-local-commerce margin pressure, while nudging its revenue forecast up 2.5% on new-business strength.
Valuation method: 10× 2027 expected EV/EBITDA — enterprise value divided by earnings before interest, taxes, depreciation, and amortization — plus net cash. Target price stays at $10. As of August 28, Meituan's US-listed shares (MPNGF) traded at $10.40, implying roughly 3.8% downside.
This means → Barclays sees the current price as fully reflecting available information — no bargain, slightly overvalued.
What is Meituan's biggest long-term risk?
Alibaba's aggressive re-entry into instant retail, with no intention of turning a profit there in the near term — this means → the industry's earnings ceiling has been permanently lowered. Meituan's era of near-80% market dominance may be over.
With AI-investment themes driving market sentiment, Meituan has yet to position itself as a core AI beneficiary among peers, further capping re-rating potential.
Put simply = earnings power is recovering, but the recovery's endpoint is likely much lower than the old peak — and the market is chasing AI stories. Meituan is on the wrong side of both trends.
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