Meituan 2Q26: The Price of Staying Essential

Meituan has proved something important.

Its delivery economics can recover.

But the harder investment question starts after the recovery.

Alibaba can subsidize delivery because it creates value elsewhere. Grocery requires Meituan to own more inventory. And AI may move the customer’s first interaction into someone else’s interface.

Meituan can remain essential through all of this.

The question is what it costs to stay essential and how much cash is left for shareholders afterward.

Delivery economics are recovering. Defending the customer relationship is still expensive.

In September, we described Meituan as the digital bellhop: valuable because it understood the city and could get things done. We expected its operating advantages to outlast competitors’ subsidies. By March, we had separated the durability of that capability from the margins it could earn; by June, we argued that competition had moved into discovery, grocery supply and the customer relationship.

Q2 passes June’s clearest test. We said Core Local Commerce needed to reach breakeven in Q2 or Q3; it earned RMB5.7 billion. But our earlier confidence that competitors’ financial constraints would settle the contest was excessive. Spending can become more disciplined while the battle for customers continues.

The question governing this update is therefore: can Meituan preserve its influence over local purchasing decisions at a cost that leaves attractive earnings for shareholders? Q2 makes me more confident in the durability of its operating capabilities. The evidence that those capabilities will produce attractive returns after reinvestment remains incomplete.

The recovery has a price

Meituan’s underlying mechanism is straightforward. More orders within the same neighborhoods can improve courier utilization, merchant selection and delivery reliability. Better service encourages repeat purchases, reinforcing local density; the mechanism breaks economically when keeping those customers costs more than the additional density saves.

This quarter showed that Meituan can reduce subsidies and recover earnings. Revenue rose 14.4% to RMB104.6 billion, and adjusted net profit reached RMB2.5 billion against StreetAccount’s RMB736 million expectation. Core Local Commerce supplied 84% of the sequential improvement in group operating profit.

The recovery matters, but the segment includes in-store services, hotels and travel alongside delivery. Management separately disclosed positive food and non-food delivery unit economics. Neither measure establishes that every order is profitable or that the former margin structure has returned.

Regulatory pressure supports greater discipline, but management’s outlook describes a gradual adjustment:

“Even so, we expect UE to stay positive in Q3 as we continue to optimize operational efficiency. Specifically, the industry subsidy level is still much higher than 2024 level, and it will take a few quarters to normalize. At the same time, seasonal headwinds will weigh meaningfully on our UE.”

Summer courier costs, marketing and occupational injury insurance will absorb some gains. Management also expects in-store margins to decline in Q3 and Q4 as investment increases. I expect Q3’s core margin to retreat from 7.9%; sustaining more than 5% would be a reassuring result, rather than company guidance.

The accounting reinforces the need for care. Some incentives reduce reported revenue, so withdrawing them can improve both sales and profit without equivalent transaction growth. Management describes stronger retention, frequency and order mix, but provides insufficient figures to measure how much demand survives without incentives.

The stock’s response is less mysterious when viewed through future earnings. By September 22, the shares were 5.5% below their pre-results close. Between August 27 and September 22, FactSet’s 2027 normalized EPS mean fell 5.8%, leaving the corresponding forward P/E almost unchanged at 16.5 times. The analyst samples changed, and this does not establish trading causality. It does show that the stronger quarter failed to lift the following year’s aggregate earnings expectation.