Meituan's Earnings Volatility and Strategic Survival in China's Food-Delivery Price War

China's food-delivery sector has become a battleground for tech giants, with Meituan (03690.HK) at the center of a brutal price war. As the company prepares to release its Q2 2025 earnings on August 27, investors are grappling with a critical question: Can Meituan defend its 60–70% market share while absorbing margin compression from aggressive subsidies? The answer will determine whether the current bearish positioning in its stock and options reflects over-pessimism or a justified risk.

The Margin Squeeze: A Double-Edged Sword

Meituan's Q2 2025 revenue is projected to grow by 11.9–14.9% year-on-year, reaching RMB92.067–94.534 billion, driven by its Core Local Commerce segment and instant retail expansion. However, this growth comes at a cost. Analysts forecast a 38.9% decline in non-GAAP adjusted net profit to RMB8.312 billion, as profit per food delivery order plummets by 60% to RMB0.74. The company's operating profit margin for food delivery is expected to fall to 10.8%, down from 17.8% in Q1 2025.

The margin compression is not accidental. Rivals like JD.com and Alibaba have poured RMB10+ billion into subsidies, slashing delivery fees and offering discounts to consumers. Meituan's response—expanding group-buying services and issuing large consumer vouchers—has intensified the subsidy war. While this strategy preserves market share, it erodes profitability. The question is whether Meituan can sustain this model without triggering a collapse in margins.

Strategic Resilience: AI, Logistics, and Global Expansion

Meituan's ability to endure the price war hinges on its strategic investments. The company has allocated RMB100 billion to AI-driven logistics, optimizing delivery routes and reducing rider costs. This technology edge, combined with its super-app ecosystem (integrating food delivery, in-store deals, and instant retail), creates network effects that rivals struggle to replicate.

Moreover, Meituan's international expansion via Keeta in the Middle East and Brazil offers a long-term hedge. While these ventures currently drag on profitability, they position the company to scale beyond China's saturated market. Analysts like Nomura argue that Meituan's “winner-takes-all” dynamics in the price war could solidify its dominance, even if short-term margins suffer.

Bearish Options: Over-Pessimism or Justified Risk?

The bearish sentiment in Meituan's options market is evident. Short selling stands at $1.31 billion with a short-sell ratio of 23.655%, reflecting investor skepticism. Broker forecasts for Q2 2025 non-GAAP adjusted net profit range from RMB7.229 billion to RMB10.062 billion, with a median decline of 38.9%. Goldman Sachs, for instance, predicts a 46.9% drop, the most pessimistic among major institutions.

However, this bearishness may be overblown. Meituan's balance sheet remains robust, with no net debt and RMB100 billion in cash reserves. Its Core Local Commerce segment, which accounts for 74% of revenue, has shown resilience, with margins improving from 17.8% to 21% in Q1 2025. Additionally, the recent regulatory truce with JD.com and Alibaba—mandated by China's State Administration for Market Regulation—could temper subsidy-driven competition in the long term.

Investment Implications: A Calculated Bet

For investors, Meituan's Q2 2025 earnings will be a litmus test for its strategic resilience. A decline in adjusted net profit is likely, but the key will be whether the company can maintain revenue growth and market share above 60%. If Meituan's AI-driven logistics and international expansion begin to offset margin losses, the stock could rebound. Conversely, a failure to control costs or a regulatory crackdown on subsidies could justify the bearish positioning.

Recommendation:
- Bullish investors should consider a buy if earnings show improved efficiency in Core Local Commerce and a clear path to margin recovery.
- Bearish investors may hedge with put options, given the short-term volatility, but should avoid over-leveraging.
- Long-term investors should focus on Meituan's AI and global expansion, which could unlock value beyond the current price war.

In conclusion, while Meituan's earnings volatility reflects the harsh realities of the food-delivery price war, its strategic depth and financial strength suggest the bearish sentiment is partially overblown. The company's ability to balance short-term pain with long-term gains will define its next chapter—and its stock's trajectory.