Meituan's Margin Squeeze in the Food-Delivery Price War: A Test of Strategic Resilience and Long-Term Value

The food-delivery sector in China has become a battlefield of subsidies, and Meituan (3690.HK) is bearing the brunt of the price war. In Q2 2025, the company's Core Local Commerce (CLC) segment—its lifeblood—saw operating profit margins plummet to 5.7%, a 19.4 percentage-point drop year-over-year. This collapse was driven by rivals like JD.com and Alibaba's Ele.me, which poured over RMB10 billion into discounts, forcing Meituan to match their spending to defend its 60–70% market share. While the pain is real, this margin compression is not a sign of weakness but a calculated trade-off to secure long-term dominance in a hyper-competitive market.

The Short-Term Pain: A Price War That's Cutting Profits

Meituan's Q2 results were brutal. The company's profit per food delivery order fell by 60% to RMB0.74, and its adjusted net profit dropped 10.1% year-on-year. The CLC segment's operating margin shrank to 20% in Q2 2025, down from 21% in Q1 2025, while the broader operating profit margin (OPM) fell to 10.9%. These numbers reflect the cost of aggressive user incentives, including expanded group-buying services and large consumer vouchers, which are essential to retaining high-frequency users in a market where customer loyalty is fickle.

The bear case is clear: investors are watching a company that's burning cash to defend its throne. Morgan Stanley even forecasts a 24% year-over-year decline in food delivery operating profit. But this narrative ignores Meituan's playbook. The company has always prioritized market share over short-term margins, and its CEO, Wang Xing, has made it explicit: “We're willing to bleed for the long-term.”

The Long-Term Play: AI-Driven Efficiency and Global Expansion

What sets Meituan apart is its ability to turn short-term pain into long-term gain. The company is investing RMB100 billion over three years in AI and logistics, a move that's already paying dividends. AI-powered route optimization has reduced delivery times by 20.96% and courier travel distances by 23.77%, saving USD 230 million annually. These efficiency gains are not just cost-saving—they're a moat. Competitors can't replicate Meituan's algorithmic prowess overnight, and its logistics network, which handles 60% of deliveries, is a formidable barrier to entry.

Moreover, Meituan is diversifying its revenue streams through international expansion. Its Keeta platform is scaling in Saudi Arabia and Hong Kong, with breakeven targets set for 2026. While these ventures are currently unprofitable, they represent a hedge against China's saturated market and a chance to replicate its domestic success abroad. The company's Super App ecosystem, which connects 81 million monthly active users with 5 million couriers, also creates network effects that are hard to replicate.

Financial Resilience: A Strong Balance Sheet as a Buffer

Critics often overlook Meituan's financial strength. The company holds RMB100 billion in cash reserves and has no net debt, giving it the flexibility to weather prolonged price wars. This liquidity is a critical advantage over rivals like Ele.me, which rely on external funding. Additionally, a regulatory truce mandated by China's State Administration for Market Regulation has begun to curb excessive subsidy competition, potentially stabilizing the sector in the medium term.

Investment Implications: Is This a Temporary Setback or a Structural Risk?

For investors, the key question is whether Meituan's margin compression is temporary or structural. The data suggests the former. While the CLC segment's operating margin has fallen, it improved from 17.8% in Q1 2024 to 21% in Q1 2025, indicating that AI-driven efficiency gains are starting to offset some of the pressure. Meanwhile, the company's international expansion and B2B tools—such as AI-powered solutions for merchants—are creating new revenue streams.

The bearish sentiment is reflected in a $1.31 billion short-selling position and a 23.655% short-sell ratio. However, this may be over-pessimism. Meituan's strategic investments in AI, logistics, and global markets are positioning it to dominate the next phase of the food-delivery sector. The company's ability to convert mid-frequency users into high-frequency ones through initiatives like Pinhaofan and Shenqiangshou also suggests that its customer base is more resilient than it appears.

Final Verdict: Buy for the Long Haul

Meituan's margin squeeze is a temporary challenge, not a death knell. The company's strategic resilience—its AI-driven logistics, global expansion, and financial firepower—positions it to emerge stronger from the price war. While the road to profitability may be bumpy, the long-term value creation is undeniable. Investors who can stomach the near-term volatility should consider Meituan a compelling buy, especially as its international markets approach breakeven and its AI investments begin to scale.

In the end, this is a classic case of “buy the company, not the quarter.” Meituan is not just surviving the price war—it's building a fortress for the future.