Meituan's Profit Surge Signals Dominance in China's Instant Commerce Race

The rapid evolution of China's on-demand economy has turned instant commerce into a battleground, with Meituan (3690.HK) proving its mettle in Q1 2025. Despite intensifying competition from Alibaba and JD.com, Meituan delivered a 18.1% revenue surge to 86.6 billion yuan and a staggering 87.3% net profit jump to 10.1 billion yuan, reinforcing its position as the sector's most formidable player. This article explores how Meituan's operational excellence, ecosystem scale, and strategic investments are fortifying its moat in a fiercely contested market—and why investors should take notice.

Core Commerce: The Engine of Profitability

At the heart of Meituan's success is its core local commerce segment, which accounts for 74% of total revenue. The segment grew 17.8% year-over-year to 64.3 billion yuan, while operating profit surged 39.1% to 13.5 billion yuan. The operating margin expanded to 21%, up 3.2 percentage points from a year earlier—a testament to razor-sharp cost discipline.

This segment's resilience stems from Meituan's unmatched ecosystem integration, which combines food delivery, in-store services, hotel bookings, and flash sales into a seamless experience. For instance:
- Food delivery saw rising engagement among medium-to-high-frequency users, driven by initiatives like Pin Hao Fan (premium dishes) and Shen Qiang Shou (skill-focused service providers).
- The Ming Chu Liang Zao initiative, which subsidizes merchants adopting food safety transparency, strengthened trust and loyalty.

The result? A virtuous cycle: higher user retention, merchant adoption, and delivery density lower unit costs, enabling Meituan to undercut rivals without sacrificing margins.

New Businesses: Progress Amid Prudence

While the core segment leads, Meituan's new initiatives—including grocery retail and overseas expansion—showed incremental progress. Revenue rose 19.2% to 22.2 billion yuan, while operating losses narrowed 17.5% to 2.3 billion yuan. This reflects disciplined capital allocation, with losses now 10.2% of segment revenue, down from 14.8% a year ago.

The company's global ambitions are particularly intriguing. Its Keeta service in Saudi Arabia has achieved 80% market share, and a Brazilian launch looms—a strategic move to diversify revenue and leverage its logistics know-how in emerging markets.

Competitive Pressures: Meituan's Defensive Moat

The instant commerce space is no longer a two-horse race. JD.com's 100,000-rider army and Alibaba's aggressive subsidies in grocery delivery have intensified price wars. Yet Meituan's scale and data assets create an insurmountable barrier for competitors:
1. Network Effects: With 630 million annual active users and 9.8 million merchants, Meituan's platform benefits from unmatched liquidity.
2. Data-Driven Optimization: Its AI-powered logistics system routes deliveries 15% faster than rivals, reducing costs and improving user satisfaction.
3. Merchant Ecosystem: Free tools for small businesses—like digital marketing and inventory management—lock in SMEs, who account for 70% of its merchant base.

These advantages are hard to replicate. Even as competitors pour capital into subsidies, Meituan's unit economics remain superior: its food delivery gross merchandise value (GMV) per rider is 20% higher than JD.com's.

Regulatory Risks: Navigating the Terrain

China's regulators have targeted platform fees, proposing caps on delivery commissions. While this could compress margins, Meituan has already diversified its monetization. For instance, its “subscription + commission” model in flash sales and hotel bookings now contributes 12% of core revenue, reducing reliance on delivery fees.

Why Buy Meituan Now?

The stock has underperformed in 2025, down 15% year-to-date and slipping 6.4% post-earnings—a knee-jerk reaction to technical factors like overbought sentiment. Yet fundamentals remain robust:
- Adjusted net profit of 10.9 billion yuan tops estimates, with a 15% margin expansion trajectory.
- Analysts maintain a “Buy” rating, targeting HK$130—16% above current levels.
- The 100 billion yuan three-year investment plan in merchant support and food safety underscores long-term vision.

Conclusion: A Leader's Time to Shine

Meituan's Q1 results aren't just a victory lap—they're a blueprint for dominance. Its core business fuels profit growth, new ventures show discipline, and its ecosystem defies disruption. With China's instant commerce market set to hit 10 trillion yuan by 2027, Meituan's scale and operational prowess position it to capture a disproportionate share.

For investors seeking exposure to China's on-demand boom, Meituan's current dip is a buying opportunity. Its moat is widening, its cash flows are resilient, and its global ambitions open new frontiers. The question isn't whether Meituan will lead—it's already doing so. The question is: will you miss the train?