Meituan's Strategic Resilience Amid China's Food Delivery Price War: A Calculated Bet for Long-Term Value

In the high-stakes arena of China's food delivery and instant commerce sector, Meituan (03690.HK) has emerged as a standout player, navigating a brutal price war with a blend of operational discipline, technological innovation, and strategic foresight. As rivals like JD.com and Alibaba's Ele.me pour billions into subsidies to capture market share, Meituan's ability to maintain profitability while investing in long-term value creation raises critical questions for investors: Is the company's current valuation a mispriced opportunity, or does it reflect the structural risks of a hyper-competitive market?

Financial Resilience in a Subsidy-Driven War

Meituan's Q1 2025 financial results underscore its unique position in the sector. Revenue grew 18.1% year-over-year to RMB86.6 billion, with adjusted net profit nearly doubling to RMB10.9 billion. This outperformance stems from a strategic pivot toward high-margin services like Instashopping, which now accounts for over 60% of food delivery revenue. The Core Local Commerce segment, Meituan's cash cow, achieved a 21% operating margin in Q1 2025—up from 17.8% in the prior year—while the New Initiatives segment, though still unprofitable, narrowed its operating loss to RMB2.3 billion.

This margin expansion contrasts sharply with the struggles of competitors. JD.com and Ele.me, which have launched RMB10 billion subsidy campaigns, are hemorrhaging cash. Meituan's CEO, Wang Xing, has acknowledged the “irrational discounting” but emphasized the company's focus on structural investments—such as AI-driven logistics and merchant support—rather than short-term margin erosion. With RMB180.4 billion in cash and equivalents, Meituan has the financial flexibility to outlast rivals in a prolonged subsidy war.

Regulatory Risks and the Shadow of Antitrust Scrutiny

The Chinese government's crackdown on anti-competitive practices adds a layer of complexity. In May 2025, the State Administration for Market Regulation (SAMR) summoned Meituan, JD.com, and Ele.me to address excessive discounting, warning of penalties under the revised 2025 Anti-Unfair Competition Law. Practices like algorithmic manipulation and predatory pricing are under scrutiny, and Meituan's dominant market share—500 million annual active users—makes it a prime target.

While Meituan's CEO has publicly warned of a “bubble” in order volumes, the company's proactive approach—such as voluntary fee-waiver programs for small merchants—has helped preempt regulatory backlash. However, the risk of margin compression remains, particularly as rivals escalate subsidies. For instance, Alibaba's Taobao Instant Commerce hit 200 million daily orders in 2025, but gross transaction values lag behind, signaling a potential deflationary spiral.

International Expansion: A Double-Edged Sword

Meituan's overseas ambitions, including a USD1 billion investment in Brazil and the expansion of its Keeta brand into the Middle East, offer a path to growth but also introduce new risks. While Keeta has captured 44% market share in Hong Kong, the company's cost of revenues rose 27% in Q1 2025 due to international expansion. This trade-off between geographic diversification and margin preservation will be critical for long-term value creation.

Investment Thesis: Mispriced Opportunity or Bear Case?

For long-term investors, Meituan's strategic resilience is compelling. The company's ecosystem advantages—500 million active users, a 50-order-per-year engagement rate, and a 10.6% net profit margin—position it as a durable winner in a fragmented market. Its RMB100 billion three-year investment plan, focused on AI, logistics, and merchant support, further strengthens its moat.

However, structural risks cannot be ignored. The instant commerce sector is projected to surpass ¥2 trillion in sales by 2030, but this growth will likely come at the expense of profitability. Meituan's food delivery profit per order is expected to drop 60% in Q2 2025, and regulatory interventions could force a reevaluation of subsidy strategies.

Conclusion: A Calculated Bet for Patient Capital

Meituan's current valuation reflects both its operational strengths and the uncertainties of a hyper-competitive market. While the stock has fallen 20% in 2025 amid investor concerns, its strong cash flow, margin resilience, and international expansion efforts suggest a mispriced opportunity for patient investors. However, those wary of regulatory risks and margin compression may prefer to wait for clearer signs of stabilization in the subsidy war.

For now, Meituan's strategic focus on high-margin services, technological innovation, and ecosystem integration offers a compelling case for long-term value creation. As the price war evolves, the company's ability to balance growth with profitability will determine whether it remains a market leader or becomes a cautionary tale in the annals of instant commerce.