MEITUAN Meituan's Profit Collapsed 98% Before Anyone Called It a Price War

The Price War's First Real Casualty

This filing — Meituan's interim report for the six months ended June 30, 2025 — shows real, current damage: standalone Q2 2025 operating profit collapsed 98.0% year-over-year, from RMB11.26 billion to just RMB226.4 million, even as revenue kept growing 11.7% to RMB91.8 billion. Selling and marketing expenses jumped 51.8% year-over-year to RMB22.5 billion, rising from 18.0% to 24.5% of revenue in a single quarter — a swing large enough on its own to account for nearly the entire profit collapse, since gross profit fell only 10.3% while operating profit fell 98.0%.

Six-month figures tell the same story with less shock value, because Q1 2025 was still a normal quarter: H1 2025 revenue grew 14.7% to RMB178.4 billion, but operating profit fell 34.5% to RMB10.8 billion and profit for the period fell 37.7% to RMB10.4 billion. Adjusted EBITDA fell 34.6% to RMB15.1 billion. A reader following only the headline revenue-growth number would miss that the trend underneath it had already turned sharply negative by mid-2025.

The Prescription

Meituan should treat this quarter's numbers as a real inflection, not a one-off cost anomaly. Core Local Commerce's Q2 2025 operating margin fell to 5.7% from 25.1% a year earlier — a 19.4 percentage-point collapse that is, on its own, a bigger single-quarter margin swing than most companies see in years. If the competitive pressure the filing itself describes as "intensified competition" continues into subsequent quarters, this level of margin compression could deepen further rather than reverse — and the filing's own management commentary stays notably matter-of-fact about it, without the urgency the magnitude of the swing might otherwise warrant.

What's genuinely good here and worth protecting: revenue kept growing through the margin compression (+11.7% Q2, +14.7% H1) rather than shrinking, meaning Meituan chose to defend market share with spending rather than cede volume — a defensible strategy if it's temporary, a much worse one if it becomes the new steady state. The buyback slowing to almost nothing this half (HKD391.8 million, versus RMB28.2 billion for all of FY2024) suggests management itself was already treating cash more cautiously by mid-2025, before the balance sheet actually needed it.

Key Financial Metrics

Three and six months ended June 30, 2025 vs. same periods 2024 (unaudited, reviewed by the Auditor)

Metric	Q2 2025	Q2 2024	YoY
Revenues	Rmb91,840M	Rmb82,251M	✅ +11.7%
Gross profit	Rmb30,414M (33.1% margin)	Rmb33,890M (41.2% margin)	⚠️ -10.3%, margin -8.1pp
Selling and marketing expenses	Rmb22,519M (24.5% of rev.)	Rmb14,832M (18.0% of rev.)	⚠️ +51.8%
Operating profit	Rmb226M	Rmb11,257M	⚠️ -98.0%
Adjusted EBITDA»	Rmb2,782M	Rmb14,997M	⚠️ -81.5%
Profit for the period	Rmb365M	Rmb11,352M	⚠️ -96.8%
Adjusted net profit	Rmb1,493M	Rmb13,606M	⚠️ -89.0%

Metric	H1 2025	H1 2024	YoY
Revenues	Rmb178,398M	Rmb155,527M	✅ +14.7%
Operating profit	Rmb10,792M	Rmb16,466M	⚠️ -34.5%
Adjusted EBITDA	Rmb15,084M	Rmb23,068M	⚠️ -34.6%
Profit for the period	Rmb10,422M	Rmb16,721M	⚠️ -37.7%
Net cash from operating activities	Rmb14,905M	Not disclosed this filing	-
Cash and cash equivalents (period-end)	Rmb101,656M	-	vs. Rmb70,834M at Dec 31, 2024, ✅ +43.5%

⚠️ On FCF: this interim report discloses "net cash flows used in/generated from investing activities" combining treasury investment purchases/sales and capital expenditures into a single lump figure, the same limitation flagged in the H1 2023 post, so free cash flow can't be isolated from what's disclosed this quarter.

Balance sheet	Jun 2025	Dec 2024	Change
Total assets	Rmb330,198M	Rmb324,355M	✅ +1.8%
Total liabilities	Rmb145,901M	Rmb151,751M	✅ -3.9%
Total equity	Rmb184,298M	Rmb172,604M	✅ +6.8%
Gearing ratio» (borrowings + notes payable / equity attributable to holders)	~24%	~32%	✅ Improved

The gearing improvement (32% to 24%) is almost entirely a convertible-bond story, not organic deleveraging — see Beyond the Usual — and it happened in the same half-year that operating profit fell by more than a third, meaning Meituan reduced leverage and profitability at the same time rather than one funding the other.

Segment Comparison — Q2 2025

Segment	Revenue (Q2 2025)	Revenue (Q2 2024)	YoY	Op. Profit/(Loss) (Q2 2025)	Margin Q2 2025	Margin Q2 2024
Core Local Commerce	Rmb65,347M	Rmb60,682M	✅ +7.7%	Rmb3,721M	5.7%	25.1%
New Initiatives	Rmb26,493M	Rmb21,569M	✅ +22.8%	-Rmb1,881M	-7.1%	-6.1%
Unallocated items	-	-		-Rmb1,613M	NA	NA
Group Total	Rmb91,840M	Rmb82,251M	+11.7%	Rmb226M	0.2%	13.7%

The margin collapse is almost entirely a Core Local Commerce story — the segment that generated a 25.1% operating margin a year earlier fell to 5.7%, a 19.4 percentage-point swing, while New Initiatives' margin barely moved (-6.1% to -7.1%). If this trajectory continues, Core Local Commerce's operating margin could turn negative in coming quarters — a segment that's supposed to be the durable profit engine swinging to an outright loss would be a materially worse outcome than New Initiatives' persistent-but-stable losses.

Core Local Commerce

Revenue grew 7.7% to RMB65.3 billion, but operating profit fell 75.6% to RMB3.7 billion — profit falling far faster than revenue grew is the clearest single number in this filing. Delivery services revenue grew a modest 2.8% to RMB23.7 billion, well behind commission revenue's 12.9% growth to RMB25.0 billion, suggesting incentive spending was weighing more heavily on the delivery line specifically even as the segment overall kept growing. The filing frames the margin pressure around "increased investments" rather than naming competitors or quantifying incentive spend as a standalone line — softer language than the scale of the swing might otherwise suggest.

New Initiatives

Revenue grew 22.8% to RMB26.5 billion, continuing the segment's now-consistent growth pattern from grocery retail and overseas expansion (see meituan/2024-12), while the operating loss widened modestly to RMB1.9 billion from RMB1.3 billion a year earlier — a much smaller deterioration in absolute terms than what happened to Core Local Commerce this quarter, reinforcing that this quarter's group-level profit collapse is a Core Local Commerce story, not a New Initiatives one.

Beyond the Usual

Gearing "improved" almost entirely because a convertible bond was redeemed, not because debt was repaid from profits

Meituan's gearing ratio fell to approximately 24% as of June 30, 2025 from ~32% at December 31, 2024, but the mechanism was a bondholder-initiated event, not deleveraging from operating cash flow: US$1,461,300,000 of the Series 1 (2027-maturity) zero-coupon convertible bonds was redeemed at the bondholders' own option in the first half of 2025, following the bonds' April 27, 2025 optional-redemption date. Financing activities used RMB12.3 billion in cash in Q2 2025 alone, described in the filing as "mainly attributable to the redemption of convertible bonds." A reader crediting management with genuine balance-sheet discipline this half should note the improvement was substantially bondholder-driven, not a discretionary debt paydown — the remaining Series 2 (2028-maturity) bonds remain outstanding and carry their own optional-redemption dates ahead.

The buyback nearly stopped the same half profit collapsed

Meituan repurchased just 3,018,700 Class B Shares for HKD391.8 million in H1 2025 — a small fraction of the 261,396,700 shares and RMB28.2 billion spent across all of FY2024 (see meituan/2024-12). The repurchase prices this half ranged from HKD122.60 to HKD132.40, roughly the same price band the FY2024 buyback bought heavily into during its September 2024 peak — meaning Meituan pulled back sharply on buybacks at prices similar to, not higher than, where it had been an active buyer eight months earlier. Read alongside the gearing and margin data above, this looks like management turning more conservative on capital return before the crisis became visible in the headline numbers.

No material contingent liabilities, still

The filing states plainly that Meituan "did not have any material contingent liabilities" as of June 30, 2025 — the same clean disclosure as FY2024, with nothing flagged as a possible future liability.

What Management Emphasized on the Call

No earnings-call transcript was located among the source documents downloaded for this filing — only the interim report itself. This section is accordingly skipped for this post, consistent with the playbook's guidance to omit it rather than write it from the report alone.

Target Valuation Range

Bottom line: at the June 30, 2025 close of HKD125.30, Meituan traded down 31.3% from its own trailing-24-month peak (HKD182.50, October 2024) despite revenue still growing double digits — a market that had already begun pricing in the margin deterioration this filing documents. That reads as the market ahead of the fundamentals here, not behind them.

Meituan closed H1 2025 at HKD125.30 (June 30, 2025), against 6,109,886,658 total shares in issue (579,439,171 Class A, 5,530,447,487 Class B) — down 31.3% from the trailing-24-month peak of HKD182.50 (October 2024) and up 100.3% from the trailing-24-month trough of HKD62.55 (January 2024). Meituan has never split its stock, so these are nominal historical prices.

Market cap → enterprise value	H1 2025 (period-end)
Share price (Jun 30, 2025 close)	HKD125.30
Shares outstanding	6,109,886,658
Market capitalization	~HKD765.6 billion (~RMB719.7 billion at ~0.94 HKD:RMB)
Plus: borrowings and notes payable (~24% of RMB184.3B equity)	~RMB44.2 billion
Less: cash and cash equivalents	RMB101.7 billion
Less: short-term treasury investments	RMB69.4 billion
Enterprise value	~RMB592.8 billion

Peer-multiple sanity check	FY2024 (year-end)	H1 2025 (period-end)	Change
Revenue basis	RMB337.6B (FY2024 actual)	~RMB356.8B (H1 2025 annualized, illustrative)	✅ up
Enterprise value	~RMB753.1B	~RMB592.8B	⚠️ down
EV/Revenue	~2.2x	~1.66x	⚠️ down

EV/Revenue compressing from ~2.2x to ~1.66x in six months — a 25% de-rating — while trailing revenue kept growing is the clearest sign the market had already marked Meituan down for the margin deterioration this filing shows. A full DCF isn't run here given the backfill nature of this post and the absence of forward guidance in the source document; the sequential EV/Revenue comparison against this project's own FY2024 reading is the more defensible sanity check available.

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