Meituan Posts Sharp Sequential Improvement as Industry Subsidies Moderate, But Food Delivery Order Growth May Turn Negative
First Quarter 2026 Earnings Call, June 1, 2026
Meituan delivered a notable sequential recovery in first quarter 2026 as irrational industry subsidies moderated compared to the prior quarter, with total segment operating losses narrowing by more than RMB 10 billion quarter-over-quarter to RMB 4.1 billion. However, management acknowledged the company may face negative year-over-year order growth in the second half due to tough comparisons, marking a significant shift in growth trajectory that investors should monitor closely.
Food Delivery Navigates Post-Subsidy Environment with Warning on Order Volume
The food delivery business showed strong resilience as industry-wide subsidies rationalized, with management noting that "consumers choose Meituan for our comprehensive and reliable services rather than price incentive alone." CEO Xing Wang emphasized that high and mid-frequency users became more active with increasing average revenue per user, while a substantial number of mid-frequency users upgraded to high-frequency status. Post-2000s generation users emerged as a key growth driver.
Despite these positive user trends, Wang delivered a notable warning about the second half outlook: "Given the high basis from last year, we may see negative year-over-year order growth in the second half." Management attempted to soften this guidance by noting that net GTV growth should prove more resilient than order volume growth due to the company's leadership in mid-to-higher AOV segments and expected AOV recovery. This represents a significant departure from the aggressive growth narrative that dominated last year's subsidy wars.
On unit economics, the company expects "meaningful UE improvement in Q2 compared to Q1, supported by seasonal tailwind" if competition remains rational. However, CFO Shaohui Chen cautioned that "both the AOV and subsidy for our on-demand business still need more time to go back to a reasonable level." The company noted it has "sustained our market leadership in recent months, while also widening our UE gap advantage," though improvement in the second half depends on competitive dynamics. Delivery costs per order face seasonal headwinds in Q3 and Q4 compared to Q2.
In-Store Business Holds Ground Against Douyin Competition
Addressing direct questions about competitive pressure from Douyin, Chen delivered a confident assessment that local in-store services require more than just traffic advantages. "Traffic alone doesn't automatically translate into transactions," Chen stated, highlighting Meituan's differentiated strengths in brand reputation, consumer trust, verified merchant information, and billions of authentic user reviews.
The company reported steady in-store business growth with categories including leisure and entertainment, sports and fitness, and pet services growing rapidly in both order volume and GTV. New service verticals like medical aesthetics, healthcare, and home renovation showed "promising traction." Management emphasized building capabilities to transform "offline nonstandard and long-tail services into reliable, standardized online SKUs" as a key differentiation.
The company supports nearly 1.3 million skilled artisans on its platform and recently expanded assurance programs for prepaid services across fitness, health room, and massage categories. Chen indicated that "in-store margin to stay stable in the near term, with room to recover over the long term" as industry subsidies normalize and the value delivered to merchants gains importance.
Xiaoxiang Supermarket Accelerates Expansion with Physical Store Strategy
The grocery retail business under the Xiaoxiang Supermarket brand expanded to 55 cities in the first quarter while maintaining robust GTV growth that "significantly outperformed the whole industry." The company disclosed product sales separately for the first time, showing approximately 41% year-over-year growth and contributing meaningfully to the new initiatives segment's 21.3% revenue increase to RMB 27 billion.
In a notable strategic shift, Xiaoxiang is moving beyond its pure online dark store model to open physical locations, with stores launched in Beijing, Harbin, and Ningbo. Wang explained that "physical stores can broaden our user reach and allow the consumers or potential customers to see more directly our high-quality physical goods." The physical presence provides advantages that screens cannot replicate: "When you enter a physical store, you are going to have a much broader view compared to any screen. And you can not only see more, you can smell it, you can touch it."
Private label products are gaining traction and now account for a higher share of GTV. Despite rapid expansion, the business showed continued year-over-year margin improvement in the first quarter. Management targets "a sustainable low single-digit profit margin in the long run" and aims to make Xiaoxiang "one of the most loved grocery brands" in China.
Keeta Faces Middle East Volatility But Maintains Efficiency Trajectory
The international delivery business Keeta experienced "some near-term fluctuations" in growth metrics due to geopolitical tensions in the Middle East, though Chen characterized the impact as "manageable so far" with unchanged long-term conviction. Notably, even in this challenging environment, the company observed "a clear acceleration in the transition from offline to online" with strengthening consumer mind share for on-demand retail.
Following Hong Kong's unit economics breakeven in Q4 2025, both Hong Kong and Saudi Arabia delivered further efficiency gains in the first quarter. More encouragingly, "efficiency in ramp-up in other Middle East markets and Brazil has been even faster, thanks to the operational experience accumulated earlier." The company plans to "prioritize operation improvement this year over new market expansion" while exploring opportunities "thoughtfully" with financial discipline.
AI Integration Advances with Xiao Tuan Assistant and Agent-to-Agent Capabilities
Meituan placed its AI assistant Xiao Tuan prominently in the middle of the bottom navigation bar within the Meituan app, though Wang noted it remains "at a very early stage." Initial results show users engaging with more complex cross-use-case queries beyond simple searches, such as "recommend a restaurant between 2 locations for guests who do not eat spicy food" or booking on-site repair services.
Session volumes picked up meaningfully during the May Day holidays compared to Chinese New Year, with users "actually using Xiao Tuan to discover services, destinations and ultimately plan and make a purchase on our platform" rather than simply redeeming coupons. The company developed Xiao Tuan Health Assistant specifically for healthcare services, built on proprietary real-world data from pharmacy transactions and online medical consultations "in close partnership with professional medical teams because that's where you don't want to have any hallucination by AI."
In a significant development, Meituan announced an upcoming partnership with Tencent's AI chatbot Yuanbao that will enable agent-to-agent communication. "When the user submit local services related requests in Yuanbao, it will trigger an agent-to-agent communication with Xiaomei," facilitating seamless one-stop local service transactions. Wang emphasized the growing importance of building capabilities "not just for 2C, to consumers or 2B, to businesses and 2A, to agents."
On the merchant side, the company's AI-powered smart manager tool has served over 700,000 merchants in total, with recent expansion from individual stores to chain stores. The digital staff tool now serves over 300,000 merchants across service categories. Management plans to evolve AI tools "from single point AI empowerment towards human machine collaborations" to support decision-making in complex business scenarios and enable end-to-end automation for routine tasks.
Hotel and Travel Navigates Regulatory Changes and Fuel Surcharge Headwinds
The hotel and travel business delivered steady growth in the first quarter, consolidating the company's leading position in the lower-star hotel segment. The company launched the 2026 Must-Stay List featuring thousands of premium hotels across more than 200 cities, positioning it as "a credible curated guide for user seeking high-quality lodging experience."
Chen acknowledged emerging headwinds: "The recent hike in airline fuel surcharge will bring near-term vulnerability to hotel and travel industry. Long-distance travel and high-star hotels are likely to face headwinds, while short-term distance leisure travel, local accommodations and low-star hotels will remain resilient." The company's structural advantage in these resilient domains positions it favorably to navigate the current cycle.
Meituan expanded joint membership programs with global hotel brands including Marriott and launched exclusive membership benefits in partnership with Shanghai properties. The company provides end-to-end solutions for merchants covering brand establishment, targeting marketing, revenue enhancement, room renovation, and PMS system support.
Financial Results Show Sequential Strength Despite Ongoing Pressure
Total revenue reached RMB 91 billion, up 5.6% year-over-year. Core local commerce segment revenue returned to positive year-over-year growth at RMB 64 billion after previous quarters of pressure. Segment operating loss for core local commerce narrowed dramatically to RMB 2 billion from significantly higher levels in the prior quarter. New initiatives segment operating loss narrowed to RMB 2.1 billion.
Cost of revenue ratio increased 8.7 percentage points to 71.5%, driven by consumer incentives deducted from revenue and higher rider incentives to maintain service quality. Selling and marketing expense ratio rose 7.6 percentage points to 25.2% due to increased investments in promotion, advertising, and user incentives. R&D expense ratio increased to 7.7%, reflecting AI investments, while G&A remained stable at 3.2%.
The company held cash, cash equivalents, and short-term treasury investments totaling RMB 180 billion as of March 31. The investment portfolio stood at nearly RMB 53 billion, with an RMB 7.6 billion gain from fair value changes in investments including Z.AI recognized in other comprehensive income rather than the income statement during the quarter.
Management expressed confidence in food delivery unit economics returning to "a reasonable level" long-term, with "significant synergy potential remains untapped across our core local commerce businesses" through cross-selling initiatives that will "generate a long-term compounding value for the entire core local commerce segment."
Meituan Deep Dive: Surviving the Subsidy War and Navigating the Instant Retail Pivot
Business Model
Meituan operates as China's preeminent local commerce ecosystem, monetizing the intersection of physical fulfillment and digital matchmaking. The company's business model is fundamentally divided into two segments. The first, Core Local Commerce, includes its bedrock food delivery operations, in-store dining, hotel, and travel booking services, alongside its instant retail platform, Meituan Instashopping. This segment generates revenue primarily through merchant service fees, a newly combined reporting metric introduced in early 2026 that aggregates transaction commissions and online marketing revenue, as well as delivery fees charged to consumers. The second segment, New Initiatives, houses the company's forward-looking and capital-intensive ventures. This includes Xiaoxiang Supermarket for self-operated grocery retail, business-to-business food distribution via Kuailv, and its rapidly expanding international delivery brand, KeeTa.
At its core, Meituan makes money by aggregating high-frequency consumer demand and selling that traffic back to millions of localized merchants. The economics of the platform depend on fulfillment density and algorithmic efficiency. With an average food delivery order value hovering around RMB 30, the underlying unit economics are inherently thin. The platform nets slightly over RMB 1 in operating profit per order under normalized conditions. By maintaining extreme operational efficiency across millions of daily orders, Meituan translates marginal per-order economics into massive aggregate cash flows, utilizing its localized infrastructure to cross-sell higher-margin services like hotel bookings and medical aesthetics.
Industry Landscape
Meituan sits at the center of a heavily contested multi-sided market, connecting over 450 million active users with a supply base of more than 9 million merchants. The competitive landscape for this digital real estate underwent a seismic disruption throughout 2025. Following JD.com's entry into the food delivery space and Alibaba's integration of Ele.me into its Taobao Flash Sale platform, the industry plunged into a brutal subsidy war. The top three platforms collectively burned an estimated RMB 80 billion to RMB 100 billion in consumer incentives over a twelve-month period to capture order volume. Despite this ferocious assault, the market structure has stabilized into an entrenched oligopoly. As of the first quarter of 2026, Meituan successfully defended its absolute leadership, maintaining approximately 70% of China's food delivery market share with average daily orders of roughly 65 million. Taobao Flash Sale firmly holds the second position with an estimated 25% to 30% share and 50 million daily orders, while JD.com handles a marginal 9 million orders.
However, the competitive axis has shifted beyond pure food delivery into the broader local services market. Here, ByteDance's Douyin poses a formidable structural threat. By leveraging its vast short-video traffic, Douyin bypasses traditional search-based consumer intent, funneling its entertainment audience directly into local commerce. Industry data projects that Douyin's gross transaction value in the in-store, hotel, and travel segment will rise from roughly 70% of Meituan's equivalent volume in 2025 to near parity by the end of 2026. This dynamic forces Meituan to continuously defend its merchant base, proving that the local commerce battlefield in China has evolved from a duopoly into a complex, multi-front war involving e-commerce heavyweights and content platforms alike.
Competitive Advantages
Meituan's primary competitive advantage is its insurmountable scale and fulfillment density, which create a formidable barrier to entry in the on-demand logistics space. Operating a network of millions of couriers, the company achieves an unmatched level of route optimization. When order density is high, algorithms can seamlessly batch multiple orders to a single rider along a hyper-localized route, driving down the marginal cost of delivery. This logistical density is nearly impossible to replicate without massive upfront capital expenditure, as demonstrated by the exorbitant financial toll JD.com and Alibaba endured simply to claw away single-digit market share points during the recent price war.
Beyond logistics, Meituan possesses a deep-rooted consumer habituation advantage. Users inherently associate the platform with high-frequency, daily-use services. This localized search dominance is a potent tool for merchant acquisition. Because physical storefronts operate with fixed geographic catchments, Meituan offers the most direct channel to local demand. The company's recent strategic adjustments, combining commission and advertising into a single merchant service revenue metric, underscore its pricing power and its ability to continually extract value from merchants who view Meituan not merely as a delivery option, but as essential digital infrastructure for their operational survival.
Opportunities and Threats
The foremost opportunity for Meituan in 2026 is the abrupt normalization of industry unit economics, catalyzed by regulatory intervention. In mid-June 2026, China's State Administration for Market Regulation issued comprehensive draft guidelines prohibiting prolonged, large-scale subsidies aimed at selling services below cost to capture market share. This regulatory ceiling on irrational competition provides an elegant exit for all major platforms from the margin-crushing wars of 2025. With competitors forced to compete on service quality and merchant selection rather than endless consumer discounts, Meituan is uniquely positioned to leverage its superior operational efficiency. The financial inflection is already evident, with the company's core local commerce segment slashing its operating losses from over RMB 10 billion in the fourth quarter of 2025 to just RMB 2 billion in the first quarter of 2026.
Conversely, the primary threat to Meituan's long-term profitability lies in the structural macroeconomic headwinds facing Chinese consumer spending. As the broader domestic economy grapples with sluggish consumption, the frequency and average ticket size of discretionary local services are highly vulnerable. Furthermore, the persistent threat of algorithmic content platforms capturing commercial intent earlier in the consumer funnel cannot be understated. As Douyin, and increasingly Tencent through WeChat's AI ecosystem integrations, intercept local commerce transactions before a user ever opens a dedicated utility app, Meituan risks being relegated to a mere fulfillment provider rather than the primary demand generation engine.
Growth Drivers
Recognizing the saturation of the domestic market, Meituan has aggressively pursued internationalization through its sister brand, KeeTa. Following a swift and successful conquest of the Hong Kong market in 2023 and 2024, KeeTa initiated a blitzkrieg expansion across the Middle East. Launching in Riyadh in late 2024, the platform capitalized on Saudi Arabia's growing urban logistics demand and has rapidly scaled its footprint. By early 2026, KeeTa had established a continuous operational network across the Gulf Cooperation Council, achieving market entries in Qatar, Kuwait, and the United Arab Emirates. This strategic pivot targets markets with accelerating urbanization, strong spending power, and a burgeoning appetite for digital convenience, offering a vital revenue diversification channel insulated from Chinese macroeconomic pressures.
Simultaneously, Meituan is pioneering the commercialization of the low-altitude economy, establishing itself as a global leader in autonomous drone logistics. In April 2026, China's Civil Aviation Administration granted Meituan a landmark full-territory commercial license, freeing the company from restrictive, route-by-route approvals. Equipped with fourth-generation drones featuring integrated Hesai solid-state lidars, Meituan's autonomous fleet has completed over 780,000 deliveries across major urban centers including Shenzhen, Shanghai, and Dubai. This is not merely a marketing endeavor. By automating the most inefficient segments of the last-mile journey, such as crossing natural barriers or navigating dense corporate campuses, Meituan is structurally engineering a future where dependency on human riders is reduced, unit economics are fundamentally altered, and throughput is expanded beyond conventional limits.
Management Track Record
Chairman and CEO Wang Xing, alongside Core Local Commerce CEO Wang Puzhong, have demonstrated a clinical, albeit ruthless, pragmatism over the past two years. When confronted with the existential threat of the 2025 subsidy war, management did not hesitate to sacrifice the company's hard-earned RMB 35.8 billion net profit from 2024, deliberately plunging Meituan into a massive annual loss exceeding RMB 23 billion to protect market share. This willingness to absorb extreme financial pain to defend its competitive moat illustrates a management team anchored in long-term platform survival rather than quarterly earnings optics. The strategy succeeded, maintaining Meituan's volume leadership while exhausting competitors' capital allocations.
Under their stewardship, the company's internal orientation has successfully matured. Following the stabilization of market share in early 2026, Wang Xing swiftly recalibrated the organizational focus toward high-value user retention and the structural profitability of instant retail. The decision to consolidate local commerce reporting and prioritize internationalization signals a clear recognition of domestic growth limits. By investing heavily in artificial intelligence, integrating large language models like LongCat to evolve Meituan from a transactional directory into an intelligent assistant, management is proactively attempting to modernize the platform's user interface to fend off next-generation threats from content ecosystems.
The Scorecard
Meituan's passage through the grueling competitive gauntlet of 2025 underscores the durability of its operational moat and the high cost of defending it. The company preserved its dominant 70% market share in China's food delivery sector, leveraging unmatched fulfillment density to outlast heavy capitalization efforts by aggressive new entrants. The timely arrival of regulatory frameworks aimed at curbing unsustainable subsidies has provided a necessary catalyst for margin recovery, as evidenced by the sharp narrowing of operating losses in the first quarter of 2026. This stabilization allows the platform to pivot resources away from pure volume defense and toward structural efficiency, high-value user engagement, and the consolidation of its instant retail infrastructure.
Looking ahead, the investment thesis hinges on Meituan's ability to execute its dual-engine growth strategy amid shifting domestic consumption patterns. The rapid proliferation of its KeeTa brand across the Middle East demonstrates a viable pathway to capture high-margin international revenue, while its pioneering advancements in autonomous drone delivery offer long-term solutions to human capital constraints. However, the structural threat posed by content-driven platforms capturing local service intent remains a critical vulnerability. Meituan's enduring success will depend on its capacity to evolve its search-based utility model into an AI-integrated ecosystem, maintaining its relevance before the transaction ever reaches the physical fulfillment layer.