3690 HK: Triple Squeeze—Will Core Delivery Stay on Its Knees? ---

After the Mar 26 HK close, the last key name in the Hang Seng Tech 'food-delivery cohort' — $MEITUAN(03690.HK) — released Q4 FY25 results. The company had already issued a profit warning, so losses at Core Local Commerce and at the group level were largely flagged, and the print broadly matched guidance. However, true profitability was slightly softer than expected as New Biz losses widened, offsetting much of the loss reduction achieved in Core Local Commerce, details below.

1) Loss cuts recycled into new losses: Starting with the key loss items, Core Local Commerce posted an operating loss of roughly RMB 10bn, in line with the warning. Based on Dolphin Research estimates, in-store OP was about RMB 4.2bn, implying the at-home segment (food delivery + Instacart-like on-demand retail) lost a little over RMB 14bn, a QoQ reduction of less than RMB 5bn.

As expected, all players in the delivery war are narrowing losses, but Meituan’s absolute reduction was smaller than Alibaba’s QoQ >RMB 11bn improvement. On our math, Meituan’s per-order UE loss for delivery plus flash commerce improved from about RMB 2.5 to RMB 2.0, while Alibaba’s improved from just over RMB 5 to roughly RMB 3.5. The per-order gap is narrowing, a mixed signal for Meituan.

That said, New Biz losses rose above expectations to RMB 4.6bn, vs. the market’s ~RMB 3.5bn, increasing by about RMB 3.4bn QoQ. As a result, most of the loss cuts in Core Local Commerce were effectively given back through New Biz.

Although New Biz losses were heavier than expected, group operating profit stayed broadly in line with expectations due to over RMB 2.2bn of non-operating gains from FV changes on financial assets and other items. These items created a noticeable offset.

On a core basis — GP minus selling, R&D and G&A — losses were close to RMB 18.3bn this quarter, vs. ~RMB 19.0bn in Q3, implying only modest progress in narrowing.

2) At-home past the trough; in-store still under pressure: Delivery-related revenue, tightly tied to the at-home business, saw its YoY decline narrow from 17% in Q3 to about 10% in Q4. This reflects a smaller drag from delivery subsidies booked as revenue offsets, consistent with reduced spend and narrowing losses across delivery.

Unlike the at-home rebound, commission and ads growth continued to decelerate. Commission revenue fell 1.2% YoY, and ads growth slowed from 5.7% to 2.3%.

Management indicated that in-store GTV growth slowed in Q4 and revenue growth lagged GTV, implying a lower blended monetization rate. With Douyin’s in-store push reportedly driving GTV growth of over 60%, competitive pressure on Meituan’s in-store business remains significant.

Even so, Core Local Commerce revenue (in-store plus at-home) was RMB 64.8bn, down 1.1% YoY and broadly in line with Bloomberg consensus. This suggests in-store growth deceleration was within market expectations.

4) New Biz growth accelerated, with Keeta stepping up: Innovation revenue growth accelerated to 19% YoY in Q4 vs. 16% in Q3. With commission-type revenue up 115% and self-operated revenue growth improving to around 15%, Keeta’s expansion in MENA and LatAm appears to be a key driver, consistent with the widened New Biz losses.

5) GP and opex lens: GPM was only 26.2%. Despite a narrower drag from delivery subsidies, GPM still fell about 20bps QoQ, likely reflecting winter seasonality and New Biz dilution.

Total opex was about RMB 42.4bn, up 65% YoY and broadly in line with expectations. Sales and marketing was RMB 31.7bn, down roughly RMB 2.5bn QoQ, clearly reflecting lower delivery subsidies.

However, R&D and G&A rose 30% and 24% YoY, likely due to AI feature development and Keeta’s overseas push. With the company still loss-making amid fierce competition, spending remains unrestrained, limiting improvements at the group level.

Dolphin Research view:

Given the prior profit warning, most negatives were pre-disclosed, and aside from heavier New Biz losses, other metrics were broadly in line with the Street. Overall, this was a neutral-to-slightly-weak print with some blemishes.

Beyond the expectations setup, the quarter highlighted several signals and trends. First, on at-home, Meituan is narrowing losses alongside peers, a well-telegraphed outcome, with per-order UE loss tightening to ~RMB 2 in line with the market.

Loss reduction benefits all participants, but Alibaba’s faster pace and the narrowing UE gap were not surprising. The question is whether this implies Alibaba can sustain a longer grind in on-demand retail against Meituan.

Second, Meituan is fighting on two fronts. In recent quarters, in-store GTV growth has slowed, revenue growth has lagged GTV, and in-store operating margins have compressed, all pointing to Douyin’s renewed offensive and likely YoY pressure on in-store profit.

Third, largely due to Keeta’s expansion, New Biz losses are widening even as the core remains deeply loss-making with only modest improvement. Management’s stance on investment appears anything but conservative.

All in, Meituan faces tough conditions both internally and externally. Aggressive investment shows resolve, but from a shareholder perspective it does not inspire comfort for now.

2) Outlook:

1) On-demand retail competition: It is now clear that all three delivery-war participants are optimizing subsidies and UE, with total losses narrowing. The broad trend toward smaller losses is highly likely to continue.

The debate is around the path and speed of loss reduction, and where UE ultimately settles. On this, disclosed stances diverge meaningfully.

a) From the company angle, Alibaba has maintained a tough posture. It previously targeted on-demand retail share leadership, and while it has toned down the explicit ‘No.1’ rhetoric, it reiterated the segment as a long-term strategic focus and guided to break-even again by FY29.

This suggests Alibaba is not in a rush to slash losses, preferring to sustain investment with a tilt toward share and scale. As the responder, Meituan would clearly like the war to end sooner, but the power to call a truce sits more with Alibaba than Meituan.

b) Another actor with some ability to influence an endgame is the regulator. Recent official commentary on the delivery war and excessive competition indicates a stronger inclination to see some restraint.

c. In Dolphin’s view, the probability of regulators using hard administrative measures to ban normal platform subsidies is quite low. Authorities are more focused on curbing malign practices like extreme loss-leading or coercive merchant subsidy participation that erodes merchant economics.

They have limited reason or basis to halt voluntary platform subsidies. Regulation may accelerate a reduction in subsidies, but it is unlikely to fundamentally end competition in on-demand retail.

d) Most critically, Alibaba has multiple incentives to sustain a distance fight. On-demand retail is both offensive and defensive; without it, Alibaba risks near-field e-commerce encroachment by Meituan. After heavy investment to reach scale close to Meituan, walking away to a 70:30 market split without overwhelming pressure is difficult.

Moreover, delivery is entwined with far-field and near-field retail, in-store and at-home, and the real-world execution of AI Agents. It is not as simple as stopping delivery.

Dolphin’s take: subsidies and losses will continue to narrow, but likely via self-optimization by participants over time rather than a regulatory stop. As such, subsidies and losses may continue to weigh on all players for a prolonged period.

2) In-store is not a safe harbor: Beyond delivery, Meituan’s in-store business is also facing intensifying competition from Douyin. A visible step-up is Douyin’s standalone in-store app, DouShengSheng.

We see the standalone app as an erosion of the prior differentiation — Douyin for discovery and traffic vs. Meituan/Dianping for search and transactions — amounting to a direct attack on Meituan’s stronghold in text-and-search. This raises the competitive stakes.

Channel checks indicate Douyin’s in-store GTV growth accelerated to 60% YoY in Q4 from 50% in Q3, with a 2026 target of at least ~30%. Research also suggests Douyin’s 2026 focus will be on scale and merchant monetization, not profit.

This implies 2026 will be an investment-led expansion phase for Douyin in-store to capture share and merchant ad budgets. For Meituan, pressure on the in-store battlefield is likely to persist.

3) On Innovation, media reports suggest Keeta has expanded rapidly overseas, now in five MENA markets: Saudi Arabia, UAE, Kuwait, Qatar and Bahrain. It has recently entered LatAm starting with Brazil and is in a hyper-growth phase.

However, geopolitical issues tied to Iran could affect MENA operations, and reports indicate entrenched merchant ties at iFood may pose hurdles in Brazil. The outlook is uncertain, and further guidance from management will be key.

Given management’s unrestrained stance on investment this quarter and the >US$700mn acquisition of Dingdong Maicai earlier this year, New Biz losses may not narrow meaningfully in the near term. This risk bears watching.

4) Valuation: near-term pace of loss reduction, fast or slow, does not change much by itself. Per-order losses at RMB 2.5 vs. RMB 0.5 still do not anchor valuation; the key is the steady-state UE.

With steady-state UE hard to pin down now, we use scenario analysis. In a conservative case where Alibaba keeps Meituan in check and subsidy rollbacks remove ‘bubble orders’ to offset natural growth, daily orders stabilize around the current ~80mn, with per-order profit at RMB 0.5, implying at-home OP of RMB 14.6bn.

Assuming in-store faces Douyin pressure, with FY26 revenue growth ≤15% and slightly lower margins, in-store OP would be around RMB 20bn. Applying a 12x PE on post-tax earnings yields HKD 65 per share; without tax, HKD 76.

In a base-to-bull case, steady-state at-home orders rise 15% in two years and per-order UE recovers to RMB 1, with in-store unchanged, total OP would be ~RMB 53.5bn. At 15x PE post-tax, fair value would be HKD 127 per share, implying ~46% upside vs. pre-earnings.

Net-net, since regulation is unlikely to end the tug-of-war in delivery and in-store faces Douyin’s push, and New Biz losses likely will not narrow soon, we need clearer signs of delivery turning profitable. Any shift toward the base-to-bull valuation is likely to be sentiment-driven and hard to sustain at current levels near term.

Detailed takeaways:

I. Delivery revenue declines narrowed — subsidy drag eased

Delivery-related revenue, tightly linked to at-home (delivery plus flash commerce), saw its YoY decline narrow from 17% in Q3 to about 10% in Q4. As discussed last quarter, rider subsidies are booked as revenue offsets, and with Street assumptions on instant delivery volumes, implied per-order delivery revenue decline narrowed from ~40% to ~30% YoY (indicative only).

II. In-store growth kept slowing — still crossing the valley

Unlike the trough-to-repair in delivery revenue, in-store commission and ads growth deteriorated again. Commission revenue fell 1.2% YoY, and ads growth slowed sharply from 5.7% to 2.3%.

Given the smaller drag from at-home in Q4, the incremental slowdown points to in-store deceleration as the culprit. This aligns with management’s comments that in-store revenue growth is running below GTV growth, implying lower blended monetization.

Coupled with reports that Douyin’s in-store GTV grew over 60% in Q4, this validates intensifying competition. The signal is unfavorable for Meituan’s in-store trajectory.

Still, Core Local Commerce revenue (in-store plus at-home) was RMB 64.8bn, down 1.1% YoY and broadly in line with Bloomberg consensus. The magnitude of in-store slowing appears close to what the market anticipated.

III. New Biz growth accelerated — Keeta appears strong

Innovation revenue was RMB 27.3bn, with YoY growth accelerating to 19%. Despite Meituan’s effective exit from community group buying (Meituan Youxuan), revenue still accelerated, suggesting strong Keeta growth in MENA and LatAm, with Xiaoxiang Supermarket also contributing.

Other revenue within Innovation (primarily Xiaoxiang Supermarket and other gross-sales-booked businesses) saw growth accelerate modestly to nearly 15%. Commission-type revenue, which captures Keeta and similar take-rate businesses, surged 115% YoY, pointing to Keeta as the main driver, consistent with wider New Biz losses.

IV. Delivery loss cuts funding New Biz — still searching for the second curve

Per the earlier warning, Core Local Commerce OP loss of about RMB 10bn was as guided. With in-store revenue growth slowing and margins down, we estimate in-store OP at ~RMB 4.2bn.

This implies at-home losses of slightly above RMB 14bn, a QoQ narrowing of under RMB 5bn. Both Alibaba and Meituan are cutting losses, though Meituan’s reduction is smaller than Alibaba’s >RMB 11bn QoQ improvement, which is not surprising.

On our estimates, Meituan’s per-order UE loss for delivery plus flash commerce improved from ~RMB 2.5 to RMB 2.0. Alibaba’s improved from just over RMB 5 to roughly RMB 3.5–3.6.

The UE gap narrowed both in absolute terms (from ~RMB 2.5 to ~RMB 1.5) and in ratio (from 2x+ to ~1.8x). As both sides reduce losses, the shrinking UE gap is a double-edged sword for Meituan.

Meanwhile, New Biz losses rose above expectations and weighed on group profit versus the Street. New Biz lost RMB 4.6bn in Q4, vs. nearly RMB 1.3bn in Q3 and the market’s ~RMB 3.5bn, implying an incremental QoQ loss of about RMB 3.4bn.

In effect, most of the loss cuts in Core Local Commerce were offset by New Biz. The unallocated loss of nearly RMB 1.4bn appeared narrower QoQ, but this was helped by about RMB 2.2bn of gains from financial asset revaluation and other non-operating items.

V. GPM decline narrowed, but spending is not restrained

From a cost and expense lens, underlying profit quality was also below par. GPM was 26.2% and still fell about 20bps QoQ despite smaller delivery-subsidy drag, with winter seasonality also a factor.

As a result, GP fell nearly 28% YoY, a steeper-than-expected drop. This missed market expectations.

Total opex was about RMB 42.4bn, up 65% YoY and broadly in line with the Street. Sales and marketing was RMB 31.7bn, down ~RMB 2.5bn QoQ, confirming reduced delivery subsidies.

R&D and G&A rose 30% and 24% YoY, likely tied to AI feature development and Keeta’s expansion. In a harsh competitive landscape with sizable group losses, such unrestrained spending helps explain why group losses barely narrowed despite meaningful delivery loss cuts.

With New Biz losses heavier than expected, group OP stayed close to market expectations mainly thanks to the ~RMB 2.2bn asset revaluation gains. On a core basis — GP minus the three opex items — losses were about RMB 18.3bn, little changed from ~RMB 19.0bn last quarter, reinforcing our view that underlying profit was somewhat weaker than hoped.