Meituan returned to profitability in the second quarter, yet a structural shift in the competitive landscape means its margins are unlikely to revisit the heights of previous years.

According to insights from trading desks, Barclays has maintained an underweight rating on Meituan with a $10 price target, suggesting the stock offers solid downside protection but limited upside potential. In the second quarter, Meituan's core local commerce segment turned profitable, posting a 7.9% operating margin after three consecutive quarters of losses—though this remains far below the roughly 20% level seen before the industry-wide subsidy war erupted. Total revenue for the quarter climbed 13.9% year-over-year to 104.6 billion yuan, slightly beating expectations, but sales and marketing expenses came in a hefty 38.6% above estimates, dragging adjusted net profit to 2.5 billion yuan—41.1% below Barclays' projections.

Barclays analysts noted that with government intervention curbing disorderly competition in the food delivery sector and major platforms scaling back subsidies, Meituan's stock carries defensive qualities amid a highly uncertain market environment. However, Alibaba's renewed push into instant retail has permanently altered the competitive dynamic, and with no near-term intention to make that business profitable, it will continue to cap Meituan's earnings potential. Meanwhile, as investors actively hunt for AI beneficiaries, Meituan has yet to present a compelling AI narrative that excites the market.

Core business: Profitability returns, but margins stay under pressure

Meituan's core local commerce (CLC) segment saw second-quarter revenue grow roughly 10% year-over-year, with segment operating margin turning positive at 7.9%, snapping a three-quarter losing streak. Food delivery revenue resumed growth with a high-single-digit year-over-year increase, supported by higher purchase frequency, improved retention rates, and a rise in average order value (AOV). Unit economics (UE) also turned positive and outpaced the industry, aided by seasonal factors and receding subsidies.

That said, the outlook remains cautious. Management expects third-quarter food delivery UE to stay positive and improve meaningfully on a year-over-year basis, but sequential momentum may slow—pressure from peak-season marketing spend, higher rider incentive costs, the nationwide work-related injury insurance scheme effective from July 1 that raises the cost base, and subsidy levels still elevated versus 2024, which could take several quarters to normalize.

The in-store, hotel, and travel (IHT) business saw its second-quarter margin improve to 30% quarter-over-quarter, but management anticipates a pullback in the third and fourth quarters due to increased investment. While Douyin continues to compete aggressively in fast-food in-store dining, Meituan retains its lead in in-store dining gross transaction volume (GTV).

New initiatives: Narrowing losses and accelerating overseas expansion

The new initiatives segment accelerated to 25% year-over-year revenue growth in the second quarter, with losses narrowing to 1.7 billion yuan, representing a loss margin of -5.3%, improving 2.6 percentage points quarter-over-quarter. Management has guided that full-year 2026 segment losses will not exceed 2025 levels.

On the overseas front, Keeta's Hong Kong operations turned profitable in October 2025, while the Saudi Arabia business reached breakeven in July—less than a year after launch. In Brazil, the focus remains on São Paulo, which accounts for roughly 25% of the country's food delivery market, with broader geographic expansion put on hold.

Back in China, Xiaoxiang Supermarket has expanded to 68 cities and opened five physical stores in Beijing, Ningbo, Hangzhou, and Shenzhen, maintaining an omnichannel approach. Meanwhile, the community fresh produce format "Happy Monkey" had 40 stores by the end of the second quarter, with a focus on compact store layouts, high private-label penetration, and localized delivery.

Valuation: Defensive, but lacking upside flexibility

Barclays has slashed its 2026 adjusted EBITDA forecast for Meituan by 54.5% to 7.8 billion yuan, primarily reflecting margin pressure in the core local commerce business, while raising its revenue projection by 2.5%, driven mainly by new initiatives. The price target remains at $10, based on 10x 2027 estimated EV/EBITDA plus net cash.

As of August 28, Meituan (ADRs) traded at $10.40, implying about 3.8% downside from the target. Barclays' bull-case target is $14 (based on 15x FY27 EV/EBITDA), while the bear-case target is $6 (based on 5x FY27 EV/EBITDA).

Barclays acknowledges Meituan's strong execution capabilities but argues that its core food delivery business historically charged excessively high commission rates to restaurants while maintaining a low cost structure—a model that was unsustainable over the long term. With Alibaba now back in force, Meituan's near-80% market share era has come to an end, and profitability is unlikely to return to the peak levels of a few years ago. In an environment where the AI investment theme dominates sentiment, Meituan has also failed to position itself as a core AI beneficiary among its peers, further limiting the stock's rerating potential.