China's internet platforms are locked in an intense food delivery battle, inadvertently revealing a "win-win" trade for Hong Kong investors: going long on Alibaba while shorting Meituan. Analysts note that the divergence in their stock prices shows no signs of abating.
As of November 6, Meituan's shares have plunged 32% this year, ranking among the worst performers in the Hang Seng Tech Index, while Alibaba's Hong Kong-listed stock has doubled. This implies that, excluding dividends and transaction costs, investors shorting Meituan and going long on Alibaba could achieve returns as high as 130%.
"This pair trade still has room to run," said Julia Pan, an analyst at UOB Kay Hian Hong Kong. While some short-term consumer investors see Meituan as undervalued, she believes the market has yet to price in certain headwinds. Pan noted that Alibaba's strong cash reserves allow it to sustain subsidies and adjust strategies flexibly. In contrast, Meituan faces greater margin erosion if it attempts to regain market share at this stage.
Meituan is set to report Q3 earnings on November 14, with investors closely watching losses in its instant delivery and overseas expansion businesses. Its Q2 net profit plummeted 97% amid "irrational competition," and analysts forecast a Q3 net loss of 14.5 billion yuan. Meanwhile, Alibaba—with its diversified business—is expected to remain resilient, posting an estimated net profit of around 9.5 billion yuan.
While JD.com's entry into food delivery initially had limited impact on Meituan's dominance, Alibaba's aggressive subsidies have intensified competition, squeezing already-thin margins into losses. However, Alibaba's AI investments and cash flow from core businesses have buoyed its stock, supplemented by convertible bond financing.
In contrast, Meituan's reliance on food delivery and instant retail leaves it vulnerable to mounting competition. Market concerns persist that Alibaba, with its deep pockets, may further erode Meituan's market share through sustained subsidies.
S&P Global data shows short interest in Meituan has risen in recent weeks to over 2% of its free float—near 2020 highs—despite its steep year-to-date decline. Although regulators urge "fair competition and rejecting excessive subsidies," analysts expect fierce rivalry to continue in Q4.
Alibaba recently rebranded its food delivery app "Ele.me" as "Taobao Quick Purchase," positioning it as an instant retail fulfillment arm to bolster e-commerce synergy. It also launched group-buying trials in Shanghai, Shenzhen, and Jiaxing.
"Offline-to-online services are becoming the new battleground," said Willer Chen, an analyst at Mizuho. The upcoming Singles' Day festival has escalated competition, with Meituan offering 1.7 million free-delivery vouchers and expanding its instant retail footprint.
Meituan is also accelerating expansion in the Middle East and Brazil, with new bond issuances providing additional "ammunition." However, Aberdeen Investments' Xin-Yao Ng noted that Alibaba, having lost e-commerce share over time, views this as a turnaround opportunity and will keep spending heavily.
"If Alibaba tolerates per-order losses for e-commerce synergy, Meituan's profitability will remain under pressure," Ng added. Several brokerages have slashed Meituan's target price, with Macquarie cutting it to HK$75—27% below current levels. Bloomberg data shows its "buy" ratings have dropped to 43, the lowest since 2020, while Alibaba retains unanimous "buy" ratings.
"This isn’t short-term volatility but a structural, long-term shift," wrote Macquarie analyst Ellie Jiang in her downgrade report.