Meituan's first-quarter results comprehensively surpassed Wall Street's pessimistic forecasts, signaling the company's emergence from a price war and a return to normalized profitability.

The latest financial report shows that for the first quarter of 2026, Meituan reported revenue of 91 billion yuan, with an adjusted net loss of 4.97 billion yuan, a significant improvement from the 15.1 billion yuan loss in Q4 2025. Affected by intensified competition, the core local commerce segment turned from profit to loss, and marketing expenses surged 51.1% to 23 billion yuan. Revenue from new businesses grew 21.3%, with losses narrowing.

According to recent research notes from Morgan Stanley and UBS, the core financial data sends a clear signal: the brutal price war in food delivery is cooling down, and the company's profitability is returning to a normal track at a faster-than-expected pace.

Simultaneously, the company's overall loss narrowed sharply in the first quarter. The unit economics (UE) of the instant delivery business improved significantly, while both the average order value (AOV) and market share for food delivery stabilized. This indicates Meituan is extracting itself from the quagmire of "burning cash for growth," with its core logic shifting from concerns over cash burn to margin expansion and improved efficiency in new businesses.

Based on this strong performance, both Morgan Stanley and UBS reiterated their bullish stances. Morgan Stanley maintained its "Overweight" rating and HK$120 target price, while UBS maintained its "Buy" rating and HK$128 target price. Both major investment banks agree that Meituan's food delivery business could achieve breakeven in the second quarter, marking the full commencement of its path to profitability normalization.

Morgan Stanley's Perspective: Losses Narrow Faster Than Expected, CLC Profit Forecast Raised, Target Price HK$120

In its latest research report, Morgan Stanley maintained its "Overweight" rating and HK$120 target price (implying a forward P/E of 18x for 2027) for Meituan. It also raised its 2026 operating profit forecast for the Core Local Commerce (CLC) segment by 12%, reflecting faster-than-expected narrowing of food delivery UE losses.

Key Drivers of the Better-Than-Expected Q1 Performance

Morgan Stanley noted that the biggest positive surprise in Q1 came from the narrowing losses in the instant delivery business. The CLC operating loss was 2.03 billion yuan, significantly better than Morgan Stanley's estimate of a 4.268 billion yuan loss and the market consensus of a 4.376 billion yuan loss, exceeding expectations by 33.3%. The overall CLC operating margin was -3.2%, narrowing by 24 percentage points year-on-year.

Food Delivery UE: Breakeven Possible in Q2

Morgan Stanley expects CLC operating profit to turn positive to around 3 billion yuan in Q2 (including membership investments). The overall loss for the instant delivery business is expected to further narrow to approximately 437 million yuan (with food delivery contributing a profit of about 313 million yuan and instant retail "Flash" incurring a loss of about 750 million yuan).

Management indicated that food delivery UE had already turned profitable in April and May, with the June trend dependent on the intensity of promotional activities. Morgan Stanley believes Meituan's unit economic advantage over Alibaba in food delivery further widened to about 3 yuan per order in Q1 (from 2 yuan in Q4), indicating the competitive landscape has largely stabilized. Meituan maintained a 70% market share in orders above 30 yuan, with its estimated comprehensive GTV share around 60%.

In-store, Hotel & Travel (IHT): Competitive Pressure Remains, Margins Largely Stable

Morgan Stanley expects IHT GTV and revenue growth in Q2 to be similar to Q1, at around 11% and 9% respectively, with operating profit around 4.3 billion yuan and an operating margin stable quarter-on-quarter at 25%. At the regulatory level, stronger policy support could help Meituan gain more share in high-star hotels, but the in-store dining business still faces competitive pressure from Douyin's continued subsidy increases. Morgan Stanley expects margins to remain largely stable in the second half but will continue monitoring competitive dynamics.

New Initiatives: Losses Slightly Widen, Keeta International Focuses on Profitability

Morgan Stanley expects new business operating losses to widen slightly in Q2 to around 2.4 billion yuan (from 2.1 billion yuan in Q1), mainly due to expansion of Xiaoxiang Supermarket (currently in 55 cities) and continued investment in Keeta. The Hong Kong business has achieved sustained profitability, while UE improvement in Saudi Arabia has significantly accelerated, with breakeven expected at some point in 2026 and full profitability in the 2027 fiscal year. Morgan Stanley notes that Meituan will continue prioritizing profitability improvement for its Keeta international business over market expansion.

UBS's View: Clear Path to Profitability Normalization, Raises 2027-2028 Profit Forecasts, Target Price HK$128

In its latest report, UBS maintained its "Buy" rating and HK$128 target price (based on a SOTP sum-of-the-parts valuation) for Meituan. Following the Q1 results, it made minor adjustments to its 2026 forecasts while raising its 2027-2028 EPS forecasts by 15%-19%.

Q1 Performance: Adjusted Operating Loss Significantly Better Than Expected

UBS noted that Q1 total revenue grew 5.6% year-on-year to 91.039 billion yuan, meeting expectations. The adjusted operating loss was 4.146 billion yuan, significantly better than the market consensus loss of 7.047 billion yuan, primarily due to significant improvement in instant retail (Flash) UE. The non-IFRS net loss was 4.968 billion yuan, better than the consensus loss of 6.719 billion yuan, exceeding expectations by 26.1%.

Food Delivery: Order Value Recovers, Share Stabilizes, UE Repair Accelerates

UBS holds a positive view on the food delivery business. Q1 food delivery order volume growth was approximately +8% year-on-year, while revenue declined 7% year-on-year, though this improved from -10% in Q4, mainly due to some narrowing of subsidies.

On competition, management stated that Meituan's market share relative to Alibaba continued to improve in terms of order volume and GTV, with food delivery order volume/GTV share maintained above 55%/60%, and share of orders above 30 yuan maintained at 70%.

UBS specifically highlighted a more noticeable recovery in average order value (AOV) since March, attributed to Meituan's stronger user stickiness and reduced user sensitivity to subsidies, driving profitability improvement in April and May. However, this may dip in June due to promotional activities. UBS expects the food delivery business to approach breakeven in Q2 (compared to a loss of about 0.9 yuan per order in Q1), benefiting from favorable seasonal factors. However, UE may slightly decline in the second half due to seasonal rider subsidies. UBS forecasts full-year 2026 food delivery UE at a loss of 0.3 yuan per order. Further relaxation of regulatory constraints on competition, leading to reduced subsidies, would provide upside to UE.

In-store Business: Competitive Landscape Differentiates, Margins Remain Stable

UBS holds a neutral view on the in-store business. Q1 in-store GTV growth was approximately +12% year-on-year, with revenue growth around +8% (compared to +10% in Q4). The operating margin remained stable quarter-on-quarter at about 25%. The impact of a soft macro environment and increased subsidies from Douyin was partially offset by Meituan reducing subsidies in non-core categories. UBS believes the differentiation in competitive strategies between Meituan and Douyin across categories is becoming more apparent, with both focusing more on profitability than previous intense competition. Looking to Q2, UBS expects GTV/revenue growth to remain at +12%/+8%, with margins stable at 25%.

CLC Overall: Q2 Operating Profit Expected to Turn Positive

UBS expects Q2 CLC revenue growth to accelerate to about +5% (from +0.1% in Q1), with operating profit turning positive to around 3.2 billion yuan from a loss of 2.03 billion yuan in Q1. This forecast includes approximately 800 million yuan in brand advertising and membership rights investments (500 million yuan in Q1) aimed at retaining core users.

New Initiatives: Keeta Efficiency Improves, Losses Narrow

UBS noted that Q1 new business operating losses narrowed significantly quarter-on-quarter to 2.116 billion yuan (from 4.650 billion yuan in Q4), primarily benefiting from improved operational efficiency at Keeta. For Q2, UBS expects new business losses to widen slightly to around 2.4 billion yuan, driven by initial losses from newly entered markets.