Meituan snaps losing streak with profitable June quarter though Douyin threat looms

Meituan, the on-demand delivery behemoth headquartered in Beijing, returned to profit in the second quarter after a three-quarter losing streak. The company reported an adjusted net profit of 2.5 billion yuan, surpassing market expectations by a wide margin. Revenue also increased by 14.4% year-over-year to 105 billion yuan, beating the estimated 101 billion yuan. The company's Hong Kong-listed shares maintained a flat price of HK$77.50 following the earnings announcement.

Meituan's surge in profitability stems from a shift in strategy as the fierce price war in China's food delivery market subsided. The company began scaling back subsidies and concentrating on high-value customers and larger orders, resulting in a 52.3% year-over-year increase in operating profit for its local commerce division, which primarily drives revenue through domestic food delivery and in-store services.

However, Meituan faces an emerging threat from Douyin, the Chinese counterpart to TikTok. Li Chengdong, founder and chief analyst at Dolphin, an e-commerce consultancy, warns that Douyin's massive user engagement and promotional strategies could siphon traffic away from Meituan's transaction platform. Douyin, with over 1 billion monthly active users, is leveraging short-video algorithms and live streaming to attract restaurant chains and offer discounted meals, posing a structural, long-term challenge to Meituan's in-store business.

Despite this challenge, Meituan is pursuing growth abroad and investing in artificial intelligence to pivot from a traditional transaction platform to a tech-driven services company. The company's expansion through the Keeta platform and advancements in AI, autonomous delivery, and embodied robotics could provide long-term valuation growth and diversify its offerings beyond traditional food delivery.