Morgan Stanley Meituan Earnings Review: No Shocks, No Surprises; Core Focus Remains on Market Share and Profit Margin Recovery

Meituan's fourth-quarter results were basically in line with its previous profit warning, with no surprises exceeding expectations and no additional downside shocks. Morgan Stanley maintained its Overweight rating and target price of HK$120 for Meituan, as the core investment thesis remains unchanged. Market share trends and the profit margin recovery path continue to be the key variables determining the stock price direction.

According to Zhuifeng Trading Desk, Morgan Stanley released an earnings review on Meituan. Meituan's total revenue in the fourth quarter increased by 4% year-on-year to RMB 92.1 billion, which was largely consistent with market expectations and Morgan Stanley's forecast. The adjusted EBITDA loss was approximately RMB 14 billion, narrowing from Morgan Stanley's expectation of -RMB 14.9 billion, falling within an acceptable range.

The core local commerce segment's operating loss was approximately RMB 10 billion, slightly better than Morgan Stanley's expected loss of RMB 11.1 billion and largely consistent with the guidance in the previously issued profit warning. New initiatives revenue grew 19% year-on-year, slightly exceeding expectations, but the operating loss expanded to RMB 4.7 billion, primarily dragged down by investments in overseas operations.

Morgan Stanley judged that this performance has "no change" on the company's investment thesis, the financial results were "basically in line" with market consensus, and the direction of the consensus earnings forecast for the next 12 months remains "largely unchanged."

Overall Performance: Slowing Revenue Growth, Narrowing Loss Margin

Meituan's total revenue for the fourth quarter of fiscal year 2025 was RMB 92.1 billion, up 4% year-on-year and down 4% quarter-on-quarter. This was less than a 0.2% difference from Morgan Stanley's forecast of RMB 92.2 billion and the market consensus of RMB 92.3 billion.

Gross profit was RMB 24.1 billion, a 28% year-on-year decline, showing clear pressure on gross margin. The adjusted net loss was RMB 15.1 billion, with an adjusted net margin of -16.4%, narrowing slightly from -16.8% in the previous quarter. however, compared to the 11.1% positive profit margin in the same period last year, the year-on-year decline reached 27.5 percentage points.

The operating loss was RMB 16.1 billion, narrowing 19% quarter-over-quarter. This was largely flat compared to the market consensus operating loss of RMB 16.0 billion and significantly better than Morgan Stanley's forecast of an RMB 19.3 billion operating loss, a difference of approximately 16.7%. Overall, the quarter-over-quarter narrowing of the loss margin is the most noteworthy marginal change this quarter.

Core Local Commerce: Narrowing Loss, but Profit Margin Still Under Significant Pressure

Revenue for the core local commerce segment in the fourth quarter was RMB 64.8 billion, a 1% year-on-year decrease. This was slightly different from Morgan Stanley's forecast and the market consensus of approximately RMB 65.4 billion, with a deviation of less than 1%.

The segment's operating loss was approximately RMB 10 billion, turning from a profit to a loss year-on-year. The operating profit margin was -15.5%, a decrease of about 35 percentage points year-on-year.

However, on a horizontal comparison basis, this loss was better than Morgan Stanley's forecast of -RMB 11.1 billion and the market consensus of -RMB 10.9 billion. It was also largely consistent with the guidance given in the company's previous profit warning, with no additional unexpected deterioration.

On a quarter-over-quarter basis, the operating loss for core local commerce narrowed from RMB 14.1 billion in the previous quarter to RMB 10 billion. The operating profit margin improved from -20.9% to -15.5%, a quarter-over-quarter improvement of approximately 5.4 percentage points, which is the most significant positive signal this quarter.

New Initiatives Segment: Revenue Exceeds Expectations, but Overseas Investment Widens Losses

Revenue for the new initiatives segment in the fourth quarter was RMB 27.3 billion, a 19% year-on-year increase, slightly exceeding Morgan Stanley's forecast of RMB 26.9 billion and the market consensus of RMB 26.9 billion by about 1%, showing that the revenue momentum in this segment remains.

However, the operating loss for new initiatives significantly widened from RMB 1.3 billion in the previous quarter to RMB 4.7 billion, a 264% quarter-over-quarter deterioration. The operating loss margin jumped from -4.6% to -17.1%.

Morgan Stanley pointed out that the widening loss was primarily driven by investment in overseas business. This figure was slightly worse than Morgan Stanley's forecast of -RMB 4.4 billion and showed a more significant deviation from the market consensus of -RMB 3.9 billion.

The low visibility and asset-heavy nature of the new initiatives segment remain among the major downside risks listed by Morgan Stanley.

Rating and Core Focus: Overweight Maintained, Key Variables are Market Share and Profit Margin

Morgan Stanley maintained its Overweight rating for Meituan with a target price of HK$120, representing approximately 38% upside from the current stock price of HK$86.70. The valuation methodology is based on a DCF model, with core assumptions of a 12% weighted average cost of capital and a 3% perpetual growth rate.

Morgan Stanley analyst Gary Yu believes the investment view on the company remains unchanged following these results.

Upside risks include a rebound in food delivery market share accompanied by margin improvement, further monetization of merchant ARPU, and new business investments starting to deliver returns. Downside risks include intensifying competition in food delivery and instant retail, continued losses in new initiatives, a weakening macroeconomic environment, and anti-monopoly regulations.

Regarding the current market focus, the slope of profit margin recovery in core local commerce and the trend of market share in a highly competitive environment remain the two core variables driving Meituan's valuation re-rating. This competitive landscape is unlikely to undergo a fundamental transformation in the short term.