To The Moon

📉 Meituan’s 90% Profit Plunge! Can Alibaba Survive the Food Delivery War?

Meituan just shocked the market with a staggering 90% year-on-year profit collapse in Q2. The stock slid sharply, and investors are scrambling to figure out whether this is a one-off stumble or a structural warning for China’s platform economy.

At the heart of the drama? China’s food delivery war. Aggressive subsidies, slowing consumer spending, and rising competition are squeezing margins for even the biggest names. With Alibaba’s Ele.me directly in the line of fire, this isn’t just Meituan’s problem — it’s a test of whether anyone can make money in China’s hyper-competitive online-to-offline (O2O) market.

---

⚔️ The Food Delivery Battlefield

Food delivery is one of the most visible consumer-facing industries in China. Billions of orders flow through apps every quarter, but profitability is razor-thin. Meituan dominates with around 70% market share, while Alibaba’s Ele.me fights to hold relevance.

To protect market share, both sides are spending heavily on discounts, subsidies, and promotions. That strategy might boost GMV (gross merchandise value), but it crushes margins. Meituan’s operating margin shrank to just 2% in Q2, compared with double digits only a few years ago.

> “The war for market share may keep consumers happy, but it’s leaving investors hungry,” one analyst quipped.

This is the paradox: the bigger the platforms grow, the more they burn to defend their turf.

---

📊 What Went Wrong for Meituan?

Meituan’s $MEITUAN(MPNGF)$   Q2 revenue actually grew, but profits plunged 90% to RMB 220M, far below expectations. The company blamed higher marketing spend and investments in new services like grocery delivery.

Key takeaways for investors:

Subsidy spiral: Meituan cannot easily pull back on discounts without risking market share loss to Ele.me.

Consumer weakness: Despite signs of China’s recovery, households are still cautious. Big-ticket spending lags, and even food orders show price sensitivity.

Diversification risk: Expansion into groceries, ride-hailing, and community group buying has boosted revenue but diluted profitability.

For a stock that had rallied on hopes of recovery, this sudden collapse in margins was a brutal wake-up call.

---

🛒 What About Alibaba?

Investors immediately turned to Alibaba (BABA) — set to report earnings on Aug 29. Expectations: RMB 266B revenue (+9.4% YoY) but EBITA down -21.7%.

Alibaba’s food delivery arm, Ele.me, is smaller than Meituan’s empire. But if Meituan is bleeding from subsidies, Ele.me is almost certainly under pressure too. That could drag on Alibaba’s already-strained profits.

Still, Alibaba has advantages Meituan doesn’t:

Diversified ecosystem (Taobao, Tmall, AliCloud) cushions food delivery weakness.

Scale in e-commerce logistics helps reduce delivery costs.

Financial firepower allows it to endure longer subsidy battles.

The risk, however, is that investors expecting Alibaba to surprise on the upside may be disappointed if O2O losses offset e-commerce gains.

---

🤔 Retail Investor Dilemma: Bargain or Trap?

For Tigers watching this sector, the key question is: are we looking at short-term noise or long-term erosion?

Bullish case:

Meituan and Alibaba still control massive ecosystems — food delivery is just one part of their growth.

Subsidy wars eventually end, leaving dominant players stronger.

China’s urbanization and lifestyle changes mean food delivery demand will keep rising.

Bearish case:

Profitability in food delivery may remain elusive for years.

Consumer confidence is fragile; stimulus has yet to produce a sustained rebound.

Valuations could be vulnerable if investors start pricing in structural weakness, not just cyclical pain.

---

💡 Broader Context: Lessons for China Tech

Meituan’s profit collapse is not just about one company. It highlights a broader risk in Chinese consumer tech stocks: big revenue numbers don’t always translate into sustainable profits.

We’ve seen this before with Didi (ride-hailing) and Pinduoduo (e-commerce), where aggressive subsidies built scale but punished margins.

The message for retail investors: watch profitability, not just growth.

---

📉 Technicals & Market Sentiment

From a chart perspective, Meituan’s plunge broke below its 50-day moving average, raising the risk of further downside unless support holds around HK$110. Alibaba, meanwhile, has lagged tech peers, with investors hesitant ahead of earnings.

Options data shows traders buying calls on Pinduoduo (PDD) instead, betting that it may ride consumer recovery better than Meituan or Alibaba. That divergence is worth watching.

---

📢 Takeaways for Retail Investors

1. Don’t chase subsidies: if profits are collapsing, revenue growth is meaningless.

2. Alibaba earnings are critical: BABA could either reassure investors or confirm that Meituan’s pain is sector-wide.

3. Valuations matter: Meituan’s high multiples look risky after a 90% profit plunge. Alibaba’s ~16x forward PE looks more grounded.

4. Macro watch: China’s consumer confidence and policy support will decide whether these platforms rebound or stagnate.

---

❓ Discussion Time

So, Tigers — where do you stand?

Is Meituan’s 90% profit plunge a buying opportunity or a warning to stay away?

Do you think Alibaba’s upcoming earnings will hold up better, or will food delivery drag it down too?

Longer term, which e-commerce platform do you see as the real winner: Meituan, Alibaba, or PDD?

@TigerStars  @Tiger_comments  @Daily_Discussion  @TigerEvents  @TigerWire