Morgan Stanley Meituan performance review: No surprises, no shocks; the core game remains in the recovery of market share and profit margins.

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Meituan's fourth quarter performance largely matched its previous profit warning, with no surprises beyond expectations, nor any additional downside shocks. Morgan Stanley maintains an overweight rating and target price of HKD 120 for Meituan. The core investment logic remains unchanged; market share trends and the profitability recovery path are still the key variables determining the share price direction.

According to Zhui Feng Trading Desk, Morgan Stanley released its commentary on Meituan's results: Meituan's total revenue for the fourth quarter grew 4% year-on-year to RMB 92.1 billion, in line with market expectations and Morgan Stanley's forecasts. Adjusted EBITDA loss was about RMB 14 billion, narrower than Morgan Stanley's forecast of -RMB 14.9 billion, and overall within an acceptable range.

The core local commerce segment recorded an operating loss of around RMB 10 billion, slightly better than Morgan Stanley's forecasted loss of around RMB 11.1 billion, and generally in line with the previous profit warning guidance. New business segment revenue grew 19% year-on-year, slightly beating expectations, but operating loss expanded to RMB 4.7 billion, mainly dragged down by overseas investments.

Morgan Stanley judged that this set of results had "no change" in the company's investment logic. Financial results relative to market consensus were "basically in line," and consensus profit forecast direction for the next 12 months is "largely unchanged."

Performance Overview: Revenue Growth Slows, Losses Narrow Sequentially

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% sequentially. The figure differed by less than 0.2% from Morgan Stanley's forecast of RMB 92.2 billion and market consensus of RMB 92.3 billion.

Gross profit was RMB 24.1 billion, down 28% year-on-year, with gross margin under notable pressure. Adjusted net loss was RMB 15.1 billion, with an adjusted net margin of -16.4%, slightly narrower than last quarter's -16.8%. However, compared to last year's same period's positive profit margin of 11.1%, there was a year-on-year decline of 27.5 percentage points.

Operating loss was RMB 16.1 billion, narrowing 19% sequentially. This was basically level with market consensus operating loss of RMB 16.0 billion, but markedly better than Morgan Stanley's forecast of RMB 19.3 billion, a difference of about 16.7%. Overall, the sequential narrowing of losses this quarter is the most noteworthy marginal change.

Core Local Commerce: Losses Narrow, But Margins Remain Under Heavy Pressure

Core local commerce segment fourth quarter revenue was RMB 64.8 billion, down 1% year-on-year, slightly below Morgan Stanley's forecast and market consensus of around RMB 65.4 billion, with deviation within 1%.

This segment recorded an operating loss of around RMB 10 billion, swinging from profit to loss year-on-year, with an operating profit margin of -15.5%, about 35 percentage points lower year-on-year.

However, in comparison, the loss was better than Morgan Stanley's prediction of -RMB 11.1 billion and market consensus of -RMB 10.9 billion, and in line with the company's prior profit warning guidance, with no extra unexpected deterioration.

Sequentially, core local commerce operating loss narrowed from RMB 14.1 billion last quarter to RMB 10 billion, and operating margin improved from -20.9% to -15.5%, a sequential improvement of about 5.4 percentage points. This was the most obvious positive signal this quarter.

New Business Segment: Revenue Beats, But Overseas Investment Widens Losses

New business segment fourth quarter revenue was RMB 27.3 billion, up 19% year-on-year, slightly beating Morgan Stanley's and market consensus forecasts of RMB 26.9 billion by about 1%, showing continued momentum on the revenue side.

However, new business operating loss expanded sharply from RMB 1.3 billion last quarter to RMB 4.7 billion, a quarter-over-quarter deterioration of 264%. Operating loss margin jumped from -4.6% to -17.1%.

Morgan Stanley pointed out the widened loss was mainly driven by overseas business investment. This result was slightly worse than Morgan Stanley's forecast of -RMB 4.4 billion, and the deviation versus market consensus of -RMB 3.9 billion was more notable.

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

Rating & Core Game: Overweight Maintained, Key Variables are Share and Margin

Morgan Stanley maintains an overweight rating on Meituan, with a target price of HKD 120, offering about 38% upside from the current share price of HKD 86.70. Valuation methodology is based on a DCF model, with core assumptions of a 12% weighted average cost of capital and 3% perpetual growth rate.

Morgan Stanley analyst Gary Yu believes the company investment view remains unchanged after this set of results.

Upside risks include rising market share in the food delivery business accompanied by margin improvements, further monetization of merchant ARPU, and new business investment beginning to yield returns. Downside risks encompass intensified competition in food delivery and instant retail, continued losses in new business, a weaker macro environment, and antitrust regulation.

As for current market focus, the slope of margin recovery in the core local commerce segment and the trend of market share under intense competition remain the two core variables driving Meituan's valuation reassessment. In the short term, this game pattern is unlikely to change fundamentally.

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