Meituan is navigating a challenging phase of profit recovery.

Its latest financial results reveal resilient first-quarter revenue, though profitability has declined amidst intensified competition in food delivery.

On June 1st, the company reported total revenue of 91 billion yuan for Q1 2026, representing a 5.6% year-over-year increase and surpassing the estimated 90.79 billion yuan, indicating continued steady growth on the top line.

The adjusted net loss for the period stood at 4.97 billion yuan, which was an improvement compared to the market's estimated loss of 6.83 billion yuan.

On a sequential basis, the loss narrowed substantially from the 15.1 billion yuan loss recorded in Q4 2025.

The significant profit decline was driven by a sharp increase in marketing expenses.

To counter fierce competition and maintain user engagement, sales and marketing expenses for the quarter surged 51.1% year-over-year to 23 billion yuan, raising their proportion of revenue from 17.6% to 25.2%.

Concurrently, higher rider subsidies, expansion in grocery retail and overseas operations collectively pushed up the cost of sales.

This cost as a percentage of revenue expanded significantly from 62.8% to 71.5%, causing gross profit to plummet from 32 billion yuan to 26 billion yuan.

Furthermore, a 746 million yuan fine imposed by the State Administration for Market Regulation due to compliance deficiencies in merchant qualification reviews further eroded other income.

It is noteworthy that starting from Q1 2026, Meituan has updated its revenue presentation to better align with the evolution of its "Retail + Technology" strategy.

Key changes include: separately disclosing product sales revenue, primarily from grocery retail businesses like Xiaoxiang Supermarket and Kuailv, as well as self-operated categories such as pharmaceuticals and alcohol, recognized using the gross method upon transfer of control; and consolidating merchant service revenue, which includes commission and online marketing service income, to reflect the integrated value proposition provided to platform merchants.

Core Local Commerce: From Cash Cow to Under Pressure

Revenue for the Core Local Commerce segment this quarter grew only 0.1% year-over-year to 64.1 billion yuan, while operating profit plunged from 13.5 billion yuan (21.1% margin) in the same period last year to an operating loss of 2 billion yuan (a loss margin of 3.2%).

The primary reason for the near-stagnant revenue was the significant direct deduction of subsidies from the revenue side.

Although transaction volume and the number of active advertising merchants increased, the erosion effect of subsidies on revenue was pronounced.

The deterioration in operating performance was squeezed by a dual pressure of declining gross margin and soaring marketing expenses: the former stemmed from increased rider subsidies and benefits, while the latter reflected heightened user incentives and brand promotion investments to address competition.

However, there are positive signals on a sequential basis.

Compared to the approximately 10 billion yuan operating loss in the Core Local Commerce segment in Q4 2025, the loss this quarter has narrowed significantly to 2 billion yuan, indicating rapid improvement in the losses of the instant delivery business.

Management stated that as competition stabilizes, the company is applying subsidies more prudently; meanwhile, core user consumption frequency and diversified demand continue to rise, and the penetration of premium services like "1-to-1 Express Delivery" is steadily expanding.

New Initiatives: Losses Narrow, Growth Robust

The New Initiatives segment performed relatively well this quarter, with simultaneous improvement in both revenue and loss margin.

Quarterly revenue grew 21.3% year-over-year to 27 billion yuan, while the operating loss narrowed slightly from 2.3 billion yuan a year ago to 2.1 billion yuan, improving the operating loss margin by 2.4 percentage points from 10.2% to 7.8%.

Revenue growth and loss narrowing were primarily driven by two engines: first, the "Xiaoxiang Supermarket" grocery retail business, which achieved steady expansion by continuously broadening geographical coverage, increasing the proportion of private-label products, and strengthening supply chain capabilities; second, the Keeta overseas business, which improved operational efficiency in mature markets while maintaining strong growth in new markets.

Additionally, the company closed its "Meituan Youxuan" community group buying business at the end of 2025, and the associated drag is gradually fading, further optimizing the revenue structure.

From a revenue type perspective, the transformation effect of the "Retail + Technology" strategy is particularly evident.

Product sales revenue within New Initiatives grew 40.7% year-over-year to 18 billion yuan, becoming the fastest-growing revenue type across the entire group and validating the strategic feasibility of extending from service retail to product retail.

Cost Structure: All Three Major Expense Lines Rise, AI Investment Accelerates

All major operating expense lines increased this quarter, reflecting the company's position in a period of substantial strategic investment.

Cost of Sales: Increased 20.2% year-over-year to 65.1 billion yuan, with its proportion of revenue climbing 8.7 percentage points to 71.5%.

The increase primarily came from higher rider subsidies and benefits, grocery retail expansion (where product costs are recognized using the gross method), and overseas business costs.

Improvements in grocery retail operational efficiency partially offset the pressure.

Sales and Marketing Expenses: Surged 51.1% year-over-year to 23 billion yuan, with their proportion of revenue jumping from 17.6% to 25.2%.

This was the largest single factor dragging down profits, directly reflecting the intensity of competitive spending this quarter.

Research and Development Expenses: Increased 22.0% year-over-year to 7 billion yuan, raising their proportion of revenue by 1 percentage point to 7.7%.

The increase was mainly driven by heightened corporate-level AI investments.

AI assistant "Xiao Tuan," merchant-side "Smart Shopkeeper" (serving over 700,000 F&B merchants), "Digital Employee" (serving over 300,000 service retail merchants), and the hotel AI solution "Ji Bai" all saw accelerated deployment this quarter.

General and Administrative Expenses: Increased 11.9% year-over-year to 2.9 billion yuan, primarily driven by tax surcharges and rising overseas operational costs due to business scale expansion, with their proportion of revenue remaining stable at around 3.2%.

Leveraging Ecosystem Value to Counter Subsidy Wars

Management has outlined the deployment path for the remainder of 2026: focusing on enhancing user experience and providing full-chain merchant empowerment, adhering to prudent and steady operations, while accelerating the deep integration of AI in both the physical and digital worlds.

Whether it's "Xiao Tuan Health Manager" connecting online consultations with medication purchases or the scaled deployment of various AI operational tools for merchants, all point to a common strategic intent—using platform ecosystem value to counter pure price subsidy wars.

The core question of greatest concern to investors remains unchanged: when will the competitive landscape in the food delivery market substantially stabilize?

Judging from the sequential recovery trajectory this quarter, the worst point may have passed, but a full year-over-year recovery in profitability still awaits validation in subsequent quarters.