After the Trough

After the Trough

Figures converted from Chinese renminbi at historical FX rates — see data/company.json.fx_rates. Ratios, margins, and multiples are unitless and unchanged.

The subsidy war that turned a record 2024 into a 2025 loss reached its worst point in the third quarter of 2025, when Core Local Commerce ran a $1.8 billion operating loss — a negative 20.9% margin on a segment that ran at a 20.9% profit margin in 2024. It has narrowed every quarter since. By the first quarter of 2026 the Core loss was $0.3 billion, management describes subsidies as "more rational," and the cash pile has refilled. The de-escalation is real; the recovery is not yet complete.

Where earlier chapters established that the 2025 collapse was a discretionary fight for price rather than a loss of customers (Order Density) and that the price already embeds a partial recovery (What's Priced In), this chapter tracks the series that speaks most directly to which reading is winning: the Core Local Commerce operating margin, quarter by quarter, as the war escalated and then cooled.

The quarterly arc

Core Local Commerce is the profit engine — food delivery, in-store, hotel and travel — and its operating margin is where the war shows up first. In 2024 it ran at 20.9% for the full year [1]. JD entered food delivery in February 2025, Alibaba's Ele.me escalated, and the margin followed a clean path down and back up.

Source: quarterly results announcements, segment information — Q2 2025 [2]; Q3 2025 [3]; FY2025 annual report [4]; Q1 2026 [5].

The shape matters more than any single point. The first quarter of 2025 still carried the pre-war economics — a $1.7 billion Core operating profit on $8.2 billion of revenue [6]. By the second quarter the margin had thinned to 5.7% [7]. The third quarter was the trough: a $1.8 billion Core operating loss, the deepest of the war, as all three platforms spent through the summer peak season [8]. The fourth quarter loss narrowed to about $1.3 billion, and the first quarter of 2026 to $0.3 billion [9]. The margin has narrowed for two consecutive quarters off the third-quarter 2025 trough — a recovery of 17.7 points across a three-quarter window, on roughly flat revenue — the strongest evidence yet that 2025 was a dip rather than a reset, but the line is still below zero, and the 2024 profit engine has not been rebuilt.

The latest quarter, in the numbers

The first quarter of 2026 is the freshest read, and the one that carries the recovery signal.

Source: Q1 2026 Results Announcement, financial summary and management discussion [10].

Revenue grew 5.6% year over year to $11.6 billion even as the company held subsidies tighter, and the reported net result was a $0.9 billion loss against a $1.3 billion profit a year earlier [11]. Total segment operating profit was negative $0.5 billion, split between a $0.3 billion Core loss and a New Initiatives loss that narrowed to $0.3 billion; adjusted net profit was negative $0.6 billion [12]. The Core operating margin of negative 3.2% compares with positive 21.1% a year earlier — the year-over-year gap is still large — but against the negative 20.9% trough two quarters before, the sequential move is what changed [13].

The table below sets the war window out in full, so the two comparisons — down 24 points year over year, up 18 points off the trough — sit side by side.

Source: quarterly results announcements and FY2025 annual report, segment information [14] [15] [16] [17].

Revenue held roughly flat across the five quarters — the platform kept its orders through the war, consistent with the demand-side durability shown earlier (Order Density). What moved was the margin, and it has moved back toward zero rather than settling at the bottom.

Management's read, and the condition attached

Management frames the first quarter of 2026 as the war cooling. The results announcement attributes the quarter's performance to "the moderation of intense industry competition" and "a more disciplined approach to subsidies" [18]. On the earnings call, management said industry subsidies "became more rational" during the quarter, shifting competition back toward execution, user experience and operational efficiency — the ground on which Meituan believes it holds an edge [19]. The same call noted that the "irrational subsidy moderated compared with the last quarter" while food delivery still added a large number of new users [20].

The forward statement is where the calibration sits, because management attached a condition and a warning to it. It expects "meaningful unit economics improvement in Q2 if competition stays rational" — the recovery is conditioned on the truce holding, not assumed — and it cautioned that second-half order growth could turn negative year over year on tougher comparisons, with delivery costs seasonally higher in the third and fourth quarters [21]. That is the honest counter to the recovery line: the improvement so far runs on a rival's restraint, and Meituan's own guide is for slower volume growth ahead. A single re-escalation by JD or Alibaba would show up in the next quarter's margin the way the last one did.

The cash cost, and the refill

The war was expensive in cash, and the balance sheet shows both the drain and the refill. At the third-quarter trough, cash and treasury investments had fallen to $18.2 billion — $12.7 billion of cash plus $5.4 billion of treasury investments — as the company funded a $2.1 billion adjusted net loss and a $1.9 billion adjusted EBITDA loss in the quarter [22]. By the end of the first quarter of 2026, liquidity had rebuilt to $23.0 billion — $14.9 billion of cash plus $8.1 billion of treasury investments — as the losses narrowed [23]. The fortress balance sheet documented earlier (Founder and Capital) absorbed the worst year without strain, and it is refilling as the operating losses shrink — which is why the war was survivable at this depth but would become a genuine constraint only if the trough recurred and persisted.

What would settle it

The dip-versus-reset question is now most sensitive to one observable series — the Core operating margin — and the next two quarters carry it. If the Core Local Commerce operating margin continues its climb and crosses back above zero in the second or third quarter of 2026 while revenue holds, the 2025 loss reads as a discretionary, competition-driven dip that is unwinding — the value in the shares would sit toward the middle-to-cheap end of the scenarios in What's Priced In. If instead the margin stalls in negative territory, or a re-escalation drives it back down, the reset tail stays live and the stock is dear on any normalized-earnings measure.

Three datapoints resolve it, in order of weight. First, the Core operating margin trajectory — the direct measure, which has narrowed for two consecutive quarters off the third-quarter 2025 trough, 17.7 points across a three-quarter window and still below zero. Second, whether JD's guided-down 2026 investment and Alibaba's posture actually hold through the second half, against management's own warning that order growth could turn negative. Third, whether the refilling balance sheet is redeployed — a resumed buyback at the depressed price would be management's own signal on where it thinks value sits (Founder and Capital). The first of those prints in August 2026, with the half-year results.