Meitu, Inc. ("Meitu" or the "Company"), has announced its annual results for the twelve months ended December 31, 2018. Highlights during this period are as follows:
- The Meitu app's number of monthly active users ("MAU") grew to 117.4 million by December 31, 2018 and reached a historic high of 119.2 million in February 2019.
- The Company's social strategy achieved great progress. In December 2018, approximately 51% of the Meitu app's MAU were social users, i.e. users who were active on the Meitu social platform. Content on the Meitu social platform achieved approximately 8 billion page views for the month.
- The percentage of social users who logged in with Meitu Accounts (MTid) increased from around 17% when it was launched in late September 2018 to approximately 50% in February 2019.
- Internet business revenue grew by 26.3% year on year to RMB947.7 million, of which online advertising revenue grew by 101.9% year on year to RMB620.9 million.
- The Company has restructured its unprofitable and asset-heavy e-commerce and smartphone businesses.
1. Early Success for the Beauty and Social Media strategy
The Company announced its Beauty and Social Media strategy in 2018, the core of which is to transform the Meitu app from a photo-editing tool to a social media platform.
Since it was fully launched in late September of 2018, the Meitu app's transformation has been very promising. The Meitu app’s MAU grew to 117.4 million on December 31, 2018, of which approximately 51%, or over 60 million, were social users, i.e. users who were active on the Meitu social platform. Within three months since its launch, photo and video content on the Meitu social platform reached approximately 8 billion page views. Driven by significantly improved user engagement, the percentage of social users who logged in with a Meitu Account (MTid) increased to approximately 50% in February 2019, up from around 17% when the social platform was first launched.
This early success has laid a solid foundation to drive advertising revenue. The Company will continue to build a decentralized social platform with recommendation algorithms that accurately match users with relevant content.
2. Internet business has maintained growth momentum with a strong performance in online advertising
In 2018, revenue from the Internet business segment increased by 26.3% year on year to RMB947.7 million. Gross profit from this segment increased by 134.8% to RMB492.1 million and the gross profit margin was 51.9% for the year, compared to 27.9% in 2017. The increase of gross profit margin was mainly driven by the rapid growth in the advertising business, which carried a substantially higher margin and made up a higher proportion of the Internet business for 2018.
Driven by both brand and programmatic advertising, revenue from online advertising increased by 101.9% year on year to RMB620.9 million in 2018. This highlights the significant progress the Company has made to monetize its user base. For brand advertising, the Company has achieved growth in both the number of advertisers and the spending per advertiser.
Furthermore, MEITUGENIUS (also known as Meitu Magic Mirror), a virtual makeup solution provider, was launched in major beauty retail stores, including DFS, Sephora, Make Up For Ever, Watson, Clarins and the world's first Givenchy Beauty Boutique in Nanjing, China. Powered by AI, the MEITUGENIUS generates accurate product recommendations for customers. This represents the Company's new online-to-offline sales strategy that will bring more innovative possibilities for beauty brands and retailers. All these efforts have encouraged growth over the past year.
Internet Value-Added Services and others
In 2018, revenue from Internet Value-Added Services and others decreased by 26.2% year on year to RMB326.8 million. The Company's Internet Value-Added Services and other business mainly comprises sales from virtual items on Meipai's livestreaming. Meipai's livestreaming revenue recorded a decline in 2018, which was primarily due to a decrease in the number of paying users as a result of the app's temporary suspension to abide by local regulations. The number of average monthly paying users decreased to 137,393 for the year ended December 31, 2018, compared to 313,571 for the year ended December 31, 2017. However, the average revenue per paying user for 2018 continued to increase by 37.8% year on year, as retained users tend to be more loyal and thus willing to pay.
3. The restructuring of unprofitable and asset-heavy businesses
In order to focus its resources and efforts on the social transformation, the Company has streamlined its business through strategic cooperation with partners with extensive expertise and competitive advantages in their respective fields. With these changes, advertising will become an increasingly important profit driver going forward for the Company.
The Company has re-evaluated its smart hardware business strategy and concluded that partnering with a sizable smartphone business will better achieve its goal to accelerate the growth of Meitu Smartphone's user base. On November 19, 2018, the Company licensed its Meitu brand to Xiaomi Corporation (HKEX: 1810, "Xiaomi") to launch the future lines of Meitu Smartphones. Xiaomi will be responsible for the design, research and development, production and marketing of all future Meitu branded smartphones (other than the Meitu V7) for a maximum of approximately 30 years, while Meitu will remain committed to developing the next-generation of image technology and algorithms.
China's smartphone market was challenging in 2018 with shipments down by 15.5% year on year, and is likely to continue this year, according to the China Academy of Information and Communications Technology. With the challenging market conditions and intensified competition ahead, the Company believes that this cooperation is in its best interest to grow smartphone user base by leveraging Xiaomi's reach and scale.
Revenue from the smart hardware segment decreased by 50.7% to RMB1.84 billion in 2018 from RMB3.74 billion in 2017. This is primarily due to the decreased sales volume of smartphones, which was partially offset by a higher average selling price. The Company launched only one new model in 2018 (the Meitu T9) but launched three new models in 2017. The smart hardware segment recorded a gross loss of RMB62.8 million with a negative margin of 3.4% in 2018, compared to a gross profit of RMB859.5 million with a positive margin of 23.0% in 2017.
Furthermore, the Company discontinued MeituBeauty, its e-commerce business, on November 30, 2018 and subsequently licensed its MeituBeauty brand to Yichun Trytry Information and Technology Co., Ltd. ("TryTry"), an associate of Secoo Holding Limited (NASDAQ: SECO). TryTry is responsible for all the operations and business management of MeituBeauty, which reflects the implementation of Meitu's core strategy of Beauty and Social Media. This partnership enables Meitu to leverage Secoo and TryTry's strength in supply chain management and retailing expertise to provide a better shopping experience to Meitu users.
4. The Company expects a reduction in net loss in 2019
In line with its previously announced profit warning, the Company's net loss was RMB1.25 billion. Among which, approximately RMB0.5 billion and RMB0.2 billion of this was contributed by the smartphone and e-commerce businesses, respectively, which the Company expects to completely wind down by mid-2019. In association with the Company's structural changes, the total number of employees has reduced by approximately 30% as of December 2018 as compared to June 30, 2018.
Total revenue decreased by 37.8% to RMB2.79 billion in 2018, compared to RMB4.49 billion in 2017. The decline was primarily due to a slower smartphone business, but this was partially offset by a robust 26.3% growth from the Internet business. This also reflected the Company's transformation into a business model that relies more on Internet services, whose revenue contribution increased to 33.9% from 16.7%.
In 2019, as the Meitu social media platform continues to mature and generate feed advertising inventories, the Company plans to leverage its programmatic products to create a scalable advertising business moving forward. In addition, the Company will continue to create new experiences within the Meitu app's social platform, which will further enhance its user engagement and enrich the advertising inventories. It also aims to further increase advertising revenue by attracting more quality advertisers and launching new formats such as search and/or interactive ads.
"Although 2018 was a challenging year, we are proud of the structural changes and transformation we have made to ultimately strengthen our company and grow the business moving forward", said Meitu's Chief Financial Officer Gary Ngan, "Meitu started the year at an inflection point, and we are ready to turn the corner."