Meitu, Inc. (“Meitu” or the “Company”), has announced its unaudited interim results for the six months ended June 30, 2019. Highlights during this period are as follows:
-Led by Meitu app’s social strategy and BeautyPlus’ increasing international popularity, the number of active users resumed growth momentum. Monthly active users (“MAU”) in June 2019 was 308.1 million, 0.6% higher than that of December 2018. Of which, Meitu app’s MAU grew by 5.1% and the Company’s overseas products, BeautyPlus and Airbrush grew by 12.0% and 13.4%, respectively.
-Revenue from online advertising business increased significantly by 27.2% to RMB362.3 million. The Company’s new business model, “premium subscription”, has emerged as the fastest growing sub-segment within the Internet value-added services and others business, as its revenue grew more than 6 times year-on-year during the first half of 2019.
-In the first half of 2019, adjusted net loss attributable to owners of the Company decreased significantly by 41.4% to RMB171.7 million, mainly benefitted from the strong growth in advertising revenue and effective execution of a corporate restructuring.
-Meitu app’s user engagement continued to increase. In June 2019, Meitu app’s social users spent over 12 minutes per day on average, from approximately 5 to 6 minutes per day prior to the implementation of the social transformation. The amount of photos and videos uploaded per day grew more than 5.5 times compared to December 2018.
Social strategy transformation achieved initial success
In the first half of 2019, the Company continued to promote its social transformation strategy. In particular, the Company has significantly increased the social engagement of the Meitu app, increasing the daily time spent of the social users to over 12 minutes per day, from approximately 5 to 6 minutes per day prior to the implementation of the social transformation. As of June 2019, the amount of content, i.e. videos and photos, uploaded had increased substantially by 5.5 times compared to that of December 2018. As the pool of quality content continues to expand, the Company’s recommendation algorithms have been able to perform better, hence driving a substantial increase in click-through rates. During the period, the Company has successfully restored its growth momentum in active users. In June 2019, MAU achieved 308.1 million, which was 0.6% higher than that of December 2018.
Meitu has recently launched the Private Album function with an aim to further enhance its user engagement. The Private Album allows users to store their photos securely on the cloud, and enables users to invite their friends to manage an album together each having the ability to upload, comment and interact with each other. On the other hand, as video continues to be more important as a form of content, the Company is going to develop more video editing functions on the Meitu app to help users produce even higher quality content on Meitu’s social platform.
Internet business remained steady with online advertising achieved solid performance
In the first half of 2019, revenue from the Internet business recorded RMB462.5 million; gross profit and gross margin from this operating segment were RMB310.4 million and 67.1%, representing a year on year growth of 29.3% and 17.8 percentage points respectively. The growth of gross margin was mainly due to the increased contribution from online advertising sub-segment that has higher margin compared to Internet value-added services and others.
Revenue from online advertising increased remarkably by 27.2% to RMB362.3 million in the first half of 2019, and has become the largest revenue contributor taking up 78.1% of the total revenue. In particular, advertising revenues in the second quarter of 2019 had grown quarter over quarter, driven mainly by programmatic advertising. Despite the macroeconomic weaknesses and the slowdown in domestic advertising market, Meitu’s online advertising business still achieved healthy and solid growth as a result of higher ads fill rate and new client acquisition.
The Company has also created innovative advertising strategies and products to better serve the clients’ needs. For example, Meitu combined all kinds of advertising products, such as loading screen, banner display, in-feed ads, AR filter, influencer posts and promoted hashtag challenges in social communities, into a whole package with massive ads impressions to increase brand awareness. It is worth noting that the Company’s domestic programmatic advertising (mainly including Demand-Side Platform advertising) achieved a robust growth of 98.5% year on year. The Company’s advertising revenue from overseas market also recorded an encouraging growth rate of 67.4% compared to the same period of last year, which demonstrated the progress in exploring the potential of online advertising business. With continuous execution of social strategy on the Meitu app, the Company will generate more impressions from the feeds of the app and grow its advertising inventories and hence the advertising revenues over the course of the next few years.
Internet value-added services and others
In the first half of 2019, revenue from internet value-added services and others decreased by 50.4% year-on-year to RMB100.2 million, mainly due to a decrease in the Meipai live streaming business. Meipai live streaming revenue recorded a decline of 71.1% during this period, attributable to a decrease in the number of paying users, partly offset by an increase in the average revenue per paying user.
Against the backdrop of abated viewer interest and intensified competition in the live streaming arena, the Company was actively exploring new Internet value-added services, such as premium subscription, MeituGenius (also known as Meitu Magic Mirror), audio streaming and other interactive services. With respect to the premium subscription model Meitu launched on the overseas apps, the products and services are offered free of charge, but users are charged for additional premium virtual products such as IP branded AR filters and special effects. Revenues from premium subscriptions have grown more than 6 times year-over-year in the first half of 2019, representing a meaningful contribution to the Internet value-added services and others segment. The Company sees room for further growth in this area as the penetration of its overseas products continues to increase and monetization in the developed markets such as Japan and South Korea bears fruit.
Restructured smart hardware business, and continued to migrate to an asset-light business model
As a key strategic shift to an asset-light business model, the Company classified its smartphone business under the smart hardware segment as discontinued operations in the first half of 2019 by signing a strategic cooperation agreement with Xiaomi. During the period, Meitu has licensed its brand and certain technologies exclusively to Xiaomi, who will be fully responsible for the design, R&D, production, business operations, sales and marketing of the co-branded smartphones. In July 2019, Xiaomi released its first co-branded smartphone “Xiaomi CC9 Meitu Edition”, which used Meitu’s image technology and pre-installed certain Meitu apps. As market reviews for the product have been very positive, the Company believes this encouraging result will serve as a strong foundation for both companies to cooperate on future products.
In May 2019, the Company has launched its industry-targeted professional-grade skin analyzer “MeituEve”, which adopts Meitu’s proprietary image technology to enable both the skincare industry and consumers to better understand their skin conditions, ultimately making skin-care more scientific and measurable. As the Company is currently testing a number of different business models, the revenue contribution from this segment is likely to remain small compared to that of the Internet business.
During this reporting period, Meitu’s smartphone business was classified as discontinued operations. As a result, the smart hardware segment no longer includes the smartphone business and only consists of the newly-developed skin-related smart hardware business.
Meitu expects further decrease in net loss for 2019
In the first half of 2019, the adjusted net loss from continuing operations for the year attributable to owners of the Company narrowed significantly to RMB171.7 million, compared to RMB293.0 million for the six months ended June 30, 2018, mainly due to an increase of total gross profit by 28.4% to RMB308.1 million driven by the growth of online advertising and effective cost control on promotional expenses.
The Company is committed to the social transformation strategy and the shift to an asset-light business model. Meanwhile, due to slowdown in the live streaming business, total revenue decreased slightly by 4.7% year-on-year to RMB464.0 million for the first half of 2019. The gross margin increased to 66.4% for the first half of 2019 from 49.3% year-on-year.
Given the uncertain outlook of the global economy, the Company will continue to be very vigilant in cost management, and will spend resources only on areas that generate long term value for shareholders. Meitu continues to expect a net loss for the full year of 2019, although such losses are likely to be significantly less than that of the full year of 2018.
“For the first half of 2019, the revenue from online advertising increased remarkably and has become the largest revenue contributor of total revenue. Meanwhile, the Company’s innovative premium subscription model has made solid progress,” said Meitu’s Chief Financial Officer Gary Ngan. He added, “Looking ahead, Meitu will continue to promote further transformation, so as to consolidate the Company's development and create most value for shareholders”.