Meitu Announces 2017 Annual Results:Generated Adjusted Net Profit in the Fourth Quarter

03.26 2018

Meitu, Inc. (“Meitu” or the “Company”, together with its subsidiaries “the Group”), today is pleased to announce its audited consolidated results for the year ended December 31, 2017.

2017 was a very fruitful year as Meitu successfully laid down a strong foundation for future growth, both in terms of user base and scalable internet monetization. The Company was able to generate adjusted net profit in the last quarter of 2017, according to unaudited management accounts. This demonstrates the significant progress the Company has made and the effectiveness of our strategy. In addition, the Company’s business segments achieved significant growth, among which, the Internet business successfully achieved profitability at the gross level during the first financial year after IPO. During the year, Meitu’s results highlights were as follows:

1.Revenue doubled, adjusted net loss reduced significantly
In 2017, the Company’s total revenue increased 186.8% year-on-year to RMB 4,527.5 million; revenue from the Internet business segment and smart hardware segment increased 652.2% and 153.8% year-on-year, respectively. Revenue growth of the Internet business segment greatly exceeded that of the smart hardware business. This particularly reflected the significant progress the Company has made on the monetization of our massive user base. As of the end of 2017, adjusted net loss of the Company was RMB 46.0 million, representing a 91.5% reduction in loss compared to RMB 540.5 million in 2016; gross profit increased by 336.7% to RMB 1,044.5 million in 2017 from RMB 239.2 million in 2016; and overall gross margin increased to 23.1% in 2017 from 15.2% in 2016.

2.Internet business revenue increased significantly and the segment achieved profitability
In 2017, revenue from the Internet business segment grew 652.2% year-on-year to RMB 787.4 million. It is worth noting that the segment has successfully achieved profitability during the first financial year after IPO, generating a gross profit of RMB 185.0 million in 2017 compared to a gross loss of RMB 57.72 million in 2016. Gross profit margin was 23.5% for 2017 compared to a gross loss margin of 55.1% in 2016. The fast expansion of gross margin was driven by (i) the rapid growth of our advertising and Internet value-added services (IVAS) businesses; and (ii) operating leverage.

Within the Internet business segment, the performance of IVAS and others was outstanding. During the period, revenue from IVAS and others increased by almost 10 times year-on-year to RMB 479.9 million. The Company’s IVAS business mainly comprises of sales of virtual items on Meipai’s live streaming. This revenue growth was driven by (i) increase of average monthly paying users, which increased to 313,571 by the end of 2017, compared to 200,738 in 2016; and (ii) increase in average revenue per paying user.

In October 2017, the Company launched our e-commerce platform focusing on cosmetics and skincare products. The platform is embedded with an AI-empowered feature to analyze users’ skin condition and offers tailored product recommendations to drive repeat purchases behaviors and customer retention.

In terms of online advertising, revenue increased by more than 4 times year-on-year to RMB 307.5 million. The significant growth was driven by strengthened sales team, enhanced advertising infrastructure, and refined marketing solutions that focused on servicing key accounts, which are primarily comprised of quality brand advertisers. With the increased adoption of accumulated unified user accounts (MTid), Meitu has gained greater understanding of the user demographics and preferences, which improves the Company’s ability to assist its advertisers to launch interesting and interactive advertising campaigns that can enhance user experience of its app products. In addition, the Company plans to roll-out targeted advertising products, enabling advertisers to reach specific audience groups to achieve more precise targeting, better engagement and greater marketing effectiveness.

3.Results of smart hardware continued to improve
In 2017, revenue from the smart hardware segment increased by 153.8% to RMB 3,740.1 million, primarily due to an increase in both volume and average selling price (ASP). Gross profit and margin of the segment increased to RMB 859.5 million and 23.0% in 2017 from RMB 296.9 million and 20.1% in 2016 respectively, primarily due to the change in product mix. The Company plans to focus on the more premium-priced segment. During the period, the number of smartphone units sold was 1,574,737, as compared to 748,256 in 2016, which is in line with our expectation; ASP was RMB 2,365 as of the end of 2017, as compared to RMB 1,959 as of the end of 2016. Product mix was the key factor that drove ASP.

4.Strategies for major apps were adjusted; overseas MAU increased significantly
The primary goal of 2017 was to build a foundation for growth in user base and engagement. To this end, the Company adopted different strategies for its apps, with a similar objective of increasing focus on serving their target audience. As a result of these adjustment, some of the apps inevitably experienced short-term volatility in their MAU numbers, but all of them were much better positioned strategically entering into 2018. The Company was also very pleased to see that total MAUs in February 2018 has rebounded to 454.7 million, and the Company maintained number one position in the photo app market in terms of monthly active users.

From a geographical perspective, overseas MAUs increased significantly by 29.5% during the year, mainly driven by the continued growth of BeautyPlus and BeautyPlusMe, as the Company continued to execute our localization strategies in various overseas countries, launching relevant features and interactive campaigns that are well received by overseas users. Furthermore, as of December 31, 2017, the number of accumulated MTid reached 267 million, representing a growth of 33.5% from June 30, 2017.

5.2018 outlook
In 2018, the Company will continue to focus on growing its user base through launching innovative new features as well as new apps. The Company aims to increase engagement level of users through building active communities on its photo apps. In particular, the Company is working to transform Meitu into a photo social platform, where users can share their interesting lives and follow the latest trend and fashionable content. The Company currently expects to launch this upgrade by the end of June this year.

Meitu will continue to invest significantly in research and development, particularly in artificial intelligence, augmented reality, and computer vision. From a monetization perspective, the Company will continue to scale up its advertising business to better connect brands with its users and launch a portfolio of IVAS businesses to cater to its users’ diverse demand for beauty and entertainment. For smart hardware business, the Company will focus on the premium-priced T and V series. At the same time, Meitu will make a foray into beauty-related smart hardware.

The Company generated adjusted net profit in the last quarter of 2017, according to unaudited management accounts. Assuming there is no unforeseen situation, the Company expect its positive business momentum will continue in 2018.

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