Date
26 July 2017
Despite mounting speculative interest, beauty-enhancing selfie app developer Meitu has not figured out a way to turn its huge user base into solid revenue and profit. Photo: Bloomberg
Despite mounting speculative interest, beauty-enhancing selfie app developer Meitu has not figured out a way to turn its huge user base into solid revenue and profit. Photo: Bloomberg

What’s behind Meitu’s huge rally?

Meitu (01357.HK) experienced a roller coaster ride Monday, surging above 30 percent to more than HK$23 at a point before closing with an 11 percent loss at HK$15.98, or a 40 percent swing within an hour or so.

Still, the Xiamen-based company has gained almost 90 percent since its listing at the end of 2016, and most of the rally has taken place this month after the stock qualified for the Shenzhen-Hong Kong Stock Connect on Mar. 6.

Meitu offered shares at HK$8.50 each to raise HK$4.6 billion in the December listing. The selfie app owner now has a market capitalization of about HK$67 billion (US$8.63 billion).

The company’s Meitu Xiu Xiu is one of the most popular selfie app tools in Greater China. The app has more than 456 million monthly active users, making it China’s third largest app platform after Tencent and Alibaba.

Which is why Meitu is dubbed by some as “the second Tencent”.

But there is a big difference between the company and the two tech behemoths. Meitu has not figured out how to make money from its large user base.

Meitu customers use the app maybe once or twice a day. But they won’t frequently access the app like they do with WeChat. Also, they don’t go on a splurge as they do on Taobao.

Other than limited advertising income, Meitu so far has no other ways to monetize its user base of 450 million people.

The company suffered a loss in 2014 and 2015 according to its prospectus. It remains uncertain how the company could make money from its business model.

Some may argue that Meitu’s market value is only 3.1 percent of Tencent’s HK$2.16 trillion and 3.3 percent of Alibaba’s US$261.2 billion. There seems to be a lot of upside if Meitu can become as successful.

The fact is such prospects remain elusive. That said, mainland investors tend to back stocks with a good story, and Meitu is considered to be one.

Since most of the share price gain happened after the stock qualified for the stock link program, it is reasonable to believe mainland buyers have been the key factor behind the surge.

Some fund managers (particularly those of Chinese funds) may also think it’s better to buy some rather than miss out on the “next Tencent.”

This article appeared in the Hong Kong Economic Journal on Mar. 21

Translation by Julie Zhu

[Chinese version 中文版]

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RT/RA

Hong Kong Economic Journal columnist

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