Meitu seeks to transform app into social media platform

August 14, 2018 11:17
Loss-making Meitu wants to take advantage of its unique customer profile to help monetize its more than 400 million app users. Photo: Bloomberg

Women hold up half the sky, Mao Zedong once declared, and in this digital era, they – especially female millennials in China and other Asian countries – also hold up the fortunes of Meitu (01357.HK), a Xiamen-based technology company.

That's because many of these young ladies prefer using Meitu's smartphones to take selfies, editing them with the company's beauty-enhancing apps, and sharing them on social media.

At a press conference in Beijing last week, Meitu announced its plan to transform the photo-editing app into a social media platform.

Through this new strategy, the company aims to enhance user engagement of its products and maximize the monetization potential of its internet businesses.

Over the next 18 months, the company plans to ramp up its investment in building a content ecosystem, brand marketing and research and development to come up with more innovative products and features to facilitate its transformation into a social media platform.

During this phase of investment, the company will focus on driving active user and gross profit growth, hoping that all this investment will produce an impact on its profitability.

Such a strategy is intended to maximize Meitu's long-term value, although it is still too early to say whether it would be successful in the long run.

There are only a few players in China's social network, including WeChat and Weibo. With its unique market position and loyal customer base, Meitu could easily win a slice of the vast market.

But whether the company can make a huge dent in the market and profit from it remains to be seen.

Unfortunately, investors may not be in complete agreement with Meitu's strategy, as can be gleaned from its share price performance since its announcement last week. Its shares fell 2.4 percent to close at HK$5.78, a 52-week low, on Monday.

Meitu's new strategy suggests that the company no longer wants to rely on smartphone sales, which yield thin profits, and seeks high-margin advertising revenue instead.

For 2017, it reported a loss of 46 million yuan (US$6.68 million), which was already a great improvement from its loss of 540 million yuan in the previous year.

Revenue soared more than 1.8 times to 4.5 billion yuan, of which 80 percent came from the sale of smart hardware. Although internet revenue accounted for only 20 percent, it recorded a sixfold increase to 787 million yuan. Value-added services and advertising revenue accounted for 40 percent and 60 percent respectively.

It is worth mentioning that revenue from value-added services has surged 10 times year-on-year. This part of the revenue comes mainly from the sale of virtual items on its live broadcast platform and monthly fees from users. The current number of revenue users is 313,000.

In order to successfully implement its social network strategy, Meitu recently adjusted its organizational structure and reclassified its businesses into three major business groups: social products, beauty products, and intelligent hardware products.

Meitu, in fact, has become an online-to-offline social networking platform, considering that it has 200 million users of Meitu Xiu Xiu and a US short video community, while its built-in artificial intelligence skin condition analysis works well with its e-commerce platform for cosmetics and skin care products.

Since it started a beta trial in May this year, core users have spent 25 minutes a day in the community, browsing an average of 75 images and opening the app more than eight times a day.

The average daily active users rose by 29 percent when there were theme promotion events.

These statistics show that Meitu users have a strong desire for social networking and stickiness to the platform.

The company's ultimate goal is to turn the Meitu Xiuxiu app into an online-to-offline social and e-commerce platform with its own ecosystem of users from content distribution to content and product consumption, thus providing various revenue streams.

Meitu management, however, may need to spend more time to convince investors that its new strategy is needed for future profitability.

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EJ Insight writer