According to a research report, Zheshang Securities released a “buy” rating for Meitu Company (01357), predicting 2023-25 revenue of 28.5/39.5/515 billion yuan, a year-on-year increase of 36.5%/38.6%/30.6%, and adjusted net profit of 381/6.24/854 million yuan respectively for 23/24/25, an increase of 224.2%/64.1%/36.7%. The company's transformation subscription has been verified to a certain extent. AI empowerment and entry into productivity scenarios are driving strong revenue growth in the video and design products business. The beauty industry solutions and advertising business are expected to benefit from the post-opening travel wave and are expected to maintain steady growth.
The main views of Zheshang Securities are as follows:
Business transformation: Breaking the “tools don't make money” curse, core business logic changes
The growth rate of the market size is slowing down, and the racetrack is crowded with players. On the product side, compared to products with community and platform connectivity properties, it is more difficult for tool products to build long-term barriers through first-mover advantage and network effects. In terms of monetization, the traffic that is popular on the Internet has become dissatisfied in the tool sector. Even among tool products, the immediate demand for beautification products is still low, and the frequency is low, which means that it is difficult to improve parameters such as commercial traffic ratio, ad load rate, and ECPM of the three elements of advertising. The company had hoped to overcome the above difficulties by launching non-tool DAU products, crossing the fields of short video and mobile phone hardware, but the journey was tortuous.
As the traffic dividend disappeared, the company once again turned to the tool attributes of apps, and realized that changing the business model to product monetization was the only way to go. In the second half of 2020, Meitu launched a VIP subscription service in China. It focuses on core products, collects user feedback, captures user pain points, generates frequent hits, promotes innovation, activity and transformation. Accumulating word of mouth and user stickiness by dynamically maintaining product “one step ahead” and effectively relieves competitive pressure. In 2022, subscriptions surpassed online advertising and became the primary source of revenue. In the past three years, the company's subscription revenue CAGR reached 108%.
Current focus: AIGC enabilitation+pioneering productivity scenarios to help accelerate the development of subscription services
1) All in AI. The company has always maintained a high level of focus, consolidated technical barriers, and continuously optimized and upgraded products and services. It already has a high position, and AI technology has accelerated the arrival of an inflection point in the experience. Compared to competing products, Meitu's products have good overall generation results and high efficiency, and: ① processing in the field of portraits is more accurate and textured, and ② has outstanding performance in meeting local needs represented by national style. Its base is MiracleVision (MiracleVision), a large AI vision model developed by Meitu. Compared to competing products, the Meitu Vision model has a high level of focus and has built an aesthetic application evaluation system based on machine learning. In particular, experienced engineers with good aesthetic literacy participated in fine tuning, and relied on national-level applications to build a closed loop model. The model is expected to be maintained.
2) Aiming at productivity scenarios, we essentially hope to increase subscription rates and per-user payment levels by exploring more immediate and high-frequency demand. Target users can be classified as “big C, small B”, that is, individual users with certain business needs, such as small and micro e-commerce sellers, video KOLs, etc. Meitu has basically built a productivity application matrix with comprehensive functional coverage, excellent performance, accurate grasp of key information, few errors, and created special categories (with AI footwear and clothing design) as its core competitiveness. Excellent product experience is the cornerstone of sustainable product monetization. According to Adobe's communicator theory, within the Meitu product matrix, for every 1.0 pct increase in the payment rate of such users, productivity applications may bring an annual revenue increase of 169-180 million yuan to Meitu.