Its bitcoin bet behind it, can Meitu find sustained profits in its beauty business?

The beauty software maker has sold all its cryptocurrency holdings and plans to use the profits for business development and a special dividend
Key Takeaways:
- Meitu has sold off the last of its cryptocurrency holdings from an earlier investment, pocketing 571 million yuan in gains
- The company said it will focus on expanding its key beauty imaging and design services business with a focus on greater use of AI
By Lau Chi Hang
Bitcoin has been on a tear since Donald Trump won the U.S. presidential election, on hopes that he would help to take the cryptocurrency mainstream. But just as it was surging to the $100,000 mark, Meitu Inc. (1357.HK) announced that it had sold off all of its cryptocurrency holdings, ridding itself of a longtime asset even as everyone else was piling in.
Was the unusually timed sale a case of Warren Buffet’s well-known axiom calling on investors to “be greedy when others are fearful, and be fearful only when others are greedy”? Or was it something else?
Meitu disclosed the sale in a filing earlier this month, saying it disposed of all its cryptocurrency holdings, including 31,000 units of ether and 940 bitcoins for $100 million and $80 million respectively, between early November and Dec. 4. Its profit from the sales totaled $79.63 million.
It purchased the cryptocurrencies between March and April of 2021, paying $50.5 million and $49.5 million for its ether and bitcoin holdings, respectively, at the time. The purchases drew attention then and were somewhat controversial, coming as cryptocurrencies were surging but also considered highly risky. The company lost money on the investments when the cryptocurrencies crashed in 2022, but has now made all of that back and more on their latest surge, including bitcoin’s rise to record levels.
Exiting non-core businesses
Meitu said it intends to use 80% of its net proceeds from the sale to pay a special dividend of HK$0.109 per share. The remainder will be used as general working capital to expand its core business focused on paid subscription-based imaging and design products focused on the beauty industry.
The company emphasized that going forward, it will focus on the development of its core photo, video and design products business.
Meitu’s flagship product is Meitu Xiuxiu, a widely used image editing software app in China. The company was founded by Wu Xinhong in 2008, and the software alone helped it build a solid user base that reached over 200 million people by 2012, mostly people who used it to pretty up selfies to share with friends.
The company went public in Hong Kong in 2016, selling shares for HK$8.50, and then watching them climb as high as HK$23 the next year on the popularity of Meitu Xiuxiu. The brand was all the rage for a while, even though the popular product didn’t generate much money.
Wu knew all too well that one single piece of popular software wouldn’t sustain the company, especially one that didn’t bring in much revenue. That led him to start exploring new business areas, including smartphone manufacturing, short videos and selling cosmetics via e-commerce. But none of those produced a second winner that could not only win customers but also generate money.
Those lackluster results drove the company to gamble on then-booming cryptocurrency with a $100 million investment in 2021. The company hoped to pad its profits with some quick gains as bitcoin boomed. But it ended up losing 28.5 million yuan in 2021 and as much as 280 million yuan in 2022 as the crytpo market crashed. Things only turned around at the end of last year when the market finally emerged from its winter, enabling Meitu to recoup 268 million yuan from its cryptocurrency holdings.
As chance would have it, bitcoin continued to rally throughout this year, and Trump’s election fanned the flames even further. Perhaps sensing the time was right to pocket some profits and move on, Wu has called it quits, at least for now, to return his focus to his company’s original beauty business.
Hitching a ride on the AI train
While bitcoin’s volatility may have been a factor in his decision to sell, Wu was probably equally motivated by finding a better, more sustainable way forward for his company. That way lies in software that businesses will pay for, and the growing power of AI that makes many things more possible and practical in the world of beauty imaging.
Meitu currently has almost 300 million active users and a diverse set of user scenarios. That’s giving it a foundation to integrate its product offerings with AI to develop into new businesses and serve its existing customers better.
Wu has said that AI presents great opportunities, and that his company is committed to developing original applications for AI to meet demands in different vertical scenarios. However, he also emphasized that his company will steer clear of general-purpose large models and focus on model training and fine-tuning in particular scenarios instead.
The company has restructured its business into imaging and design products, cosmetics solutions and advertising, with AI applications focused on all of those except advertising. Last June, it released six products, including ones to apply AI to photos, videos, designs and digital people. It also unveiled MiracleVision, a large model in computer vision AI.
Initial positive results
The progress for some of those bets was already on display in Meitu’s results for the first half of the year. Its AI-driven Meitu design studio, also called X-Design, has become the leading AI design tool in China. Moreover, Wink, its AI-enabled video editing app, saw its monthly active user base double year-on-year, becoming the company’s third most popular app after Meitu Xiuxiu and Beauty Camera.
As those initiatives gain traction, revenue from Meitu’s core imaging and design product business has been rising steadily. Revenue from that segment grew 52.8% year-on-year to 1.33 billion yuan in 2023 and rose another 55% in the first half of this year to 930 million yuan. With more revenue coming in, the company now has greater bandwidth to expand its AI business and use the profits from its cryptocurrency investment to fund new ventures.
Wu was lucky enough to win big on his bitcoin bet, despite its big risk. His AI venture looks less risky and could deliver yet another pleasant surprise for the company’s future development if things work out equally well.
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