Internet & Tech

Beauty queen

Meitu still looking to turn a profit as its share price runs amok

Selfie-w

Dorian Gray’s portrait became aged and decrepit as his own appearance remained young and beautiful. Technology has developed quite the opposite feature: photos that make the subjects more beautiful than they appear in real life. Racing to the head of this market is the photo editing app Meitu (which means “beautiful picture” in Chinese).

Meitu launched its photo editing app in 2013 and it has since grown into the most popular selfie editing tool in China, allowing smartphone users to swiftly edit photos of themselves or others, with tools that lengthen limbs, remove blemishes, and add make-up, backgrounds, and cartoonish effects (see WiC337).

Meitu’s business looks simple but it was also attractive enough to pull in investor demand for its HK$4.6 billion ($591 million) IPO in Hong Kong last December.

For the next three months Meitu’s shares largely hovered around its HK$8.5 offer price. But since March 6, after the stock was made available to mainland Chinese investors via the Shenzhen-Hong Kong Stock Connect (see WiC349), its share price has gone on a rollercoaster run.

First the shares climbed higher for 11 consecutive trading sessions. The rally briefly sent Meitu’s share price to a record high of HK$23.05. At this point, the internet firm was worth nearly HK$100 billion.

However, when media reports began to filter through that Hong Kong regulators had asked brokerages for their trading records in Meitu, its share price nosedived, shedding as much as a quarter in a single session. As of this week, it is trading at about HK$12 per share, losing half of its market value in less than one month.

The company announced its first post-IPO financial results last month – and there was more red ink. Yes, revenue had more than doubled to Rmb1.6 billion ($232 million) but Meitu still suffered from a net loss of Rmb540 million, as compared with a loss of Rmb710 million in 2015.

According to Fortune magazine 93% of Meitu’s revenues come from smartphone sales, which is remarkable for a brand primarily known as an app. Despite boasting 456 million active monthly users, making it the third most popular social media platform in China, just behind Tencent and Alibaba, Meitu has yet to find a way of monetising its app user base.

At a press conference, Meitu’s chairman Cai Wensheng put on a brave face: “Our losses will further narrow this year. There’s no question about that… We believe revenue growth from advertising and e-commerce will be faster than mobile phone sales.”

Meitu’s primary demographic of young urban women with strong purchasing power is ideal for advertisers. But the way in which the company collects user data has also caused some concerns in America, where the selfie app began to enjoy a surge in popularity last year.

According to Wired, Meitu requests access to a user’s location, Wi-Fi connection information, time zone, local IP address, SIM card number, whether a phone is jailbroken, and, on Android devices, its unique identity number (IMEI).

The last item is flagged as a particular worry because the information could be used to spoof phones and hijack accounts. Another of the concerns over Meitu’s data collection practices is that the data is then stored on servers within China, something that Western tech firms have long been wary about.

Responding to the accusations that it was acting unscrupulously, Meitu said: “Meitu’s sole purpose for collecting the data is to optimise app performance… Meitu DOES NOT sell user data in any form.”

How much should Meitu be worth then?

Its market cap stands at $7.2 billion and its closest American counterpart Snap, whose Snapchat app had 158 million monthly active users and is also yet to turn a profit, is worth $23 billion.

“So by that standard, Meitu is still trading at deep China discount,” a columnist at Barron’s suggested.


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