Key points of investment
In 2023, the company achieved revenue of 2.69 billion yuan, YoY +29.3%, lower than the agreed forecast of 3.1%; the year-on-year increase in revenue was mainly due to strong revenue performance from subscription services in the main business, and lower than expected due to product price increases falling short of expectations. Achieved non-GAAP net profit of 368 million yuan, YoY +233.2%, which is basically in line with agreed expectations. The net profit growth rate far exceeds revenue mainly due to operating leverage effects and effective cost and expense control.
We expect the company's revenue for 24/25/26 to be 37.0/48.7/5.93 billion yuan, respectively, with a year-on-year growth rate of 37.3%/31.7%/21.8%, and non-GAAP net profit of 587/7.83/956 million yuan, respectively, with a year-on-year growth rate of 59.5%/33.3%/22.2%, corresponding to the current stock price PE of 24.0/18.0/14.8 times, maintaining a “buy” rating.
Traffic: MAU has achieved steady growth, and the productivity scenario has reached scale. The video and design product business/SaaS and related service business/advertising revenue in 2023 was 13.3/5.7/760 million yuan, respectively, and YoY +52.8%/29.1%/20.5%, respectively.
By business & region: The overall payment rate benefited from AI empowerment and increased productivity. Price increases kept the video and design product business/SaaS and related service business/advertising revenue of 13.3/5.7/760 million yuan in 2023, and YoY +52.8%/29.1%/20.5% respectively. Deconstructing the business price and volume relationship between imaging and design products:
At the payment rate level, from 2022 to 2023, the company's paid penetration rate increased from 2.3% to 3.7%, and the number of VIP users increased from 5.62 million to 9.11 million. The high increase in the number of users was due to:
The company focuses on the main subscription business. With the support of AIGC, the product experience is excellent and continues to increase users' willingness to pay. About 83% of Meitu users use pan-AI functions;
Productivity-related video products such as Meitu Design Studio and Production are of excellent quality and have been recognized by the target customer base, leading to increased membership conversions. As of December 2023, Meitu Design's payment rate reached 6%;
Under the global strategy, overseas subscribers are growing steadily. Paying users in overseas markets account for 34% of total paying users, contributing 51% of video business revenue.
In terms of value per user, from 2022 to 2023, the company's ARPPU was basically flat month-on-month, and the company maintained restraint in raising product prices. We judge that this stems from the company's deep understanding of the willingness and habits of the tool-based product audience to pay.
Profit performance: High subscription growth drove the improvement of the revenue structure, and operational efficiency continued to improve. In 2023, the company achieved a gross profit margin of 61.4% and YOY+4.4pct, mainly due to the increase in revenue share of high-margin imaging and design products business.
In 2023, the company's sales/management/R&D expense rates were 15.9%/11.2%/23.6%, YOY-3.4/-1.8/-4.5pcTS, due to: 1) the influence of the leverage effect on the operating side, 2) the company continued to improve operational efficiency and strengthen cost and expense control while maintaining high performance growth.
In 2023, the company achieved GAAP net profit of 378 million yuan, YoY +301.8%, higher than the agreed estimate of 3.1%, corresponding to GAAP net profit margin of 14.0%, YoY+9.5pct, higher than the agreed estimate of 2.0pct. Impairment losses due mainly to the recovery in cryptocurrency prices increased GAAP net profit of 268 million yuan. The company's non-GAAP net profit for the same period was 368 million yuan, YoY +233.2%, which is basically the same as the agreed forecast. The non-GAAP adjusted net profit margin was 13.7%, YoY+8.4pct, which was slightly higher than the agreed forecast.
The company is deeply involved in the aesthetic circuit, and the barriers to AI production and research are high
The company currently has MiracleVision, a continuously iterative and compliant AI model (version 4.0 has been launched and has passed the “Interim Measures on Generative Artificial Intelligence Service Management”), and its capabilities have been recognized by mainstream platforms such as Douyin and Taobao. Facing the “white model war,” first, Meitu positioned large model application companies to differentiate themselves from general model manufacturers. Second, as described in our previous report “Meitu Depth: AI Empowering and Productivity Scenarios, Subscription Models Must Be Verified”, the level of refinement of the racetrack is high, and the beauty product circuit requires a generation model with localized aesthetic accumulation. The company has benefited from production and research methodologies and data precipitation summed up over a long period of time in the field of image beautification, and has certain defensive resilience against Sora products.
Continuing our previous view, 2024 is a big year combining AI with tools and software. As a target for scarce AI commercial applications in China, Meitu actively invests in research and development related to large-scale visual models. Subscriber penetration rate, member conversion rate, and ARPPU value are expected to benefit from this continuous increase.
Profit forecasting and valuation
We expect that driven by AIGC's strategy of enabling product experience+ comprehensive entry into the productivity+globalization strategy, the company's revenue for 24/25/26 will be 37.0/48.7/5.93 billion yuan, respectively, with a year-on-year growth rate of 37.3%/31.7%/21.8%. The company's VIP subscription business with high gross margin is expected to gradually increase as a share of revenue, and operating leverage continues to increase, driving the company's performance to continue to exceed expectations. Non-GAAP net profit is estimated to be 5.87/7.83/956 billion yuan, respectively, a year-on-year growth rate of 59.5%/33.3%/22.2%, corresponding to the current stock price PE of 24.0/18.0/14.8 times, maintaining a “buy” rating.
Risk warning
Product launch results fell short of expectations, the number of VIP subscribers fell short of expectations, and industry competition intensified (mainly due to domestic and international competition among emerging Byte, Adobe, and AI vendors).