Total revenue was +29% year-on-year, and adjusted profit to mother was 370 million. Throughout 2023, Meitu achieved total revenue of 2.70 billion yuan, +29% year-on-year, driven by strong revenue growth from video products. In 2023, revenue from imaging and design products/advertising/beauty solutions increased 53%/20%/29% year over year, accounting for 49%/28%/21% of revenue. The company's 24-year expansion direction: The 24-year product continues to focus on AI-driven productivity tools: 1) new products related to AI video; 2) Zanku Linkage is also gradually reflected in products; 3) Globalization: new overseas products and brands. Application scenario expansion: The advertising scenario has strong commonalities with the current e-commerce field. The company's gross profit margin in '23 was 61%, +4pct. The company's overall expenses were +8% year over year. The company continued to invest in AI, with R&D expenses of 640 million yuan, +8% year over year.
In 2023, the company's adjusted profit to mother was 370 million yuan (111 million yuan in the same period last year), and the adjusted profit margin to mother was 14%, an increase of 8 pcts over the previous year.
Increased payment penetration rates are driving rapid revenue growth in image design products. In '23, Meitu Video Design's product revenue was 1,327 billion yuan, +53% year-on-year. Judging from the operating data, the number of monthly active users of the company is developing steadily, and the paid penetration rate continues to increase. 2023 Meitu MAU is 249 million, +3% YoY. VIP paid members reached 9.11 million, +62% year over year, and paid penetration rate was 3.7%, +1.4pct year over year. ARRPU was 180 yuan, which was basically the same as the previous year. The expansion of the productivity scene is progressing well. The company disclosed the number of users divided by scenario. The MAU for the life scene was 230 million, down 0.5% year on year; the MAU for the productivity scenario was 17.66 million, up 74.3% year on year. In 23 years, AI has generated 3 billion+ images, and 83% of the images and videos processed by the full range of products have used AI. Looking at Meitu Design Office, the core product of the productivity scenario, MAU reached 15.63 million at the end of '23, the paid penetration rate was 6%, and the annual revenue reached 100 million yuan, +230% over the same period last year. One of the core functions [AI Product Map] helps e-commerce users reduce costs and increase efficiency in the production of marketing materials. As of February '24, this function has generated more than 130 million AI images.
Revenue from the advertising business increased 20% year over year, and beauty solutions controlled low-margin products. Ad revenue in '23 was 760 million yuan, +20% year-on-year. In '23, the revenue of Aesthetic Solutions was $570 million, +29% year over year.
The company increased the number of partnerships with cosmetics brands and reduced the proportion of low-margin products in product selection.
Investment advice: Focus on AI's promotion of paid penetration and maintain a “buy” rating. The company's AI vertical field expanded smoothly in 23 years, and we need to continue to observe the upward trend in the payment penetration rate. The company's payment penetration rate is expected to reach 4.8%/5.9% in 24/25. Considering that the company will increase investment in AI models (especially video models) in '24, we expect the company's R&D expenses to increase by 30% year-on-year, so we lowered the company's profit forecast. The adjusted net profit for 24-26 is 5.2/7.9/970 million yuan (adjustment range -7%/-7% /-). Maintain the target price of HK$4.5-4.8 and maintain the “buy” rating.
Risk warning: macroeconomic fluctuations; downstream demand falling short of expectations; AI ethical risks, etc.