Revenue recovered in 2023, and losses continued to narrow. In terms of continuing business, Weimeng's revenue in 2023 was about 2.23 billion yuan, an increase of 21% over the previous year. Among them, revenue from subscription solutions and merchant solutions was 1.35 billion yuan and 8.8 billion yuan, up 4.5% and 60.5% year-on-year.
In terms of gross margin, the company's gross margin was 66.6% in 2023, up 7.3 pcts year-on-year. Among them, the gross margin of subscription solutions increased from 59.5% in 2022 to 66.1% in 2023, mainly due to revenue growth and cost reduction and efficiency; the gross margin of merchant solutions increased from 58.7% to 67.3%, mainly due to the increase in the share of high-margin precision marketing revenue. The sales expenses rate was reduced from 89% to 70%, and the administrative expenses rate was reduced from 54% to 32%. The adjusted net loss to mother was 400 million yuan, which is a sharp decrease from the loss of 1.4 billion yuan in 2022.
Subscription solutions: Smart retail is increasing, and promoting mass customization and industrialization. As of 2023, Weimeng had 96,000 paid SaaS merchants, a year-on-year decrease of 3.3%, and the turnover rate increased by 0.8 pct to 26.8% year-on-year. ARPU was 1,4007 yuan, an increase of 8%, mainly benefiting from the promotion of mass customization. Among them, smart retail also increased by 19.5% to 613 million yuan. After excluding Haiding, the endogenous growth rate reached 32%, accounting for 45.5% of subscription solutions.
In 2023, the number of brand merchants increased to 1,306, and the average order revenue of merchants was 195,000 yuan. The implementation of Weimei's customer strategy and industrialization strategy has effectively strengthened merchant stickiness and ARPU, and enhanced future monetization capabilities.
We expect subscription solutions revenue to continue growing steadily in 2024.
Merchant Solution: WeChat commercialization is accelerating, gross revenue is growing strongly, and rebate spreads continue to improve. Weimeng's gross revenue from precision marketing in 2023 was 145 billion yuan, up 44.5% year on year. The growth was strong, mainly due to a strong recovery in advertising demand and the growth of video ads and new channels. Weimeng's video channel business grew nearly tenfold in 2023, with gross revenue of about 2.6 billion dollars. Furthermore, in terms of new channels, annual consumption of Kuaishou and Xiaohongshu increased 164% and 259% year-on-year.
We expect that as the commercialization of WeChat video accounts progresses, Weimeng is expected to fully benefit as Tencent's leading advertising agent. According to the company's performance report, Weimeng's current share of the WeChat video account is about 25%. The company expects the gross revenue of the video account business to double to 5 billion this year, Kuaishou and Xiaohongshu's business can reach 15-20 billion, and the annual gross revenue is expected to increase by more than 20% over the same period last year. We expect that as channel price competition slows down and rebate spreads are expected to improve, we hope to increase the profitability of merchant solutions.
SaaS losses are reduced, advertising profits are released, and break-even is expected to be achieved in 2024. We expect the company to achieve break-even in 2024. The impetus comes from: 1) The gross profit side. It is expected that revenue growth and structural improvements in the SaaS and advertising business this year will lead to an increase in gross profit. 2) On the cost side, the past few rounds of personnel optimization have led to a reduction in remuneration expenses. We expect the SaaS business to continue to lose money this year, and advertising business profits will be released, driving an adjusted break-even balance in 2024.
Maintain a “buy” rating. We expect the company's revenue in 2024-2026 to reach 24.9/27.9/3.09 billion yuan, an increase of 12%/12%/11% year-on-year. Considering the continued optimization of the profit side, we raised our forecast and estimated adjusted net profit to be 0.6/38/600 million yuan. Based on the subscription solution 1x 2025e P/S, the merchant solution 10x2025e P/E gave Weimeng Group a target price of HK$2.0, maintaining a “buy” rating.
Risk warning: The number of SaaS paying merchants falls short of expectations; advertising demand falls short of expectations; sales expenses exceed expectations; Internet regulation poses the risk of adverse changes in the industry environment.