After more than ten years of exploration, the main revenue structure changed under the AI wave. Since its establishment in 2008, the company has created many excellent design products. It has over ten years of AI layout and deep cultivation. The product application matrix includes:
1) Imaging and design products, covering the two major scenes of life and productivity. 2) Beauty industry, mainly ERP services and SaaS solutions for beauty retail. After the company's commercialization path was adjusted, revenue maintained steady double-digit growth, and profit margins gradually improved and stabilized. Currently, video and design products account for more than half of the revenue, and have replaced the advertising business as the number one source of revenue. The revenue growth momentum mainly comes from subscription revenue. Today, the company is focusing on refining the AI product ecosystem built from the bottom layer, middle layer, and application layer, and productivity tools are expected to open a new subscription revenue growth flywheel.
Three key words for the development of the video digitization industry: subscription system, lightweight, and AIGC. We trace the key points of the transformation and development of the industry through the trends of overseas giants, unicorns, and star startups. 1) Adobe proves the broad prospects of transforming the SaaS subscription system: a richer product matrix ecosystem and gradually rising profit margins; 2) Products such as Canva and Figma prove the huge demand for design cost reduction in production, and the future trend of design SaaS products may be a flywheel effect that is lightweight, cloud deployment, a flywheel effect that focuses on team collaboration, and a low-threshold design concept that is more friendly to individual users; 3) Multi-modal AI has a revolutionary impact on the design field. We believe that the continuity and predictability of images and videos is an official AI in the design field The basis for commercial use. Meitu is a leading domestic photo editing circuit. It is focusing on the three key words of industry development on the basis of a stable share, and the business acceleration trend can be expected.
Life scenarios underpin the MAU basic disk, and productivity scenarios benefit from AI to accelerate growth. The leading concentration effect in the image beautification industry is remarkable. “Meitu Xiuxiu”, the representative product of Meitu's lifestyle scene, has a stable position in the industry. MAU's market share has reached 54%, which is far higher than that of competitors. The company's overall subscription revenue remained high, reaching 1.33 billion yuan in 23 years, yoy +53%. AIGC helps productivity scenarios, such as Meitu Design Studio, Kickoff, and Whee, bind native AI workflows; Meitu Design's revenue exceeded 100 million yuan in 23 years, an increase of 230% over the previous year, and is optimistic that the productivity scenario will contribute the second growth curve in subscription revenue.
A global layout, a voyage of small but beautiful products. In the global video application market, demand side: European and American markets dominate the basic subscription revenue market; emerging markets benefit from increased smartphone+social media penetration to maintain a high growth rate; supply side: the global creator economy is expected to maintain a compound double-digit growth rate under AIGC catalysts.
Meitu started a global layout early, and has a rich ecosystem of overseas products. In '23, 30% of subscribers from overseas contributed 50% of revenue. The ARPU for life/productivity was higher than that of the mainland, and there is huge potential for revenue growth.
Revenue and profits are on the fast track, and AI is expected to further open the revenue growth flywheel for core businesses.
We forecast that the company's revenue for 24-26 will be 36.06/4.537/5.261 billion yuan, respectively, up 34%/26%/16% year on year; adjusted net profit to mother will be 5.7/7.7/1.0 billion yuan, respectively, up 54%/36%/30% year on year. The analysis was carried out using a relative valuation method, and the target market value for 24 years was HK$19.5 billion, corresponding to the target price of HK$4.3 billion for 24 years. The first coverage gives a “Recommended” rating.
Risk warning: AI technology iteration risk, marginal deterioration of market competition, data security, copyright compliance risks, etc., globalization strategies falling short of expectations, etc.