Summary of Key Points
Meitu’s performance in the first half of 2026 was impressive (22% revenue growth, 39% net profit increase, and sufficient cash reserves), yet its stock price has dropped by more than 60% in a year, resulting in a market value loss of HK$35 billion. The reason is that the market perceives it as having less “appeal” for the future: stagnant user growth, a decline in its high-profit advertising business, increasing AI costs squeezing profits, and the reverse conversion of the stock price from Alibaba’s investment becoming a negative factor in its valuation. Meitu is betting on AI-powered productivity tools as its second growth driver. Although there is growth, it accounts for too small a portion of its total revenue, and it faces competition from larger companies, needing to prove that it can generate enough revenue from AI to compete with the giants.
1. Good Performance, but a “Discounted” Stock Price: What’s the Market Worried About?
The issue is not with Meitu’s current performance, but rather the lack of future potential. The market is concerned about four main issues:
1. Stagnating User Growth: Global MAU (Monthly Active Users) increased by only 0.7%, and domestically it even declined by 0.5%. The company relies on converting free users to paid ones (penetration rate increased from 5.5% to 6.5%) to maintain growth, but photo editing is considered an “optional” service—would you pay monthly for a photo editing service? Streaming media subscriptions, on the other hand, are a necessity (e.g., for watching dramas), so the potential for photo editing to reach a high penetration rate is limited.
2. Declining High-Profit Advertising Business: Advertising revenue decreased by 4.4%, which is Meitu’s most profitable segment. This decline directly affects overall profit efficiency. Additionally, promotion costs increased by 12.7%, meaning more money is spent on promotions for every dollar in subscription revenue generated, making growth increasingly costly.
3. Increasing AI Costs: The more AI is used, the higher the computational costs (computational costs rose by 25% in the first half of the year). Although user AI usage increased by 46% month-over-month, the resulting cost increase reduced the gross margin by 3.8 percentage points. If AI revenue as a percentage of total revenue increases but costs do not decrease, profits will be further squeezed.
4. **Alibaba’s Investment as a “Negative Anchor”: Last year, the conversion price of Alibaba’s investment was HK$6, but now the stock price is HK$4.33, a 30% decrease. Initially, the market relied on Alibaba’s investment to support Meitu’s valuation, but now this has reversed, leading to doubts about the value of the partnership.
2. The New Story: How Effective is the Bet on AI-Powered Productivity Tools?
Meitu is focusing on “AI productivity tools” (e.g., for e-commerce design and voice-over video production) as its second growth driver. The data shows some positives, but the scale is still small:
- Fast Growth but Low Proportion: Productivity tool MAU reached 33 million (80% increase overseas), and paid users increased by 29.8%, generating revenue of HK$323 million (40% growth), but this only accounts for 15% of total revenue (80% still comes from photo editing tools like Meitu XiuXiu).
- High-Value Users Show Potential: High-value users spend 50% more on productivity tools than on general lifestyle services; some users spend HK$2,000 per year (10 times the average), but there are only “thousands” of such users, which is a small base.
- Changing Business Model: The company has shifted from selling membership to charging based on usage. Previously, membership was a fixed fee; now, AI services are priced based on usage (the more computing power used, the more you pay). In theory, revenue could be unlimited, but this model has not yet been scaled up.
3. Faced by Competitors: Where Does Meitu’s “Moat” Lie?
Meitu’s productivity tools compete with larger companies: there are ByteDance’s XingTu for photo editing, JianYing for video editing, and Canva for e-commerce design, as well as Kuaishou’s Keli for AI-powered video. Larger companies can integrate AI features into their apps with billions of users for free (e.g., JianYing’s AI-generated content is free), while Meitu lacks an ecosystem to support its products and can only rely on subscriptions for revenue.
Meitu’s strategy is to deepen its focus on specific use cases: While general AI models will become more widespread, Meitu understands the specific photo editing and e-commerce design needs of its users, which are based on years of user data and cannot be learned by general models. For example, its self-developed “Meitu Qixiang” large model uses its own data for 96% of the generated content to maintain its competitive edge.
4. Limited Market Patience: What Does Meitu Need to Prove Next?
The stock price has dropped from HK$12 to HK$4, reflecting not only a loss of market value but also a loss of market patience. Meitu has already demonstrated that AI can generate revenue, but it needs to prove the following:
1. The Second Growth Driver Can Grow Quickly: The proportion of revenue from productivity tools needs to increase significantly, and the base of high-value users must grow from a few thousand to tens of thousands or more.
2. Reducing AI Costs: This could be achieved by optimizing computational efficiency or finding cheaper cloud services to ensure that AI revenue growth outpaces cost increases.
3. Competing with Larger Companies: Meitu must rely on its deep expertise in specific use cases to make users willing to pay for its AI tools, rather than relying on free alternatives from larger companies.
If Meitu cannot achieve these goals, the market may continue to be skeptical about its prospects.
Conclusion
Meitu’s current situation is one where its fundamentals are stable, but its future prospects are not strong enough. It has cash and AI technology, but to regain market confidence, it needs to transform its story around productivity tools from being “small and impressive” to “large and powerful.” After all, what the capital market wants is not just the ability to generate revenue, but the potential to generate substantial profits in the future.