(Chinese Version)

Perhaps from now on, you won’t describe Meitu as a hardware company.

On January 16th, the recently HK Stock Exchange listed Meitu released an announcement, which states by December 31st 2016, Meitu had made a revenue of ￥27.9 million from Internet service within one month, a 481% growth compared with the monthly average revenue in the first half of 2016(about ￥4.8 million).

This is the first time for Meitu to achieve such a large revenue from business other than smart hardware. The company describes the revenue success as a milestone in the commercialization of Internet service in the announcement.

Meitu has been criticized for over reliant on its hardware revenue since the listing. Aside from that, losing ￥6.3 billion also made the company look very bad in fiscal report. According to the documents Meitu filed for the listing, the company’s main businesses are smart hardware, Internet service and others.

The unaudited statistics of the three months(by September 30th 2016) shows Meitu cashed in ￥610 million with its smart hardware business, which accounted for 97.1% of the total revenue. The hardware business accounted for 59.7%, 87.8%, 89.9% and 95.1% of the total revenue respectively in 2013, 2014, 2015 and by June 30th in 2016. The revenue from hardware has been rising in recent years, which is considered as having difficulty to cash in through data flow for a tool-based company.

Aside from that, given the fact that the competition in the global smartphone market is fierce and revenue is mainly driven by the hardware business, it’s very hard for Meitu to achieve break even in 18 months (from July 2016) mainly through its hardware sector as the listing documents also show the company had been losing for the past three years. The documents show Meitu had lost over ￥1.1 billion in total.

The recent announcement shows Meitu’s revenue in December 2016 came from three sources:

1. Short video and live-stream social platform——the sales of virtual items on Meipai has increased;

2. Revenue from brand advertising has increased;

3. Video app——SelfieCity’s customizable printing service brings in profit;

That said, live-stream, advertising and e-commerce service have play their roles in profit growth. However, the details of these businesses are not revealed in the announcement.

It’s estimated that the growing profit of the live-stream business is the main reason for the satisfying revenue performance of the Internet service. “Meipai’s live-stream functions launched the item system and present system in June 2016. The income in that month was around ￥1.3 million. After three months of adjustments, the average income hit ￥3 million,” Meitu’s CFO Yan Jinliang said. In the second half of 2016, Momo’s uprising with live-stream proves the potential of live-stream products.

Other than that, Meitu once emphasized on e-commerce that: “In the upcoming three to five years, e-commerce will be Meitu’s most essential cash in mean.” Meitu’s e-commerce platform is still on its way but the truth is Meitu’s SelfieCity and Makeup Camera have already involved e-commerce elements such as photo printing service and makeup and cosmetics brands. But still, there are still a lot of questions waiting to be answered from its e-commerce business.

Theoretically speaking, as a company that originally started with tool app, Meitu has made quite a successful transformation despite the hardships. The company now has 23 app products that are all free to download, boasting 450 million of monthly active users globally. Generally, advertising would be the best option for tool app companies like Meitu to cash in. However, the gross margin from smartphones is low, and therefore companies need to reassess the advertising business with live-streaming on the rise and the e-commerce business alongside.

Cai Wensheng often says it’s easy for Meitu to profit, and that the loss is from the hardware R&D and marketing cost. Hopefully, Meitu, with businesses ranging from tool app, hardware, social networking to e-commerce, and with 23 apps at its disposal, can find a commercialization path that is suited for its own condition.

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[The article is published and edited with authorization from the author @Han Pei, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.