Earnings Call: H2 2020

Mar 25, 2021

Hello everyone. Thank you for standing by. Welcome to Meitu's Full Year 2020 Earnings Conference Call. I am Gary Ngan, CFO of the company, and joining me today are our Chairman, Wensheng Cai, and our CEO, Xinhong Wu. I would like to take this opportunity to remind you that today's discussion may contain some forward-looking statement. A number of risk factors beyond our control may cause the actual result to differ materially from these forward-looking statements. During this call, we will present both IFRS and non-IFRS measures. We may also discuss general market conditions, and such information may come from a variety of sources outside of Meitu. For this detailed discussion of the risk factors and non-IFRS measure, please refer to our public documents on www.meitu.com/en/investors. Before we start, if you are using the Zoom app or joining the meeting on the browser, please rename your ID as your name and the institution that you work for, so we can invite you for a discussion during the Q&A session. Now I would like to turn the call over to Mr. Cai. He will present in Chinese, followed by a translation. Cai. Okay. Thank you for joining the earnings conference call tonight. 2020 is not an ordinary year. Despite the challenging macro environment, we continue to focus on executing our growth strategy and achieved encouraging results. 2020 is the first year we turned full year profitability. Revenue was 1.19 billion RMB, grew 22.1% year-on-year. Adjusted net profit attributable to owners of the company was 60.9 million RMB. In terms of user metrics, monthly active users, or MAU, at the end of 2020 was 261 million, declined slightly year-over-year by 7.6%. But taking out the impact from the Indian ban of Chinese apps, our MAU remains relatively stable year-over-year. Since the second half of 2019, our profitability has continued to improve. This is the result of our focus strategy that drove revenue and gross profit growth. The rapid growth of our premium subscription business is a testimony of our ability to create and scale new business models, leading to a more diversified and healthy revenue mix. In 2021, we are upgrading our strategy, aiming at providing software as a service, or SaaS, for cosmetic and medical aesthetic industry. I will now pass over to Xinhong Wu to discuss our business model and other details. Thank you, Wensheng. Many thanks again for everyone to joining today's earnings call. The large user base is Meitu's core asset, and we are excited that we achieved some breakthrough in our user stickiness and activity level. During the 2021 Lunar New Year holiday, daily active users, or DAU, reached a historical high of 31 million, higher than the previous peak by 13%. Through our Meitu Templates initiative, user can save the filter and stickers that they used into a template. When other users see this template, and if they like them, they can apply that template into their image with just one click, therefore enabling a very viral distribution. 美图配方完美贴合美图秀秀作为影像美化应用的定位，且产生大量的社交互动。数据显示，除夕当天，美图秀秀影像的保存量超过了1.2亿，美图配方保存量较平日增长了9倍。美图秀秀社区使用人数同比增长了98%。此外，我们在2020年年中推出了MCP，也就是美图创意平台，与艺术家、内容极客和众多的创作者进行了联动，集合了众多专业创作的资源，为品牌和用户进行内容创作起到了引领的作用。在美图配方功能上线后，美图公司将PGC与UGC生态贯通，工具和社区实现了充分的融合，品牌和内容体系间的互动也得以顺利实现。目前，众多广告商已经表示有意向和美图的设计师合作，应该说我们平台上的设计师合作，以推出能够更好传递其品牌信息的广告活动。 The major template fits very well within the Meitu apps positioning in image enhancements while driving a lot of social interaction. For example, during the Lunar New Year Eve, 120 million images were being saved, and the Meitu Templates usage was also 9 times more than normal days. The active social user of Meitu has also increased by 98%. Other than that, during 2020, we have also launched MCP, the Meitu Creator Platform, which connects with artists, content enthusiasts, and other creators. These creators in aggregate can design for brands and regular users, as well as setting the trend in design. After the launch of the Meitu Templates, Meitu is effectively linking up the ecosystem of both PGC and UGC, as well as integrating the utility function with social feature. Interaction between brand advertisers and user content can be realized seamlessly. To date, many brand advertisers have already expressed interest in working with designers on our platform to launch better advertising campaigns that better communicate their brand images. 海外方面，虽然受到印度政府宣布封禁多款中国app的影响，但撇除印度的影响，MAU同比比较平稳。从财务的角度，由于印度市场本身的收入就很少，所以总体财务的影响可以忽略不计。但针对这个改变，我们也迅速调整了海外的增长战略重心，从追求整体用户的增长转向为专注高价值用户的增长。通过精准营销和数据分析，有效提升了海外营销活动的投入产出比，从而推动了收入的增长。目前这个战略已经初见成效，推动我们海外用户的收入按年增长了76%。 Overseas, we have experienced a negative impact due to the Indian government's ban of many Chinese apps. Excluding such effects, however, our MAU has remained relatively stable. From a financial perspective, given that revenues generated by the Indian market were very small to start with, the financial impact due to this ban is negligible. In order to adapt to this new situation, we have also adjusted our user acquisition strategy, focusing on growing users that carry monetization value as opposed to simply headline user number. Through targeted channels and data analytics, we are able to raise the return on investment of our user acquisition efforts. To date, we have seen encouraging results of this new strategy as the revenue generated from overseas has grown 76% year-over-year in 2020. 好，商业化方面，在2020年我们也验证了美图可以打造新商业模式的能力，实现收入组合多元的成绩。在2020年，我们的高级订阅业务收入同比增长了140.1%。我们首先在2019年开始尝试海外的高级订阅的商业模式，并且在2020年的下半年引入到了国内。到2020年底，我们拥有全球超过170万的月活跃的付费订阅用户，这个是当月的一个付费的订阅用户。那随着高级订阅和IMS这两个新商业模式的推进，我们收入组合变得更加的多元，结构更加健康。广告收入的贡献从2019年的77%下降到2020年的57%，而高级订阅的收入贡献则由2019年的9%增加到了2020年的17%。 In terms of monetization, during 2020, we have also proven our ability to create and scale new monetization models, which diversify our revenue portfolio. Revenue from our premium subscription business has grown 140% year-over-year. We first started testing this business model in 2019 in our overseas apps, and subsequently introduced this model in domestic apps in the second half of 2020. By the end of the year, we have over 1.7 million monthly paid active subscribers, and I emphasize this is a monthly number. As the two new business models, respectively premium subscription and IMS, continue to grow, our revenue portfolio has become more diversified and healthy. Revenue contribution from online advertising has declined to 57% in 2020 compared to 77% in 2019. As a premium subscription, revenue contribution has become 17% this year compared to 9% in 2019. 好，那验证了我们商业变现能力之后，基于我们庞大且爱美的用户群，我们在2021年将会升级我们的战略，为化妆品和医美行业提供全方位的SaaS服务。基于美图目前的优势，我们会在四个方面提供SaaS，那分别是营销服务、AI技术、ERP、CRM与供应链服务，还有渠道分销服务。 After proving our ability to monetize and given our large and beauty focused user base, we are refining our strategy in 2021. We aim to provide a full service SaaS or software as a service for cosmetic and medical aesthetic industry. Building on our core strengths, we have identified four areas of SaaS, which are targeted marketing service, AI technology, enterprise resource planning or ERP, customer relationship management or CRM, as well as channel distribution services. 好，那第一是营销SaaS。对于美业来说，能够精准地触达爱美用户群是一个非常有价值的能力。除了传统的展示广告外，我们也推出了两项SaaS来帮助品牌商吸引粉丝，带动销售。一个是在2020年上半年正式启动的美图美势，为品牌方或者媒介渠道提供一条龙的网络达人，也就是KOL和KOC的SaaS服务，涵盖了招募、培训、内容营销投放和结算等等这些环节。另一个是正在内测的美图有颜，这个项目目标是链接医美机构，为他们提供精准的用户触达和销售线索，提高销售转化。 Firstly, that's the targeted marketing SaaS. To the beauty industry, being able to accurately reach users that have a demand for beauty is a highly valued ability. Apart from traditional display ads, we have also launched two different SaaS to help brands driving fans and ultimately sales. The first one is our IMS business under the brand of Meitu Meishi. This business provides brands and advertising agents a turnkey solution for influencer marketing, covering recruitment, training, content creation and settlement, among other aspects. The other service that are currently under beta testing is Meitu Youyan, which aims at connecting with medical aesthetic clinics and provide them with targeted user access and sales leads, and in turn, driving sales conversion. 好，第二是AI技术。我们通过美图宜肤这个品牌，为全球的护肤品牌和国内的美容院提供AI测肤的SaaS服务。通过美图自主研发的硬件和AI算法，美图宜肤可以精准地识别肤质的状况，从而针对用户的肤质给出个性化的护肤方案，有效提升了我们客户的到店转化率。目前美图宜肤的旗舰产品就是全景式的测肤仪，已经覆盖了中国超过2000家门店。并且我们跟全球领先的护肤品的品牌达成了战略合作，比如像迪奥、资生堂等等。 Secondly, AI technology. Through the brand MeituEve, we are providing AI skin analysis SaaS to global skincare brands and beauty spas. Through the proprietary hardware and AI algorithms, MeituEve can accurately analyze one's skin condition and provide user with optimal skin care solution, which in turn can increase the sales conversion at the storefront of our clients. The flagship product of MeituEve, the panoramic skin analyzer, has already covered 2,000 beauty spas in China, as well as sealed a few strategic cooperation deals with global leading skincare brands such as Christian Dior and Shiseido. 第三是ERP和CRM。这块的SaaS业务主要是通过我们投资的联营公司美得得进行的。美得得是国内一家领先的美业ERP和CRM的SaaS企业，目前为全国超过上万家的线下化妆品门店提供SaaS服务。同时因为这些门店的销售额在2020年全年超过了110亿元，所以美得得有能力基于ERP和CRM的SaaS，去提供集采的服务。 [Foreign language] So number three, it's ERP and CRM SaaS. This business is mainly carried out through our investor associate company, Meidede. Meidede is a leading ERP and CRM SaaS provider in mainland China, focusing on the cosmetic stores, which it has already covered over 10,000 of them in domestic China. These shops in aggregate during 2020 had over 11 billion CNY of turnover. Based on this large network and large turnover, 美得得 is able to provide supply chain management services, that will help them to better manage their supply chain efforts. 那最后是渠道分销能力。在化妆品行业中，其实有很多海外的小众品牌和新国货的品牌，目前都面临渠道销售的问题。针对这个问题，我们计划为这些品牌提供渠道 SaaS 服务，具体是通过刚刚提到的美得得的门店网络，以及通过我们另外一家投资的企业叫美肌客，来打造社交电商的渠道，以及线下的分销渠道。Finally, it's the distribution capability. In the cosmetic industry, there are a lot of overseas niche brands and new domestic brands that face challenges in distribution. Regarding this, we plan to provide distribution SaaS for these brands, and in practice, we will leverage the storefront network already built by Meidede, as well as the network of sales promoters to be built by another invested company called the Magic Group. [Foreign language] In the future, Meitu is going to continue with its beauty focus strategy and together with our business partners to carry out our vision of empowering the beauty industry and make beauty more accessible to our users. This concludes my prepared remarks for tonight, and now I will take over to talk about the financials. Revenue in 2020 was 1.194 billion RMB, grew significantly by 22.1% year over year. We have now built a diversified portfolio of business that are quite resilient to external shocks, despite some negative impacts due to COVID-19 pandemic. Online advertising revenues was 680 million RMB, declined 9.5% year over year. We note that the decline in percentage term is actually less than that of the first half, which is a good thing. That is because the pandemic's impact mainly manifests itself in the first half of 2020. As the pandemic is being alleviated in domestic China, the advertising business has seen some rebounding since the second half of the year. As mentioned previously, advertising revenue contribution has already declined to 57% in 2020 compared to 77% in 2019, indicating a much more diversified revenue portfolio. Premium subscription business has grown very rapidly, with revenue increasing 140.1% year over year. This is mainly due to the overseas team introducing a lot of differentiated features as well as optimizing the paying conversion. We have since adopted this business model to our domestic Chinese apps since the fourth quarter of 2020, and the revenue has been growing phenomenally. Other revenues has also seen a very fast growth this year, growing 177% year over year. Within the other revenues, the highest contributing and fastest growing is our IMS business, and IMS business accounted for about 71% within other revenues. This business is a newly incubated business in 2020, so there are no year-on-year comparison figures. In terms of gross profit, 2020 gross profit was CNY 790 million, growing 13.5% year over year. Gross margin was 66.5%, which is 5% less than 2019. The gross margin decline is mainly a result of the revenue mix changes, especially the newly incubated IMS business is a low margin business that will dilute the overall gross margin percentage. But if we look at the individual business margin profile across time during 2020, all of them are actually quite positively trending. Now I am going to talk about our expenses. Chairman Wensheng Cai has mentioned in the opening that 2020 is the first year that we have achieved profitability with Adjusted net profit attributable to owners of the company at CNY 60.9 million. This is a continuation of consecutive profitability since the fourth quarter of 2019. The encouraging result, it is a function not only because of the growing gross profit, but the cost control has also contributed positively to this result. Sales and marketing, R&D, and G&A expenses in 2020 has respectively declined by 11.9%, 19.3% and 17.9%, respectively. This is mainly due to our good cost control in both our cost level as well as expenses, which is mainly related to personnel expenses. Just touching a little bit upon the balance sheet. By the end of 2020, we have CNY 2.18 billion of cash. Although we do see there is still a lot of uncertainty in the global economy, we are quite confident that our strong balance sheet, a very significant cash reserve, is going to enable us to grasp a lot of opportunity that is waiting for us in terms of growth and ultimately, to bring long-term shareholder value. This is all of the prepared remarks for tonight, and we can now go into the Q&A session. Thank you very much, everyone. If you have any question, you can raise your hand in the Zoom app. If you join the call via the phone, you can press star nine to raise hand to ask question. You can press star six to unmute your call so that you can speak. The first question is from Thomas Chong, from Jefferies. Please go ahead. Good evening. Thanks management for taking my questions. Can you comment about the outlook in 2021, in particular, the advertising business? Thank you. Hi, Thomas. Sure. I will take this question. In terms of 2021, I think for our company, the gross profit growth is very likely. Also revenue growth, I guess, is very likely to come from the continued growth of the premium subscription business. As we said in the call earlier, we have just introduced this business model in our domestic app, and it just has been growing very fast in this fourth quarter of 2020. We are expecting this trend to continue. That is the first point. In terms of advertising, obviously, we are likely to see some recovery from 2020. I think international or overseas advertising is very likely to also see some more rebound. I think the international rebound is going to be a bit more prominent than the domestic rebound. Shanda, do we have a next question? So far, no. If you have any questions, please raise your hand on Zoom app, or you can press star 9 if you are using phone to join the meeting. There is a question from the chat, asking what is the potential in the 美图云修 business? What is the potential market size and the competition landscape? What is the current progress of this business? Because there is nothing mentioning in the annual results. 目前影楼都存在两个痛点。首先就是修图需要很多的人力。在厦门一家比较知名的全国连锁的影楼品牌，就有超过500位的修图师。所以美图云修为他们提供的是AI自动修图的服务，能够极大地帮助影楼降低成本，提高效率。此外，影楼还有另外一个痛点，就是获客成本很高。所以美图云修未来也会去提供帮助影楼获客的营销服务。我们会从影楼这个市场扩展到更大的市场。比如说像电商的修图，很多的淘宝店其实都存在这种需要批量修图的需求。这个会是一个通过AI去赋能产业，提高效率的一个典型的应用。我们觉得这个空间非常的大，也是美图的创立13年以来，一直在努力的一个方向。谢谢。Let me just translate that. In our view, the photo shooting studio market is actually very big. That actually create a very big market potential for this cloud image enhancement business. Because right now, there is a lot of photo editing labor or photo editing specialist working for these studios. Just to give you one example, in Xiamen, there is a national chain photo studio. They employ 500 image enhancing specialists. We can see how labor intensive it is. We believe that using artificial intelligence to automatic enhance the image that can effectively help these photo shoot studios to reduce their cost and also increase the efficiency. Second issue or challenges that faces these photo shoot studios is very high user acquisition cost. I think Meitu is also in a very good position to provide user acquisition for them. Apart from these traditional photo shooting studios, there is also a lot of other instances where this cloud service is needed. For example, in the e-commerce space, there is a lot of people they need a batch processing of these product photos. In any case, I think this is one of the very good example of how AI is going to able to empower the industry and improve that. We do see there is a very big potential in this particular business. This is also one of the pushes that Meitu has been always trying to achieve since the inception 13 years ago. Thank you. [Foreign language] 还有一个先举手了的。 OK。 Question is from Vinnie Wang. Oh, hi, good evening. Sorry, thank you for taking the question. I guess my question here is also looking forward into 2021. If you look at the monetization, what do you think is the more optimal mix? What are some of the challenges we might see, right? Because if you look at, say, for advertising, the market is certainly very competitive with a lot of your peers uploading a lot more advertising inventories. How do you see in terms of the traffic conversion? I mean, it is very amazed to see the traffic that you guys have, but then when it boils down to conversion for individual user, how do you see that? 所以管理层我想请教一个问题，就是说你看到在2021年的时候我们收入的那个占比，你觉得最理想的状态应该是怎样？我不是一个数据上的事情，我觉得是一个理解，就是说方向我们是怎么去做。然后就看到广告这个行业，特别是你们的竞争对手，其实也加了很多广告刊位。我不知道这个对市场来说越来越激烈的竞争，不只是一些短视频的平台，很多一些其他类型的平台也是说要做更多的广告。所以我就很好奇想问这个事情。第二个问题就是因为每个用户是生产大，而且也很engaging的，对吧？活跃的数还是非常高。但是有个问题就是说这个转化，我们是怎么样会把这些用户可以真的转化到，可以说是能变现的一些流量。谢谢。我来回答这个问题吧。 Thank you very much, Benny, for the question. I think let's break down the answer into a few parts. The two of them is actually quite interrelated. Firstly, in terms of revenue mix in 2021, I think if you look at the online advertising, looking at our product as it stand right now, it's mostly brand advertising in startup page and a little bit of icons. The ceiling, it's relatively low. I would say that, as I mentioned before, there will be some rebound in advertising in 2021 compared to 2020, but there's probably just maybe some double-digit growth there, but that's pretty much about it. But on the other hand, if you look at the premium subscription business, we are still at about 1.7 million subscribers, which is not even 1% of our total MAU as we stand right now. You can see there is a much, much higher potential in the premium subscription business. I think it's quite hard to talk about a target revenue mix in 2021 because it's almost like this is a result figure, and it's not what we are trying to control. But imagine this, there's 20% growth in advertising, but there's a lot more upside coming from the premium subscription. Ended up you would see premium subscription percentage would continue to grow in terms of revenue contribution as a percentage of the total. That's the first answer. I think in terms of your second question, you are right that there is a lot of advertising inventories and the market is growing as we speak. But I think what we are trying to do right now, it's not to compete on the advertising inventory, but rather we're trying to compete with data and targeted user access. A very good example that Xinhong has talked about earlier is the testing of Meitu Youyan, which is a programmatic advertising platform that connects the medical aesthetic clinics to users. What we do there essentially is, there's a user who use a lot of photo enhancement functions. For example, they touch up their black eye circles. They use a lot of chin thinning functionality, for example. Then we'll be able to realize that this user could be a potential client for a medical aesthetics clinic, and then we will serve them a programmatic ad. When they click on it will take her to a one-on-one consultant, which is provided by these clinics. With that, they can start to talk about what kind of surface that they are likely to use. With this kind of targeted user access, quite frankly, we believe we can out-compete a lot of our competitors who have just headline coverage or just exposure. I think we're able to do a lot more. The other thing, which is in similar fashion, is in one to two years' time as the MeituEve business continue to grow, we have more and more user skin data. We're also able to integrate this data into a programmatic platform, and then we can help these brands to identify users' skin problems and serve very accurate targeted ads. I think it's a great question on how we're going to compete, and then I think the answer is mostly through the data that we're able to provide to differentiate us from other competitors. Okay. Great. Thank you. Thank you, Gary. There are three unanswered questions in the chat box. Maybe the management can address those questions one by one. The first one is from Xin Kai Fang. Xinhong. Okay. There's a lot of beautification products, for example, like FaceU and B612. How do we see their competitive landscape? Okay. 美图秀秀和美颜相机都是排在这个赛道的第一名。所以虽然说有很多竞品，但美图的产品一直是遥遥领先的，这是第一位。第二，我们也在做一个产品形态的变革，把这些工具产品逐步往服务去转。我们会逐渐地为用户提供一些跟变美相关的服务，我们希望未来能够形成一个新志，就是想变美，来美图。所以我觉得服务是能够真正为用户提供价值的，也是能够更长期地绑定用户的一种方式。此外，我们在今年初推出的美图配方也取得了非常好的一个突破。美图配方实际上对我们来说是一个内容生态的建设。它帮助美图秀秀也在春节达到了历史新高，突破了3,100万的DAU。真正地把美图的工具和社区连接在了一起。所以无论是说服务还是说内容生态的建设，这些都是我们在寻求突破的主要的方式。好，谢谢。 If you look at the third party data provider QuestMobile, there are two subsegments, one of it which is image enhancement and the other is photo taking. In both segments, Meitu app is number one by far. I think we are still a very solid market leader in both of these subsegments, despite there are many competitors out there. On the other hand, we are also looking at a change in terms of the form of the product, in a sense that we are going to emphasize a lot on providing services to users as opposed to just being a tool. We are now providing a lot of services to users which help them to become more beautiful. We are trying to build a market position of beauty. In a way you can think about it, if a user wants to become more beautiful, the first thing that they will think about is to come to Meitu. We believe that through services is really what will help users to create value and also a very good way to increase stickiness of the users. On top of that, as we have mentioned before, the Meitu Tablet, it is also one of the breakthroughs that we have had recently because this is really a very natural integration of the utility function as well as the social features. As reflected by the encouraging data that we have seen in the Lunar New Year, we have reached 31 million DAU, which is a very strong historical peak. I think this is a strong testimony that this strategy has been working very well so far. Gary，接下来有几个问题由你来回答。 Okay. There are three questions on the chat that mainly talks about the cryptocurrencies. Okay. I guess I will answer them together. I think the first feedback is we actually have written quite extensively in the voluntary announcement two weeks ago, which I encourage investor and analysts to read them in detail. It talks about why we are buying the cryptocurrencies and both Bitcoin as well as Ethereum in detail. I guess that clears up the reason why we want to buy cryptocurrencies. I think one of the question is regarding the financial or accounting treatment of the cryptocurrency. I think right now, the global standard of accounting for cryptocurrency is treating them as intangible assets. The treatment will be fairly standard if you treat it as an intangible asset, but it's not going to be a fair value instrument as mentioned on the chat box. Also there's one clarification that we want to make there, because in the chat box it's talked about 2018, there's a white paper. We want to clarify that that white paper is actually not written by Meitu. We are just a potential partner of that BTC coin. Because in it, he mentioned that this concept was proposed in 2018, called Bitcoin. I just want to emphasize that the white paper at that time was not written by Meitu. We are just a partner overseas. Yes. Yeah. I hope I have cleared up all the questions. Currently there is no other question and answer from the floor. If you have any other questions, please raise your hand or just input a question in the chat box. Okay. If there is no further questions from the floor, I think we can conclude this call. Thank you very much, everybody, who joined our analyst conference call tonight. We will talk to you- Harry. Oh, sorry. There was a question, but the question was sending in a private message. I think the question is asking about there is an announcement about Raisin, Tianhua seeking IPO and its relationship with Meitu's long-term plan to probably go back to Asian market to get public. I will take that question. Raisin is a non-wholly owned subsidiary of Meitu which engage in advertising agency business. They operate fairly independent from Meitu. Obviously we have some cooperation, but they are mostly an independent operating entity. I think what they plan to go to Asia has no particular bearing with Meitu because ultimately Meitu is a company that is based in Xiamen, headquartered in Xiamen, but we have global ambitions. I think we are not at the moment seeking to list in other exchange boards right now. If there is no further question, then we have reached the end of the conference call. Thank you. Thank you very much for everyone joining. Thank you.