Earnings Call: H1 2021

Aug 25, 2021

Ladies and gentlemen, good evening and welcome to Meitu's 2021 Interim Results Earnings Conference Call. This is Coco Ken, Senior Investor Relations Manager of Meitu. Joining me today to discuss our results are Mr. Wenxiong Cai, the Chairman, Mr. Wu Xinhong, the CEO, Mr. Gary Ngan, the CFO. I would like to take this opportunity to remind you that our remarks today may include certain forward-looking statements. A number of risks and factors beyond our control may cause the actual results to differ materially from those contemplated by these forward-looking statements. During this call, we will present both IFRS and non-IFRS financial measures. We may also discuss general market conditions for our industry, and such information may come from a variety of sources outside of Meitu. For a detailed discussion of the risk factors we face and non-IFRS measures, please refer to the public documents on corp.meitu.com. Investors who are using Zoom app or Zoom PC, we suggest you can add your name or institution name. This will help us to invite you in the Q&A section. Now I would like to turn the call over to Mr. Cai. He will present in Chinese, followed by a translation in English. [Foreign language] 大家晚上好，感谢大家来参加今天晚上的美图电话会议。2021年上半年，我们继续专注我们的增长战略，并取得令人鼓舞的成绩。美图在2021年的上半年实现了按年144.6%的收入增长。美图已经实现连续第三个经调整后利润的半年度盈利。2021年的上半年，本公司拥有经调整利润约人民币3,340万元。这稳健增长的业绩是基于美图聚焦在变美的战略上，成功找到了高级订阅的变现模式。高级订阅在2021年上半年实现了按年150%的收入增长，成为推动美图上半年收入增长的第一大贡献。自2019年我们推出高级订阅的服务以来，这个业务持续高速增长。杰瑞要全部讲完吗？还是先翻译这一段？我可以开始翻译。Thanks everyone for joining tonight's call. In the first half of 2021, we continued to focus on our growth strategy and achieved quite remarkable results. Revenue grew 44.6% for the first half compared to the same period last year, making the third consecutive profitable half year in terms of adjusted net profits. Adjusted net profit attributable to the owners of the company was approximately RMB 33.4 million for the first half of 2021. The steady growth is driven by our success in finding the premium subscription business model, which achieved 150.7% year-on-year growth for the first half, representing the largest growth driver, Meitu's overall revenue. In fact, this business has been growing consistently and quickly ever since we launched it in 2019. 蔡总您可以继续。用户方面，我们整体用户数维持稳定的水平。实际上，自从我们找到高级订阅这个成功的变现模式，我们更看重如何从海量用户中吸引高级用户的变现。上半年，我们高级订阅用户快速增长。去年12月，我们拥有约170万全球有效高级订阅用户。到今年六月，我们的应用已拥有300万全球有效高级订阅用户。高级订阅用户的高速增长证明公司有能力创造新的商业模式，并实现收入的多样化。同时，我们聚焦变美的战略，积极孵化美妆品、医美行业，提供全方位的SaaS服务的企业。接下来，我请我们的CEO吴欣鸿来进一步阐述我们的商业模式和其他的业务细节。谢谢大家。 In terms of users, it has been kept relatively stable. In fact, we focused on how to convert high-quality users from our massive user base into subscribers. In the first half of 2021, our premium subscription users are growing rapidly. We have approximately 1.7 million active paying subscribers in December last year, and in June 2021, we have already close to double that to approximately 3 million active paying subscribers. The rapid growth of the premium subscription business proves that Meitu can create new business model to drive a diversified income portfolio. In the meantime, Meitu is going to focus on its beauty strategy and proactively incubate business to provide SaaS services for cosmetic and medical aesthetic industry. Next, I would like to invite our CEO, Mr. Xinhong Wu to further elaborate on our business model and other business details. [Foreign language]. 好的，谢谢文胜。再次感谢大家来参加今晚的业绩发布会。庞大的用户基础是美图的核心资产。今年上半年我们在国内主要的产品美图秀秀和美颜相机日活维持在稳定的水平，并在国内修图赛道上保持着领先地位，与主要竞品拉开了差距。这有赖于我们持续投入资源，优化产品和运营模式。未来，在国内用户整体的增长策略上，我们会针对不同的平台投入资源，尤其加强在安卓端的精细化运营。 The massive user base is the core asset of Meitu. in the first half of this year, our mainstream products, Meitu app and BeautyCam, maintained a stable MAU and a leading position in domestic image adding competition track, and expanded the gap with the major competitors. This depends on our continuous inputs in resources to optimize products and operations. In the future, in terms of the domestic user growth strategy, we will allocate resources on different platforms with specific focus on Android system to strengthen refined operations. 好，我们的美图配方功能可以让用户一键采纳其他用户在编辑过程中使用到的滤镜和贴纸等复杂的修图手法所记录成的配方，进而实现传播裂变。今年上半年，我们在配方上新增了智能推荐功能，比如说用户要修一张街拍的照片，美图就会给他推荐合适街拍的配方，多个维度去完善我们的配方功能。 Our Meitu template function allows users to easily adopt the template consist of filters and stickers recorded by other users in the editing process to achieve spread and fission. In the first half of this year, we added a new recommendation function of the template. For example, if a user wants to edit a street shot photo, Meitu will recommend a template that fits street shooting, improving the template function in multiple dimensions. 好的。今年上半年，我们看到越来越多的用户对配方功能的依赖度增加，美图配方池的数量高速增长近10倍，使用美图配方的用户数于上半年增长了近3倍。美图配方功能成为目前美图秀秀中用户增长速度最快的功能，完美贴合美图秀秀作为影像美化应用的定位。未来我们会针对配方功能进行商业化的尝试，比如说付费配方、IP配方等等，来创造新的收入增长点。 In the first half of this year, we have seen an increase in numbers of users relying on the template function, and the number of Meitu's template database increased by nearly 10 times. In addition, the number of users using Meitu templates increased by nearly three times in the first half of this year. The Meitu template function has become a function with fastest growing users in Meitu app, which perfectly fits their positioning as an image editing app. In the future, we will try to commercialize the function, such as paid templates, IP templates, and etc., to generate new revenue growth momentum. 在海外方面，目前美图海外已经成为国内影像出海赛道收入的第一名。截至2021年的6月，美图集团产品非中国区收入的排名已经超过国内其他同类别的开发者，成为出海收入第一名。虽然印度政府宣布封禁多款中国app，但撇除印度的影响，MAU的表现平稳。财务方面，由于印度市场本身收入很少，总体财务的影响可以忽略不计。但针对这个改变，我们也迅速调整海外增长的战略重心，从追求整体用户的增长，转为追求高价值用户的增长。 In terms of the overseas market, Meitu overseas business has become number one in revenue on the overseas racetracks among domestic image apps. As of June 2021, the non-China revenue ranking of Meitu's products has surpassed other domestic developers in the same category, becoming number one in terms of the overseas revenue. Although affected by the Indian government's announcement of ban on several Chinese apps, overseas MAU performed smoothly when we exclude the impact of India. Financially, due to the low contribution of the Indian market, the financial impact is negligible. However, in response to this change, we quickly adjusted our overseas growth strategy, shifting from pursuing overall user growth to focusing on the growth of high-value users. 通过精准营销和数据分析，有效提升营销活动的投入产出比，从而推动收入增长。目前这个战略已经初见成效。我们上半年海外收入同比去年同期增长了65.7%。另外，今年上半年iOS 14.5政策的更新，我们也相应调整了海外用户的增长策略，制定不同平台的投放策略，增加Android端的投入，iOS端有侧重性的投放，探索新渠道，扩大影响力。 Through precision marketing and data analysis, the input-output ratio of the marketing activities can be effectively improved, thereby driving revenue growth. At present, this strategy has achieved initial results, driving the overseas revenue to increase by 65.7% year-on-year. In addition, in terms of the iOS 14.5 update policy in the first half of this year, we also adjusted the growth strategy accordingly, and we applied different strategies on platforms, increased investment on the Android system and input targeted investment on the iOS system, explore new channels to expand our influence. 商业化方面，我们去年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之后，今年上半年我们的高级订阅这个新的模式的业务能在高速增长。这个业务收入同比去年同期增长了150.7%。 In terms of commercialization, we verified Meitu's ability to create a new business model and achieve a diversified income portfolio last year. In the first half of this year, the model of our premium subscription business is still expanding rapidly, and the revenue of this business has increased by 150.7% year-on-year. 值得一提的是，高级订阅的业务在2019年推出以来，截至目前，该业务已经连续实现季度环比的双位数增长。我们相信未来能有巨大的增长空间。去年年底，我们拥有超过170万全球有效的高级订阅用户。经过半年的时间，我们目前已经拥有了约300万全球有效高级订阅用户。高级订阅占总收入的比重从去年上半年的15.1%，上升到今年上半年的26.2%。按照这个快速扩张的速度，高级订阅业务有机会在将来成为我们第一大的收入贡献业务。我们非常高兴地看到这块业务的规模持续在扩张。 It is worth mentioning that since the launch of the premium subscription business in 2019, it has continuously achieved a double-digit sequential growth by quarters so far. We believe that there is still a large room for growth in the future. At the end of last year, we have more than 1.7 million active paying subscribers worldwide. Six months later, we now have around 3 million active paying subscribers. The revenue contribution of premium subscriptions increased from 15.1% in the first half of last year to 26.2% in the first half of 2021. According to the rapid expansion of this business, it is possible that this segment may become our largest revenue contribution in the future. We are glad to see the continued scale expansion of this business. 验证了我们的商业变现能力后，基于我们庞大且爱美的用户群，我们在2021年将会继续升级我们的战略，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，我们主要在三个方面提供SaaS。分别是AI技术，第二是ERP、CRM与供应链服务，第三是渠道分销服务。 After verifying our business monetization capabilities based on our massive user base, we will continue to upgrade our strategy in 2021 to provide a full range of SaaS service for the cosmetic and medical aesthetic industries. Based on Meitu's current advantages, we mainly provide the SaaS service in three aspects, namely AI technology, ERP and CRM service, supply chain service, as well as channel distribution service. 第一是AI技术。我们通过美图宜肤这个品牌，为全球的护肤品牌和美容院提供AI皮肤分析解决方案。通过自主研发的硬件和AI算法，美图宜肤可以精准地识别肤质的状况，从而针对性地推荐护肤方案，有效提升我们客户到店的转化率。目前，美图宜肤旗舰产品的全景式测肤仪已经覆盖了全球超过240多个城市的门店。美图宜肤也继续深化跟全球领先的护肤品牌的合作。比如说今年上半年跟Dior继续深化合作，为他们增加了很多诸如像眼部测龄这样的一些高级的服务，就是测眼龄。 For the AI technology, we provide an AI skin analysis solution for global skin care brands and beauty spas through our incubated company, MeituEve. Through the independent developed hardware and AI algorithm, MeituEve can accurately identify the skin condition, thereby recommending personalized skin care solutions. Effectively improving the conversion rate. At present, Meitu's flagship Panorama skin analyzers have been deployed in more than 240 cities around the world. Meitu is continuing to deepen its strategic cooperation with the world's leading skincare brands. For example, in the first half of this year, we continued to deepen cooperation with Dior, adding more advanced services such as eye aging service. 第二是ERP跟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。美得得是国内的一家领先的美业ERP和CRM的SaaS企业，目前为全国上万家线下化妆品门店提供SaaS服务。这些门店的销售额在2021年上半年加总超过了60亿元的人民币。美得得有能力基于ERP和CRM的SaaS服务提供集采的服务，帮助门店更好地进行供应链的管理。 We provide the ERP and CRM related service. The SaaS business is mainly carried out through the affiliated company Meideduo that we invested in. Meideduo is a leading ERP and CRM SaaS company in the beauty industry in China. It currently provides SaaS service to more than 10,000 offline cosmetic stores all across the country. At the same time, these stores generated more than RMB 6 billion in total sales in the first half of 2021. Meideduo can provide centralized procurement service based on ERP and CRM SaaS to provide the stores with a better supply chain management. 好，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来进行。 Finally, we provide a channel distribution service. In the cosmetic industry, many overseas niche brands and new domestic brands are currently facing the problem of sales channels. In response to this problem, we plan to provide channel SaaS service for these brands, specifically through the store network of Meideduo. 未来美图将继续深化变美的核心战略，携手合作伙伴以实现我们整合变美生态链，帮助用户全方位变美的愿景。 In the future, Meitu will continue to deepen its core beauty strategy, work with partners to realize our vision to empower the beauty industry and make beauty more accessible to our users. Now please welcome Gary to talk about the financials. Thank you, Xinhong. 好的，谢谢大家。然后请 Gary 来同步。好，谢谢。 Thank you. I will go through the first half financials with everyone here. In the first half of 2021, total revenue was RMB 806 million, growing significantly year-on-year by 44.6%. The growth is mainly coming from our new business model, which is the premium subscription and in-app purchases. This business has grown significantly by 150.7% year-on-year, and has been consistently driving our business forward, and now has already become our second-largest revenue contributor. In terms of online advertising, revenue was around 393 million, increased by 23.3% year-on-year. The main reason for this increase is because the pandemic was relatively well controlled in China already with the rollout of vaccines, and that has caused the domestic advertising market to recover gradually. In terms of revenue contribution, online advertising has decreased to about 48.7% in the first half of this year, compared to about 57% last year. That is a testimony of how we are reducing the reliance on a single revenue model. For the premium subscription model, the growth has been very rapidly, as I mentioned previously. In the first half, revenue for this line of business came in at about RMB 211 million, growing 150.7% year-on-year. In 2019, we have started this premium subscription business overseas, and after achieving very remarkable success, we started to roll it out in the Chinese apps middle of last year. In the first half of this year, the overseas subscription business still recorded double-digit growth on a year-on-year basis. Obviously for the Domestic business, even though it started slower than the overseas, the growth rate is significantly higher than the overseas counterparts. We believe that the premium subscription business model is a model that is more native to our business because it is a very natural extension of what a user is using our app, which is photo editing and camera primarily. In fact, we are able to monetize our premium subscribers at the same time while we are increasing the user experience. So we intend to launch more differentiated new features, try to raise our sales and marketing efforts such that we can continue to increase the paying conversion ratio. Subsequently, we intend to continue to optimize our product and launch more features that will drive user stickiness and ultimately increasing the subscriber retention rate. For other income in the current period, other revenues, excuse me, it has also increased significantly with a year-on-year increase of 25.2%. Within the other revenues, the highest contributor was the IMS business, which is the influencer marketing solution, and it accounted for about 87% of other revenues. In absolute terms, it is about CNY 146 million, increasing by approximately 50% year-over-year. In terms of gross profit, the total gross profit for H1 2021 was around CNY 533 million, increased by 49.8% year-over-year. The gross profit margin was 66.1%, which is about 2.3 percentage point increase over the same period last year. The increase of gross profit margin was mainly due to the change in revenue mix, especially in terms of the increase in gross profit from the high profit margin business such as the premium subscription services. Next, I will talk about the profitability and expense structure. As our Chairman mentioned that the company has achieved the third consecutive semi-annual profit in terms of adjusted net profit in the beginning of the call. In this period, we have achieved CNY 33.4 million of adjusted net profit attributable to owners of the company. This is mainly due to a large increase in the gross profit driven by our new business model. Sales and marketing, R&D, and G&A expenses has respectively increased by 39.8%, 38% and 25% in H1 2021. The increase is mostly in line with the growth of our revenue lines, and it is mainly due to employee expenses. In terms of cash, as of June 2021, we have about CNY 1.1 billion of cash on the balance sheet. Even though the global economy is still not very There is still quite a bit of uncertainty in the global economy. We can confidently say that our balance sheet is very strong and our cash reserve can fully support us in terms of seizing some of the next growth opportunity and ultimately generating long-term shareholder value. This is all the prepared remarks for tonight, and I will open the floor for Q&A. Thank you, management. Now we can enter the Q&A section. Investors who are using Zoom app or Zoom PC version, please click the hand-raising button to raise the question. Then we will unmute your voice. Investors who are dialing in in this meeting, please press star nine for raising the question, and then you will hear a phone prompt. Please press star six to unmute your voice. Before asking the question, please tell us the name of the organization and yourself. I repeat. Now we can enter the Q&A section. Investors who are using Zoom app or Zoom PC version, please click the hand-raising button to raise the question. Then we will unmute your voice. Investors who are dialing in in this meeting who are dialing in this meeting, please press star nine for raising a question, and then you will hear a phone pause. Please press star six to unmute your voice. Before asking the question, please tell us the name of the organization and yourself. [Foreign language] Investor who named Jack Xu, you can ask the question now. 经营团队你们好，谢谢你们宝贵的时间，感谢你们分享了你们过去经营的成果。我有个问题想要请教一下。对不起，我这边是台湾统一综合证券的分析师，我姓徐，你好。是这样，我想问一下，因为我们年初的时候好像有去买比特币跟以太币，那不知道现在我们对于这个相关的资产来说，当初去买的想法是什么？然后接下来的话，我们这方面会有什么样的规划？那这个会是我们长远布局呢，还是它只是一个财务投资？以上是我的问题。感谢。 Okay, the question is related to the strategy around the cryptocurrencies that we have on our balance sheet. I think the reason for acquiring the cryptocurrencies has actually been quite fully explored and explained in the announcement that we have made previously when we make the purchase. In order to recap that a little bit, it is part of our treasury management. I think it might be useful if you just go back and read those announcement, there will be a lot more detail in terms of what was the logic and the strategy around the cryptocurrencies. Thank you. 感谢。 Investor whose name is Melody, you can raise your question. Hi, thanks management for taking my question. My question will be focusing on our overseas strategies. Given that we are already the number one and achieving a good result there. Can you share a bit more detail on our overseas strategies? Thank you. 我翻译一下这个问题，这位投资者想了解的是我们的海外的策略。因为我们有提到我们现在已经在出海的影像赛道里面的第一名了，那接下来我们有些什么样的计划跟策略？好的，这个我简单回答一下。我们海外目前更多是聚焦在付费订阅用户的增长上面。因为我们之前也在很多的国家去做用户的获取，但是会发现可能部分国家的用户付费意愿还不是很高，所以会逐渐地把资源聚焦在这个用户的UP值比较高的国家。然后更多并不是看整个用户数据的增长，而是更多聚焦在付费用户增长上面。此外，我们海外也在做产品形态的延伸，因为我们主要的两款海外产品BeautyPlus和AirBrush，目前都是To C的产品。那很快我们会针对后疫情时代的远程协作，针对很多小B，就是小的商家，对于设计模板的需求，我们会去提供解决方案，帮助我们的用户能够更好地去进行，比如说小团队的跨平台的协作，以及能够通过我们提供的一些模板更快地去完成一些设计。所以这个是我们海外的大概策略。谢谢。 Let me just quickly translate that. I think in terms of overseas strategy, the focus we have right now is mostly on the subscriber growth, the paying subscriber growth. Based on our previous experience, we used to do a lot of user acquisition in multiple countries, but we realized that some of the countries, the paying inclination or the subscriber propensity is actually not very high. We're now slightly shifting our focus into deploying more resources into the countries that have high ARPU users, as well as the users that are more likely to be converted into subscribers. That's the first point. The second point is that we are also working on product extension, in a sense that if you look at our current overseas product portfolio, BeautyPlus and AirBrush, they are mostly a B2C or to consumer product. But in the post-pandemic world, I think there's a big opportunity for us to get into servicing these business clients, especially these smaller, medium-sized business where they require a lot of online cooperation, small team, cross-platform, that kind of thing. I think one of the examples that we can give you is, for example, we can give these smaller businesses or small teams some templates to help them to solve their design issues much more efficiently. So that would be the to business product extension that we are going to roll out in the near future for our overseas business. Thank you. Oh, thank you. That's useful. Thank you. Okay. There is one question from the chat box. It is in Chinese, but I will translate that. It is mostly asking about the accounting treatment of the cryptocurrencies and whether this is an IFRS-based treatment. Just quickly respond to that. All of the accounting treatment in our financials are actually reviewed by a Big Four auditor, PricewaterhouseCoopers, and including the cryptocurrency treatment is actually under the IFRS. As a global practice, all of the cryptocurrencies are being treated as an intangible asset. Therefore, all those treatment is actually in line. If you look at any listed company, you will see the same treatment, whether it is listed in Hong Kong or it is in the U.S. We are now open to the next question. Investors who are using Zoom app or Zoom PC version, please click the hand-raising button to raise the question. Investors who are dialing in this meeting, please press star nine for raising the question. Okay. It appears that there is no more further questions from the floor. Once again, thank you everyone for dialing in to our call, and thank you for your interest in Meitu. This concludes the analyst briefing call, and good evening, everybody, and have a nice day. Thank you.