Good evening, everybody, and welcome to Meitu's 2020 interim results earnings conference call. This is Gary, Chief Financial Officer of Meitu, and joining me today to discuss our results are Wensheng Cai, the Chairman, Xinhong Wu, Founder and CEO, and Susan Wang, COO. 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 our public documents on www.meitu.com.
For all the participants online joining the call using Zoom app or browser, it would be great if you can rename yourself and also include the organization that you represent, so that it is easier for us to call upon your name for the question and answer session. Without further ado, I would like to turn the call to Mr. Cai. He will present in Chinese, followed by translation. Cai.
Okay. Hello, everyone. Thank you for joining tonight's Meitu conference call. The first half of 2020 has been full of challenges. The epidemic that broke out in mainland China at the beginning of the year gradually intensified in overseas regions in the second quarter. By the end of June, India began to demand the removal of Chinese developer apps.
Despite these various difficulties, Meitu still maintained a year-on-year revenue growth of 20% in the first half of 2020 and generated CNY 25 million of adjusted net profits attributable to shareholders of the company. In terms of user base, our MAU in June was 294 million, up 4.6% compared to the end of 2019. This encouraging performance is primarily due to our focused beauty strategy as well as a portfolio of diversified monetization models serving our 300 million global monthly active users.
This includes online advertising, premium subscription, value-added services and some new businesses under incubation. In particular, we have launched a new business called Influencer Marketing Solutions, which has generated over CNY 100 million of revenues. We believe this business does not only help Meitu to monetize, but also helps Meitu in growing its influencer ecosystem and eventually becomes an integral part of Meitu's social platform. Now, I would like to invite our CEO, Xinhong Wu, to talk a little bit more about this new business model and other details of our various business lines.
Okay. Thank you, Wensheng. I am Wu Xinhong. Thank you again for attending this evening's call. My name is Xinhong, and once again, thank you very much for everyone joining this call tonight.
As Wensheng has discussed, the first half of 2020 is indeed full of challenges, but it was also full of opportunities. For example, the pandemic has actually reduced a lot of outdoor activities for our users, and our team has really capitalized on this opportunity to grow our MAU back into a growing trajectory. In addition, the Meitu app team has also managed to raise our social users engagement from an average daily time spent of 12 minutes last year to 15.4 minutes in the first half of 2020, growing it by 28%.
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One of the key strategy for this result is the addition of derivative, or in Chinese, get functionality to help user to create content and make derivative works. Simply put, the derivative function enables our users to take whatever filter and effects that they see from a photo or video and apply it to their own photo and create something entirely new, and that can all be achieved with just one click. In addition, this function can also enable users to interact with each other using images as well, such as making image-based comments.
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In the near future, we will push this strategy even further. For example, when user are editing their photos, all of their individual functions and specs can be saved and form an editing formula that enable other users to use the same formula with just one click. We believe this strategy can better connect content creator and user, and may even attract some professional designers to serve our users better, and in turn drive the user engagement on the Meitu social platform, and hence forging a stronger user base for advertising business.
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In terms of the advertising business, it did get affected by the COVID-19 pandemic, causing a 12% revenue decline year-over-year. Fortunately, advertising revenue has already recovered to the pre-COVID level towards the end of the second quarter. In the second half, we will continue to push our Brand Planet initiative, driving more brands to create corporate accounts on the Meitu social community and promote their interaction with their own fans through a series of functionalities such as free product trial, product reviews and branded live streamings. This will ultimately create a win-win for both the brands and Meitu's community user, especially these user can get some benefits and also some fans-only privileges through this initiative.
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The premium subscription revenue has increased year-on-year by 209%, continue to be Meitu's monetization growth highlight apart from online advertising. This business generates its revenue mainly through overseas subscription users. Although the pandemic has not really eased overseas so far, this business has not really received any negative impact from the pandemic, and its growth trajectory has continued well.
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In addition, although the Indian government has suspended operation of a number of apps developed by Chinese companies, our subscription business has remained relatively unscathed because this business has really not scaled up in India. Therefore this regulation has very minimal impact from a revenue perspective. Given such encouraging results in overseas market, we are going to introduce this business model into our Chinese image apps and strive to raise our monetization potential.
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Now I want to turn to talk about the new business that we launched in 2020, which is the Influencer Marketing Solutions business. This business has already generated about CNY 100 million so far. As the largest and leading provider of image and video editing app, Meitu's user have very good ability to produce content. Because of the pandemic, our users have become more interested in becoming influencer than ever.
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Under the brand of MeituBeauty, this business provide a platform for the brand advertisers to use KOL and KOC marketing. It also provides certain complementary solutions such as recruitment, training, and settlement services for the KOL or KOCs. On one hand, this business will be able to help our influencer to monetize better and hence incentivize them to produce better content on Meitu's platform. On the other hand, this will also enable Meitu to link up with other market participants, such as e-commerce platform, and such that these influencer can help the brands to market their product in their creation, in their content, and live streaming alike.
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This concludes my prepared remarks. Thanks everybody.
Now I will take over to talk about the financials. In the first half of 2020, revenue was CNY 557 million , growing 20.1% year-on-year. Although some of the businesses actually had negatively impacted by the pandemic, because our business portfolio is relatively diversified now and it covers both Mainland China and overseas. The overall business, it's still relatively solid despite these headwinds. Online advertising is the only business that saw a revenue decline at CNY 319 million , declining 12.1% year-on-year. In the first quarter this year, because of the dual impact of the pandemic as well as the negative seasonality due to Chinese New Year, revenue drop is quite pronounced in the first quarter.
But as the pandemic started to ease out in mainland China, towards the end of second quarter and early third quarter, revenue from advertising has really gone back to the pre-COVID level. And in terms of overseas advertising, there's a little bit impact from the pandemic as well. But because overall overseas advertising, it's still relatively small, so its impact is not very much felt in the entire Advertising business. One notable point is that in the first half of 2020, the online advertising revenue as a percentage of total revenue has declined to 57%, compared to 78% a year ago. So as you can see, our business portfolio is becoming more and more diversified. Now, on the premium subscription business, it has continued to grow at a very rapid pace, growing 209.2% year-on-year. And this business is mainly driven by our overseas image app products.
So again, the overseas pandemic situation is still relatively bad. But this business has really not seen any slowdown. As of now, it's still continuing to grow sequentially every month. And I think one of the largest reason is because our overseas product team has really been able to find out what are the functionalities that is in high demand and popular in overseas markets. And at the same time, our ability to monitor ROI in terms of user acquisition and monetization has become a lot stronger. So this business is really data-driven as much as product-driven right now. So in terms of the other revenue line, it also has a pretty significant growth at 126% year-on-year. And the fastest growing sub-segment is obviously the Influencer Marketing Solutions that Xinhong has talked about. IMS business account for about slightly over 70% within this segment.
And this is a new business, so we don't really have a year-on-year comparison. So going on to the gross profit. In the first half of 2020, total gross profit was CNY 356 million , growing 15.5% year-on-year. Gross profit margin was 63.8%, a little bit less than a year ago, by 2.6%. And the decline in gross margin, it's really just a result of the changing business portfolio. Especially the newly incubated IMS business carries a low margin, and that's why the overall gross margin is a bit diluted. So now let me go over the expenses structure. As our chairman has mentioned, in the first half of 2020, this is actually the first half year that we have achieved adjusted net profit at CNY 25 million , which is an extension of what we have achieved in the fourth quarter of last year.
And this encouraging result is because of the growing gross profit, obviously, but also, the expenses management has also contributed quite significantly. So the first thing that we have reduced significantly is the promotion expenses. In the first half of 2020, the total promotional expenses was around CNY 51.4 million , down from CNY 64 million in first half of 2019. But as you can see, despite the decline in promotional expenses, our MAU in the first half of 2020 is still growing. So that can really conclude that our ability to drive user growth through product and operation, it's actually quite successful, as opposed to just simply driving user growth using channel marketing or paid marketing. So onto R&D and G&A expenses. In the first half of 2020, it has declined by 26% and 22% respectively. And these two expenses item are mostly due to employee and related expenses.
As we have mentioned in the last results conference call, we have concluded a set of expenses optimization exercise towards the second half of 2019. This is why the year-on-year comparison for these two line items are pretty pronounced in the first half of this year. Onto the balance sheet. Right now, at the end of June this year, we had CNY 2.5 billion of cash. Our outlook for the global environment, we still believe this is quite uncertain, but I think we are pretty confident to say that with our healthy balance sheet and abundant cash reserve, we are able to capture whatever opportunities to drive our further business growth despite such uncertainty. This is all the prepared remarks, and now we can go into the Q&A session. Thank you, everybody.
To ask a question, I think you can use the raise hand function on the Zoom app, and if you are dialing using a phone line, I think you can press star nine to ask a question. Alternatively, you can type in your question to the chat box on Zoom, and we will answer it from there as well. Okay. Do you have a question from a participant ending zero eight five? Can you open his line?
Thank you for taking my question. I have several questions about the IMS initiative. Could you elaborate on the business model? Are we booking gross revenue or net revenue? Also, I noticed that our sales and marketing have outperformed expectations. Does this mean that the sales and marketing spend will remain relatively low in the future? My third question is about advertising. We saw a rebound in Q2. Will advertising return to year-over-year growth in the second half? Also, when looking at different categories or brand advertising sentiment, is there a difference between domestic and international brands? Thank you, CEO.
Okay. Should Susan and Gary answer separately or can Gary answer both?
I will answer the first two parts, and Gary can answer the advertising part.
Okay.
Great. Let me just translate the question first. Simply, the first question is related to elaboration on the actual business model of the IMS business, whether the revenue is booked gross or net. The second question is about what the sales and marketing outlook is going to be like. Is it going to continue to decline? The final question is regarding the advertising. What is the advertising outlook for the second half of this year? What is the difference in terms of performance in domestic versus global MNC clients? Is there any particular vertical that has different performance?
I will take the first two questions. The IMS business is an integrated solution that provides to MCN organization or some advertising agency or brand advertiser directly.
The crux of it is really help the brand advertisers to use influencer to market their products or do marketing campaigns. At the same time, this business will also provide some complimentary services, as I mentioned in the call, like recruitment, training, and settlement services for those MCN or brand advertisers. Because our client is the advertising agents directly or the brand advertisers directly, we actually are booking this business in gross revenues. On the second question, our sales and marketing budget, it probably will be a little bit higher in the second half compared to the first half. Because overall speaking, I think right now we are at the point where we are breaking even, generating a little bit of profit. At the same time, we are also facing a lot of growth opportunities.
I don't think we are at a point where we are just staying back and to just keep our business steady. Instead, we will reinvest our profit into generating growth opportunity in the future. I think the long and short of it is we will reinvest part of the money that we make back into sales and marketing, and to a less extent on R&D to drive our new businesses. Overall speaking, I think we are still trying to maintain this break-even level, at least for the next 6 to 12 months, barring any unforeseen issues, whether it is the pandemic or geopolitical environment hiccups.
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I think our advertisers are mainly driven by FMCG clients. As you can see right now, the so-called lipstick economy, it is growing very rapidly. This is relatively a positive market backdrop for us. F&B clients, skincare, cosmetic, the consumption is picking up and therefore we think these advertisers will continue to increase in their advertising investments. Therefore, I think in Q3 to Q4, we should continue to see some more sequential growth from the second half of this year. Susan, just want to add a little bit in terms of the development of our advertising business. We are moving away from just providing display ads to a lot more interactive ads, such as live streaming, branded live streaming, content-based marketing that can drive purchase directly.
in the second half of this year, one of the biggest initiative, as Xinhong's mentioned, is the Brand Planet, which is again, it is something more of an integrated marketing solution, so that our advertising business is no longer just a display ad business.
Thank you.
Thank you. If any participant would like to ask a question, please press star nine or use the raise hand function in the Zoom app. Or you can also type in. There is a question on the line. Could you please open the line for Wang Jing?
Okay.
Operator, would you please open the line for Wang Jing?
Okay, Wang Jing, the line will be opened, but you have to
Oh, you have to unmute.
Yeah, I already did that. Wang Jing, you have to unmute.
Sorry.
Wang Jing, could you please unmute yourself? Wang Jing. Okay.
Wang Jing, I cannot unmute you from here. I guess you have to unmute yourself.
Okay. Let me just ask one more round. If there is any questions, just press star nine if you are dialing in or use the raise hand function in the Zoom app. Or if you have trouble with audio, you can also type in the Zoom chat and we will answer the question from there. Okay, since there is no further question from the participant, I would like to conclude this call. As usual, if you have further questions, feel free to contact us at the investor relations mailbox, which is ir@meitu.com. So once again, thank you very much for joining our call, and we will see you next time. Thank you very much.
Thank you.
Wang Jing.
I didn't have my mic on. I have a quick question. How is Meitu's collaboration with Xiaomi on smartphone business going?
Okay, I will answer that. Because of some reasons, actually, both companies have their own reasons, so we have not continued to launch new products in the smartphone aspect. Yes. So because Meitu is now focusing more on the beauty business, we may not launch new products in the foreseeable future.
Okay, thank you.
Let me just translate the question and answer together. The question is: What is the latest update on the cooperation with Xiaomi regarding the smartphone? The answer is that because we would like to focus more on our beauty strategy, and Xiaomi also has its own reasons, so we are not foreseeing launching any new smartphone models in the foreseeable future.
Okay.
Okay. Maybe I'll just ask again one last time. Is there any other question? If so, just press raise hand. If there's no more question from the line, then let's conclude the call and thank you very much again, and we will see you next time. Bye-bye. You may now disconnect.
Thank you. Thank you. Bye-bye.