By Wang Huiying

Edited by Ziye

"The company stands on the brink of survival, thanks to AI."

In early 2023, Chen Jianyi, Senior Vice President of Meitu, made a striking statement, highlighting the company's intense focus on AI at the time.

Over the past year, Meitu has been actively engaged in AI endeavors, including upgrading and deploying the MiracleVision visual big model, integrating AI functionalities into its product suite, and entering the race for AI productivity tools. Riding the AI wave, Meitu's earnings in the first half of 2024 were nearly on par with its entire 2023 revenue.

During the conference call following the release of the 2024 interim report, Wu Xinhong, CEO of Meitu, remarked, "Meitu is a very fortunate company. We've experienced robust growth under the dividends of two eras: the mobile internet era and the current generative AI era."

In reality, this company, with a market valuation nearing RMB 100 billion in the aesthetic sector, has long faced profitability and growth challenges.

Initially an image processing tool, Meitu has made numerous cross-sector attempts, including mobile phone manufacturing, social networking, and transitioning into short video platforms, all of which resulted in consecutive losses.

During this period, what most surprised the market was Meitu's heavy investment in Bitcoin. At the time, Meitu's founder Cai Wensheng took a bold bet, and the company's performance mirrored the volatility of the "cryptocurrency market".

On December 5, 2024, as Bitcoin surpassed the $100,000 mark, Meitu announced the sale of all its cryptocurrencies. The announcement revealed that Meitu began selling its cryptocurrency holdings in November 2024 and completed the sales by December 4, realizing a profit of approximately $79.63 million (around RMB 571 million).

Meitu has secured a solid profit. By offloading all its cryptocurrencies this time, Meitu seems to be signaling to the outside world that, after bidding farewell to the cryptocurrency market, it will now fully commit to AI.

Behind this shift in focus lies the increasingly competitive AI application market. Especially starting from the second half of 2024, the AI application market gradually stabilized, and the industry embarked on a new round of competition, with participants still facing challenges.

A prominent issue is that, despite leading the AI field, Meitu has encountered doubts about its product functionalities and user payment experience.

For Meitu, a temporary turnaround doesn't guarantee ease. With competitors also going all in, telling a compelling AI story will remain a challenging marathon for Meitu.

1. Amidst persistent doubts, Meitu's cryptocurrency speculation was a "narrow victory"

Few internet companies' performances are intertwined with Bitcoin, but Meitu is one of them.

In March 2021, Meitu purchased 15,000 Ethereum and 379.1214 Bitcoins through open market transactions via its wholly-owned subsidiary, Miracle Vision. The total consideration for these two cryptocurrencies amounted to approximately $22.1 million and $17.9 million, respectively. At the then-current exchange rate, the total purchase price was roughly RMB 200 million.

Such a bold move left outsiders puzzled about Meitu's intentions. Subsequently, Cai Wensheng made a high-profile post on his social media, stating, "Someone has to be the first to eat the crab."

However, understanding Cai Wensheng's growth trajectory makes this less surprising. As a grassroots entrepreneur, he likens himself to a "bridge between elites and the grassroots." At every step, Cai Wensheng has maintained a very open attitude towards cutting-edge commercial speculation.

Cai Wensheng first made a substantial bet on 300,000 Yingke shares and earned over RMB 1 million in less than three months. Later, he ventured into the internet domain name business, registering over 100,000 domain names, including those for iQIYI and Weibo, which he flipped for profit. Then, Cai Wensheng became an angel investor, backing companies like 58.com and 4399.

Even after stepping down as CEO of Meitu, Cai Wensheng publicly stated in 2024 that China would inevitably embrace Web3 in the future and might even reopen digital currency trading.

While cryptocurrencies offer profit opportunities, their unstable prices and imperfect regulatory mechanisms render them overly speculative and not a quality investment target.

Alternatively, the risks of investing in cryptocurrencies far outweigh their investment value.

Looking back at Meitu's performance "rollercoaster," cryptocurrency speculation was akin to a high-stakes adventure, first yielding a profit of $100 million and then, over a year later, incurring a loss of RMB 300 million.

In July 2022, Meitu issued a profit warning, stating that as of June 30, 2022, the company expected to record a net loss of approximately RMB 274.9 million to RMB 349.9 million, an increase of approximately 99.6% to 154.1% compared to the net loss of approximately RMB 137.7 million in the same period last year. The main reason for the expected increase in net loss was the impairment of purchased cryptocurrencies.

This speculative development also raised doubts about Meitu, with the biggest criticism being that it was "not focusing on its main business." In March 2024, Meitu candidly told Wired Insight that its past development had suffered many losses due to "divergent thinking" and made some "risky" attempts.

Under the influence of Cai Wensheng's business philosophy, the first half of Meitu's growth journey was fraught with speculation and adventurous ups and downs.

In June 2023, Cai Wensheng submitted his resignation as Chairman. Wu Xinhong stepped in to take over as Chairman and CEO, becoming the sole executive director of the board.

With the change in senior management, Meitu's strategic direction has clearly shifted. Wu Xinhong, with a product background, focuses on Meitu's products and technology.

"I have my interests, and my interest is Meitu's main business. It's remarkable for a company to excel in just one thing," said Wu Xinhong. He added that the best investment is in the company's core business.

Under Wu Xinhong's leadership, Meitu is concentrating on AIGC while exiting the cryptocurrency market.

In December 2024, Meitu sold all its Bitcoins. The announcement revealed that Meitu began selling its cryptocurrency holdings in November 2024 and completed the sales by December 4, realizing a profit of approximately $79.63 million.

This was underpinned by the continuous rise in Bitcoin prices. Starting from September 2024, Bitcoin prices soared, breaking the $10,000 mark on December 5.

With the increase in cryptocurrency market value, it was a prudent move for Meitu to cash out and exit. Thus, Meitu's cryptocurrency speculation story concluded in a "narrow victory." For the current Meitu, it doesn't need speculative behaviors like cryptocurrency gambling to yield big returns from small investments; it needs to fully commit to its AI strategy.

2. Is Meitu's foray into AI sustainable?

Starting in 2022, Meitu's involvement in AI intensified. In its 2023 annual report, Meitu openly positioned itself as an AI company.

At that time, both Meitu's revenue and net profit grew, with the most notable highlight being its image and design product business, which continues to expand today.

Meitu's 2024 interim performance report revealed total revenue of RMB 1.62 billion, a year-on-year increase of 28.6%; adjusted net profit attributable to equity holders of the parent company was RMB 270 million, a year-on-year increase of 80.3%. Among this, revenue from image and design products, primarily comprising paid subscriptions, was RMB 930 million, accounting for 57.4% of total revenue.

Meitu mentioned that generative AI technology was the primary driver behind the rapid increase in paid subscription penetration and substantial growth in paid subscription revenue. The financial report showed that in the first half of 2024, Meitu had over 10.81 million paid subscribers, a record high, with a paid penetration rate of approximately 4.2%.

The so-called generative AI technology refers to Meitu's AIGC applications, which are its most closely related AI business.

Over time, Meitu PicsArt, initially an image processing tool, has demonstrated keen AIGC instincts. As early as 2022, Meitu integrated AI functionalities into Meitu PicsArt and Meitu BeautyCam and launched the short video beauty tool "Wink".

Meitu Image and Design Products, Source: Meitu Official Website

Until the rise of the large model wave in 2023, Meitu, which already had usage scenarios and a user base, launched its self-developed MiracleVision large model, seizing the opportunity presented by large models. Meitu's AIGC capabilities gradually became the core of its business.

From the current market perspective, in the inaugural year of AI application, AIGC is an ideal landing scenario with considerable commercial potential.

According to the "2024 Q3 Global AIGC Industry Monthly Report," in September 2024, AIGC-related applications achieved 55.267 billion monthly uses, and global users' in-app purchases of AI products reached $299.59 million within a single month.

The market potential has been validated, and competition among players has intensified. As an industry leader, after capturing the first wave of AI dividends, how Meitu sustains long-term effects is a market concern.

A critical issue is that, after nearly two years of technological iteration, everyone is deploying AIGC. The challenge lies not in technology but in user experience.

In this regard, Meitu, racing ahead in AI, seems unremarkable. While user payments drive AIGC growth, they also detract from user experience.

As a long-time Meitu user, Wu You noticed more restrictions on Meitu PicsArt in 2024. Wu You renews her membership monthly for emergencies. When she doesn't need it, she wants to share it with friends but discovers the risk of being banned.

"Although a membership allows simultaneous login on three devices, if too many devices are used and cause disconnection, after six cumulative login attempts, my membership account will be banned. This never happened before," Wu You told Wired Insight.

In terms of AI photo editing functionalities, compared to similar applications, some functions of Meitu PicsArt can be relatively distorted. "Every time I use the double chin and jawline correction membership functions, they are obviously distorted and don't match my face, but this doesn't happen on other applications," Wu You told Wired Insight.

Furthermore, some functionalities have "nested charges." For instance, paid members need to pay extra for the "Help Me Edit" feature. Additionally, the price for premium photo editing of ID photos is RMB 30 per photo, exceeding the prices of many ordinary ID photo studios.

What troubles users even more is the need to be vigilant about Meitu PicsArt's "7-day free trial" trap.

Ron fell into this trap in December 2024. Nominally, Meitu PicsArt offers a free trial membership benefit, where users can click to try it for free for seven days, and it automatically renews at the annual fee upon expiration. However, Ron was charged the annual fee of RMB 218 on the day of the trial.

At that time, Meitu PicsArt customer service responded that the free trial for iOS users is recognized based on the Apple ID, and each ID can only use the free trial once. Refunds must be processed through Apple customer service. However, this was Ron's first trial, and the series of operations confused her.

Image provided by the interviewee

"I intended to try it for free, but I was charged for a year's membership. Fortunately, I noticed it in time; otherwise, I might not have been able to get a refund after the seven days of automatic renewal," Ron told Wired Insight.

Many users on social media have encountered similar situations and often feel "tricked." Some users mentioned that to cancel the automatic renewal, they not only need to do it within the Meitu PicsArt app but also within the payment app. Simultaneously, some users noted that there was no clear indication of the automatic renewal agreement when signing up for the trial, and they did not receive a reminder on the seventh day but were directly charged.

Many users who encountered this situation chose to request a refund and believed that Meitu's "ugly side" was showing. According to Wired Insight, some users were able to get a full refund, but many only received half or less.

It's noteworthy that, with intense competition from domestic similar products, Meitu's monthly active users in mainland China showed signs of decline in the first half of 2024. According to its interim report, when dividing monthly active users by geographical location, mainland China had 173 million, a year-on-year decrease of 0.2%.

Meitu also mentioned in its financial report that the overall year-on-year growth rate of monthly active users was primarily due to the increase in monthly active users from countries and regions outside mainland China, currently accounting for 32.9% of total monthly active users.

It must be acknowledged that users are willing to pay for applications like Meitu PicsArt to enhance their photos, but to achieve growth, it relies on technological advancements rather than mere marketing activities. This also tests Meitu's staying power in the AI field and its long-tail operational capabilities.

3. Wu Xinhong's anxiety is hard to alleviate for now

By grasping the money-making potential of AI, Meitu bid farewell to years of losses, but Wu Xinhong's anxiety has not abated; instead, it may have intensified.

Meitu's challenge is how to continuously attract users amidst the large model wave. Especially in the second half of the year, with the emergence of AI text-to-image applications and increasing competitors, Meitu must remain crisis-aware.

The most typical sense of crisis stems from Sora. In the text-to-video race, Meitu's MiracleVision large model, released in December 2023, already supports this capability. However, just two months later, the emergence of Sora quickly overshadowed Meitu.

In terms of generation effects, Sora's DiT architecture can produce smoother and longer videos, undoubtedly outperforming the U-Net architecture chosen by MiracleVision in terms of technology.

A sense of crisis also stems from the financial strain imposed by product "blind boxes." Since 2022, Meitu has launched a total of 13 new products, with most surviving the test of time, yet three applications—the camera app ChicCam, the digital human generation app DreamAvatar, and the Meitu AI assistant RoboNeo—have faced less success.

In an interview with Smart Emergence, Chen Jianyi analyzed the reasons behind these less successful ventures: "The common denominators among all failed products are, firstly, selecting the wrong path, and secondly, even if the right path is chosen, failing to accurately pinpoint demand and entry points within that path."

Indeed, within the AI sector, choosing the correct path is paramount, and minimizing detours accelerates progress. Especially in 2024, as AI large models enter an arms race of applications, various AI tools emerge one after another, propelling the industry towards a more "human-centric" direction.

Meitu operates within two major tracks—text-to-image and text-to-video—both of which are closer to AI application implementation and face intense competition.

Domestically, companies like Baidu, ByteDance, and Zhipu AI are entering the market and continuously unveiling new features such as Free Canvas, undoubtedly encroaching on Meitu's market share. Internationally, industry leaders like Adobe and newcomers like Canva do not allow Meitu to rest easy.

As Wu Xinhong noted, Meitu is a company acutely aware of its crises and has faced numerous external challenges over the past six months. With the optimization of other application functions, Meitu's text-to-image and text-to-video tracks have been squeezed to varying degrees. This is most evident in the user activity of Meitu's products.

Taking Meitu's Meitu PicsArt and Meitu BeautyCam as examples, according to Meitu's 2023 interim report, these apps had 130 million and 52 million monthly active users, respectively. However, QuestMobile data indicates that in May 2024, the monthly active user counts for Meitu PicsArt and Meitu BeautyCam dropped to 100 million and 47 million, respectively, reflecting a decline compared to the previous year.

The AI track necessitates not only a race against time but also substantial financial investment, posing a challenge for Meitu.

In the first half of 2024, Meitu's research and development expenses amounted to approximately 425.3 million yuan, a 44.5% increase compared to the same period last year. These investments were primarily allocated to the training of the self-developed MiracleVision large model.

In the announcement of its cryptocurrency sale, Meitu also mentioned that it would utilize the net profit from the remaining proceeds of this sale as "general operating funds to expand the Group's image and design product business, primarily based on a paid subscription model."

Photo source: Meitu official website

This signifies that after selling all its cryptocurrencies, Meitu's primary revenue stream will solely depend on its main business. While this focus intensifies efforts, it also introduces greater risks.

It cannot be overlooked that since 2024, the large model industry has ignited a price war to attract users. It is foreseeable that in the race for AI image editing and AI video, technological competition and price reductions will accompany the industry's development.

On one hand, substantial funds are necessary to enhance backend technology, and on the other hand, cost subsidies are required for price reductions in the frontend consumer market. With a plethora of product options available, if Meitu aims to capture consumers, it must adhere to trends, which may somewhat impact its future profits.

Currently, Wu Xinhong assesses that the next two years represent a window of opportunity for AI applications, hence Meitu must strive to seize this dividend. However, the battle for AI applications is a marathon; seizing the dividend is merely the first step, and the final sprint is equally crucial.

(The lead image of this article is from the Meitu official website. All interviewees are using pseudonyms.)