Meitu, Inc. (SEHK: 1357) ('Meitu', the'Company', or with Xiamen Meitu Technology Company Limited and its subsidiaries, 'the Group'), a leading mobile internet company with over 1.1 billion unique users, is pleased to announce its annual results for the year ended December 31, 2016.

Results Highlights

 - Total revenues increased by 112.8% year on year to RMB1,578.6 million during the Year, driven by the growth in both Internet Services and Others segment and Smart Hardware segment. The average monthly revenue per monthly active user ('MAU') was RMB0.292 in 2016, growing 75.9% year on year from RMB0.166 in 2015.

 - For the Internet Services and Others segment, revenue grew 40.1% year on year to RMB104.7 million in 2016. Importantly, revenue in the second half of 2016 was more than double that of the second half of 2015 due to strong ramp-up in advertising revenue and significant growth in revenues generated from virtual item sales on Meipai.

 - For the Smart Hardware segment, both increasing sales volume and average selling prices underpinned a strong year-on-year revenue growth of 120.9%.

 - The Group's apps processed more than 68 billion photos in the Year, positioning the Company well to capture massive opportunities in the field of computer vision and artificial intelligence. 

 - The strong foundation the Group built in 2016 is starting to bear fruit: MAUs reached a historical high of approximately 520 million in January 2017, representing approximately 32% growth year on year.

 - The Group's adjusted net loss reduced significantly by 23.9% year to year to RMB540.5 million in 2016, due to an increase in gross profit and a reduction in promotion and advertising expenses without compromising user growth.

Mr. Wensheng CAI, the Founder and Chairman of the Group, said, 'We reported impressive annual results, with robust revenue growth of 112.8%. Our first annual results demonstrate Meitu’s strong ability to build an ecosystem around 'beauty' step by step. The significant improvements in both adjusted net loss and number of total MAU prove that we are moving on the right track by platformization, globalization and monetization. Meitu will continue to create and share the idea of ‘beauty’.'

Business Review

Platformization

It is always our target to establish a strong platform for our users to share their ideas of 'beauty'. Our user base continued to grow in 2016, reaching 450 million total MAUs in December 2016, representing a year-on-year growth of 21%, and reaching a historical high of 520 million total MAUs in January 2017. To capture further user growth opportunities and improve user activeness and user viscosity, we have made progress in the platformization of different apps.

During the fourth quarter of 2016, we revamped the front-page of Meipai and upgraded the recommendation algorithm, resulting in more efficient traffic distribution and higher user engagement. Average time spent per user on Meipai, our short-form video and live streaming community, was approximately 28-36 minutes per day in 2016, compared to15-27 minutes in 2015. Besides, more than 510 million videos had been uploaded by our users by the end of 2016. For other photo apps, we have introduced beauty and makeup-related feeds on MakeupPlus, following its version 3.0 upgrade in the fourth quarter of 2016.

Globalization

As of December 31, 2016, our apps have attracted over 500 million accumulated users outside of Mainland China, with over 10 million accumulated users in each of Brazil, India, Indonesia, Japan, Malaysia, Philippines, South Korea, Taiwan, Thailand, the United States and Vietnam. Approximately 27% of our daily new users originated from overseas countries in 2016, compared to 22% in 2015. It shows that our global influence is growing gradually.

According to App Annie's data, Meitu has repeatedly ranked as one of the top eight iOS non-game app developers globally together with other global Internet giants throughout June 2014 to January 2017.

Monetization

During the Year, the average monthly revenue per MAU was RMB0.292 in 2016, growing by 75.9% year on year from RMB0.166 in 2015.

Internet Services and Others segment

The Internet services and other segment's revenue increased by 40.1% year on year to RMB104.7 million, compared to RMB74.7million in 2015, which is mainly contributed by the strong ramp-up in advertising revenue following the completion of our advertising business restructuring, and significant sales growth of virtual items on Meipai. In terms of e-commerce business, we have started generating revenues from Meitu Personalized, a service that enables users to have their photos imprinted on various merchandise. The testing result in 2016 was encouraging, and we aim to roll out a broader selection of merchandise in 2017. Meanwhile, we are on track to launch PUSHION, our fashion-focused social e-commerce platform in the first half of 2017, adding another avenue to e-commerce monetization.

Smart hardware segment

The results of Smart hardware segment are also encouraging. Its revenue reached RMB1,473.9 million in 2016, growing 120.9% compared to that in 2015, underpinned by both ASPs and sales volume growth. The number of smartphone units sold was 748,256 in 2016, as compared to 387,775 in 2015.

2016 Performance Overview

Revenue surged 112.8% to RMB1,578.6 million

Total revenue escalated by 112.8% to RMB1,578.6 million in 2016, with the sales of virtual items on Meipai as the key revenue contributor, and gross billings grew by over 3,200% between the first half and second half of 2016 after starting the business in June 2016. Such significant growth was the combined effect of better traffic distribution algorithms, effective community management as well as the introduction of fun and engaging activities that promote interaction and engagement among the hosts and their audience. Besides, the number of average monthly paying users also increased significantly to 224,536 for the second half of 2016, from approximately 58,000 for the first half of 2016.

For the advertising business, a restructuring has commenced in April 2016 to drive long-term growth, including relocation of sales headquarters to Beijing, start of a new sales office in Shanghai, and upgrade of advertising platform to connect with programmatic advertising networks in both China and overseas. Our advertising revenue ramp up quickly upon the completion of the restructuring in September 2016.

Enhancement in gross profit and margin

The gross profit grew by 138.0% to RMB239.2 million in 2016, while the gross margin increased to 15.2% in 2016, compared to 13.5% in 2015. For the segment of Internet services and others, gross loss margin was higher at 55.1% during the Year, compared with 33.0% in 2015, due to higher bandwidth and storage-related costs to support our larger user base before ramping up of our monetization initiatives. It narrowed significantly in the second half of 2016 compared to the first half in the Year, indicating a strong operating leverage.

Meanwhile, gross profit and margin of the smart hardware segment surged to RMB296.9 million and 20.1% in 2016, compared to RMB125.2 million and 18.8% in 2015, which is primarily due to the increase in the number of smartphone units sold during the Year.

Adjusted net loss narrowed 23.9%

The adjusted net loss was RMB540.5 million in 2016, which represented a significant year-on-year decrease of 23.9%, primarily attributable to an increase in gross profit driven by revenue ramp-up and the reduction of promotion and advertising expenses as the result of improved promotion efficiency.

Loss for the year was RMB6,260.9 million in 2016, compared to RMB2,217.6 million in 2015, mainly due to the increase in fair value loss of convertible redeemable preferred shares as the result of an increase in the business enterprise value of the Company upon listing. These preferred shares were fully converted into ordinary shares upon listing and such fair value loss will not recur in subsequent financial years.

Strategy in future

'With such a strong foundation built in 2016, we are well prepared to welcome another fruitful year with the three strategic directions set, namely platformization, globalization and monetization. We strongly believe that we can make the world a more beautiful place by utilizing our capabilities in computer vision and artificial intelligence, while providing an integrated social platform to all users, to create more values to our shareholders,' said Mr. Xinhong Wu, the Founder and Chief Executive Officer of the Group.

Platformization

We believe Meipai is well positioned to ride the short-form video mega-trend and become an even more successful social media platform in China. Seeing the record high of the overall MAUs reaching approximately 520 million, with Meipai's MAUs reaching approximately 160 million in January 2017, we plan to integrate the Meitu Account system with all its apps, and add social elements, media content or cloud services to raise user engagement and further explore monetization opportunities.

In addition, in strict compliance with applicable data privacy laws, we will continue to leverage the tremendous amount of data on our platform to further strengthen our beautification algorithms, build new functionalities, and develop and try new business models using our artificial intelligence.

Globalization

Riding on the popularity and success of apps and events overseas, Meitu will continue to grow the global user base and establish an ecosystem around 'beauty', to make everyone a user of Meitu products.

Monetization

Revenue growth driven by the sale of virtual items on Meipai, advertising revenue and smartphone business was very promising. We expect that the launch of PUSHION, our fashion-focused social e-commerce platform in the first half of 2017 will further fuel such revenue growth. We are very confident about our monetization in the future.