Earning 300 Million Annually with Profits Soaring 200%, This Company Turns Around with AI
-
The internet-famous city of Xiamen is home to two well-known internet companies—Qudian and Meitu. Both share some common traits—they were once internet giants with market caps nearing 100 billion, but both suffered significant declines in valuation. After their core businesses faltered, they frequently ventured into unrelated fields, earning reputations for being 'distracted.'
Qudian, which started with internet finance, last gained attention for its pre-made meals business before quietly shifting to 'last-mile' logistics. Meitu, founded on the popularity of its 'beauty tool' Meitu XiuXiu, dabbled in smartphones, social media, short videos, and medical aesthetics, even briefly obsessing over cryptocurrency and blockchain—but with little success.
That is, until 2023, when Meitu seems to have found its 'destined path'—AI. "Originally, Meitu was a slow-growing company, practicing traditional methods for 15 years while also deepening its expertise in AI. With the rise of AIGC, Meitu's potential has been fully unleashed," said Meitu CEO Wu Xinhong.
Meitu's recent performance forecast shows that its adjusted net profit for 2023 is expected to be between RMB 330 million and RMB 370 million, a year-on-year increase of approximately 200%-230% compared to the RMB 111 million net profit in 2022. Following the announcement, Meitu's stock price rose by over 5%. As of January 24, the stock had closed higher for two consecutive days.
Over the past year, AI has dominated all entrepreneurial trends, with internet, hardware, and other tech companies rushing to adopt it. However, most companies are still in the investment phase, and few have reported profitability. As Meitu founder Wu Xinhong noted, this could make Meitu the first domestic visual large-model company to achieve scalable profitability. How Did Meitu Turn Its Fortunes Around with AI?
In fact, the first large-scale breakout product of Chinese AIGC in imaging didn't come from Meitu but from Alibaba's 'Miao Ya,' incubated under Alibaba's Digital Media and Entertainment Group. Within just over 20 days of its launch, tens of thousands of people queued up on Miao Ya to generate their own AI portrait photos.
Regarding this, Wu Xinhong once expressed some helplessness, saying, 'It would have been better if we had developed it, but obviously, we can't seize every AI opportunity. Given the current pace of AI evolution, new things emerge every moment, and chasing trends non-stop is simply impossible.' Unlike Miaoya, which has not disclosed its revenue, Meitu may not have captured the spotlight, but it has clearly demonstrated substantial financial gains.
Meitu disclosed that its net profit of over 300 million yuan in 2023 was primarily driven by the increased penetration of AIGC memberships. Products like Meitu Design Studio and Kaipai exceeded expectations in user growth and membership conversion, along with growth from global users. With the launch of AIGC features, Meitu topped the free app charts in Brazil and Thailand and ranked second in the U.S. and Japan.
Compared to the Miaoya project, which only started in January 2023, Meitu adopted a 'full-layout' strategy, prioritizing quantity over quality. In fact, Meitu launched its AI portrait feature much earlier, charging 8.8 yuan to generate a set of photos. According to Wu Xinhong, it has maintained a substantial market share. Now, the AI portrait feature has become the most inconspicuous among Meitu's array of new AI products.
Paid AI portrait feature in Meitu's Beauty Camera
On Meitu's platform, the central position on the homepage is given to "Meitu AI," which offers over 10 functions and services beyond AI portraits, including AI anime, image-to-image generation, AI posters, AI product images, AI text, pet avatars, image quality restoration, and line art coloring. Each of these features represents a potential revenue stream. For example, generating an AI painting requires 6 Meidou (Meidou is the virtual currency on Meitu, where Apple users can purchase 70 Meidou for 10 yuan). Creating an AI portrait costs 8.8 yuan, while generating a set of AI avatars starts at 69 Meidou. Alternatively, users can opt for a VIP subscription, with continuous monthly payments at 15 yuan or an annual subscription at 128 yuan.
There are two common ways for a product company to increase profitability: one is by launching more new products to attract additional users, and the other is by increasing the payment rate or prices.
Meitu is not satisfied with merely acquiring C-end users. In fact, for a long time, Meitu's C-end user base has been stuck in a bottleneck. In the first half of 2023, Meitu's monthly active users reached 247 million, representing only a 1.7% growth over six months. Compared to its peak in 2016, this figure has nearly halved. To unlock new user scenarios and enhance user value, Meitu's key initiative in 2023 was to extend its user base by targeting small business users with 'production needs'—such as influencers, online sellers, video bloggers, and marketers. While they are not professional designers, the rise of the creator economy has generated demand for photo and video production among these groups. Typically, their requirements are not overly sophisticated.
Meitu accurately identified the needs of these users. For example, the AI-powered video tool 'Kaipai,' launched in 2023, allows users to correct narration errors by simply editing the script, with the AI automatically adjusting the video content. What used to take hours to revise can now be done in minutes.
In mid-2023, alongside Kaipai, Meitu released six other AI tools, including AI image, AI video, AI design, and AI digital human solutions, as well as the AI visual model MiracleVision. By the end of last year, MiracleVision was updated to version 4.0. According to public data, MiracleVision has served 1.745 million e-commerce users, generating a cumulative total of 104 million AI product images. The launch of these tools signifies Meitu's shift from consumer (C-end) lifestyle scenarios to business (B-end) productivity application scenarios. The latter presents more essential needs, and users are more willing to spend. For instance, the annual subscription fee for "Meitu Design Studio," an application tailored for B-end users, is 218 yuan, which is 90 yuan higher than that of the Meitu XiuXiu app. The introduction of more high-value AI products has directly boosted Meitu's gross margin, which increased from 51.8% in 2022 to 59.8% in the first half of 2023.
Founded in 2008, Meitu once thrived with its photo-editing technology, reaching a peak of 450 million monthly active users. After going public in 2016, its market value once approached 100 billion Hong Kong dollars.
However, photo-editing technology is not highly specialized. With market competition from apps like Lightroom, XiuTu, and Butter Camera, Meitu's core business soon declined. Post-IPO, Meitu reported consecutive annual losses, accumulating nearly 2 billion yuan in losses over five years. Although Meitu has been striving to find new growth avenues, it has yet to achieve a breakthrough.
Starting in 2012, Meitu ventured into the smartphone market, positioning itself as "focused on selfies," but quietly withdrew in 2019 as competition in the smartphone sector intensified. In 2017, Meitu attempted to launch an e-commerce platform called "Meipu." In 2018, it dabbled in financial services such as lending and insurance, businesses that were the foundation of Qudian, and repositioned its platform toward social networking. In 2019, Meitu introduced a facial cleansing device and a mobile game targeting female users. In 2020, amid the surge in blind box trends, Meitu experimented with "beauty blind boxes." In 2021, as domestic beauty brands gained momentum in the new consumer market, Meitu invested in a domestic skincare brand, HBN.
From smartphones and short videos to social networking, gaming, e-commerce, and blockchain, Meitu seems like a company that thrives on "trends," constantly chasing hot topics and short-term fads. Among these, Meitu has had its share of regrets. For instance, Meipai, established in 2014, was launched two years earlier than Douyin (TikTok) and initially held a first-mover advantage. At its peak, it boasted over 100 million monthly active users. However, due to ambiguous positioning and low strategic priority, it ultimately lost in the fierce short-video competition and exited the game prematurely.
As a tool-based company, Meitu has always aspired to become a social platform to improve user retention. When users habitually leave after using the tools, tool-based companies essentially "prepare the dowry" for social platforms. In 2018, Meitu made a high-profile attempt to transform into a social platform, hoping users would directly post their edited photos on Meitu's platform. However, it soon became clear that this approach didn't work.
"The previous issue was that the community and tools were disconnected, which went against user expectations. Users come to Meitu for photo and video editing. If you push unrelated content to them, they won't engage with it. Instead, when you provide them with presets and templates, they find it practical. This aligns with their needs and feels natural." In Wu Xinhong's current retrospective analysis, Meitu's strategic detours in those years stemmed from both 'ambition inflation' after going public and a 'tool inferiority complex'—an unwillingness to think small. While expanding from beauty apps to selfie phones or cosmetics might seem like a natural progression, it actually involved crossing significant capability gaps.
While some diversified businesses could still be understood as related expansions, Meitu's controversial $100 million cryptocurrency investment in 2021 plunged the company into a whirlpool of criticism about losing focus. Cai Wensheng, Meitu's CEO who made the decision at the time, defended it by saying: 'Someone had to be the first to eat the crab.'
Now in its downturn period, Wu Xinhong laments, 'The capital market no longer believes in Meitu—unless we actually deliver tangible results with outstanding performance.' Meitu's two founders, Cai Wensheng and Wu Xinhong, are a classic entrepreneurial duo. The former is responsible for investment and excels in capital operations, while the latter is skilled in product and business development.
"As an art student who has been drawing since childhood, I can't compete with AI's creations in just a few seconds. After years of painting, I truly can't beat AI," said Wu. Faced with this reality, he chose to join the trend. In June last year, Wu Xinhong, with his technical background, succeeded Cai Wensheng as the new chairman of Meitu, and the company began to focus its direction.
By simplifying complex Photoshop techniques and making them accessible to beginners, Meitu XiuXiu became the pioneer in the beauty enhancement field. Over a decade later, generative AI tools like Midjourney and Pika gained popularity abroad. However, due to their professional nature and high entry barriers, they remain distant from the average user. Meitu, through a series of "improvements," has created production tools that are easy for ordinary people to use. Image generated by Meitu's AI visual creation tool WHEE
After overcoming 'tool inferiority', Meitu has scaled back its ambitions. Although accused of copying 'Adobe's homework', Meitu believes Adobe's greatest significance lies in proving that tools can also achieve massive success. 'Making tools well is a highly certain endeavor.'
However, for Meitu, the immediate challenge is whether it can continue to make its 'tools' competitive and attractive in the new AI landscape, despite its years of technical expertise and accumulation in imaging and aesthetics. Wu Xinhong, the creator of Meitu, has defined the business boundaries of the company while deciding to retract its frontlines—returning to familiar tracks, focusing on perfecting tools and subscription services.
In fact, it was the shift to AI design products in 2022 that ended Meitu's years of losses and announced its first IFRS (International Financial Reporting Standards) annual profit.
VIP subscriptions for AI tools have replaced advertisements as Meitu's primary revenue source. In the first half of 2023, the revenue from imaging design products supported by 7.2 million VIP subscribers reached 630 million yuan, a 62% year-on-year increase, accounting for 47.8% of total revenue—surpassing the 27.7% from advertisements and becoming the main income stream. Over the past year, the storm of AI has swept across, carrying the dreams of countless entrepreneurs and new tickets for tech giants.
In the first half of the year, major companies rolled out large models, competing in concepts and technology. In the second half, the competition shifted to applications and implementation. Alibaba established a new "AI-driven" strategy, viewing AI as one of the most important growth areas for e-commerce. Generative AI products have already been promoted among small and medium-sized merchants. Meituan, which acquired the AI company Light Year founded by former executive Wang Huiwen and invested in Tsinghua University-backed Zhipu AI, is also eager to make moves in the AI field. It has launched an AI photography studio similar to Miaoya Camera in the "Wedding Photography" category on the Meituan app homepage. Alibaba's digital entertainment arm has also introduced the "Miaoya" camera, becoming a strong competitor to Meitu...
Currently, generative AI has shown promising prospects in dialogue and imaging. The former has already proven its revenue model with ChatGPT, with OpenAI's valuation exceeding $100 billion. The latter is witnessing even fiercer competition, with companies like Meitu, Tencent, and ByteDance vying for dominance in China. For example, ByteDance's video production tool, CapCut, has introduced many new paid features such as AI copywriting, AI image generation, AI video creation, and AI digital humans. Compared to Meitu, products under Tencent and ByteDance benefit from complete ecosystems and traffic, enabling synergistic effects with their platforms. Moreover, these tech giants possess stronger support in terms of technology, computing power, and financial investment.
Currently, Meitu has hundreds of engineers dedicated to large model training and development. The company believes its technical competitiveness lies not just in focusing on the technology itself but also in deeply understanding business and user products.
The race has just begun. So far, Meitu has achieved some success. However, in the long run, Meitu must prove more than just the value of its tools to avoid repeating the regret of Meipai—gradually falling behind on a promising track.