Meitu's 571 Million Yuan Cryptocurrency Windfall: From "Side Hustle" to Strategic Retreat

Meitu's 571 Million Yuan Cryptocurrency Windfall: From "Side Hustle" to Strategic RetreatMeitu, a company known for its photo editing software, has once again captured market attention with its bold cryptocurrency investment strategy. On the evening of December 4th, Meitu announced it had completely sold its holdings of cryptocurrency, realizing a profit of approximately RMB 571 million (approximately US$77 million)

Meitu's 571 Million Yuan Cryptocurrency Windfall: From "Side Hustle" to Strategic Retreat

Meitu, a company known for its photo editing software, has once again captured market attention with its bold cryptocurrency investment strategy. On the evening of December 4th, Meitu announced it had completely sold its holdings of cryptocurrency, realizing a profit of approximately RMB 571 million (approximately US$77 million). This figure exceeds the company's net profit for the entire year of 2023 (RMB 378 million), overshadowing its core business with the dazzling success of this "side hustle."

This massive profit stemmed from a daring investment Meitu made in 2021. The company spent approximately US$100 million to acquire around 31,000 units of Ether and 940 units of Bitcoin, becoming the first Hong Kong-listed company to publicly allocate assets to cryptocurrencies. At the time, Meitu's chairman, Cai Wensheng, proudly declared on his WeChat Moments: "Someone has to be the first to eat the crab. This should be the first Hong Kong listed company to buy BTC, and also the first publicly listed company globally to use ETH as a currency value reserve." This move garnered significant attention and praise.

However, Meitu's cryptocurrency journey wasn't smooth sailing. In 2022, the global cryptocurrency market experienced severe volatility, with Bitcoin and Ethereum prices plummeting. Meitu's 2022 mid-year report showed an impairment loss of approximately RMB 112 million on its cryptocurrency holdings. Total impairment losses for the year exceeded RMB 280 million (approximately RMB 86.6 million for Ether and RMB 198.2 million for Bitcoin). This substantial loss served as a wake-up call for Meitu and raised questions about its investment strategy.

By the first half of 2023, Meitu's impairment losses on its cryptocurrency holdings began to reverse, recouping approximately RMB 185 million. This turnaround was largely due to a cryptocurrency market recovery in late 2023. Influenced by certain political events and related policy expectations, Bitcoin and other cryptocurrencies experienced a strong rebound. In November, Bitcoin repeatedly broke through US$70,000, US$80,000, and US$90,000, ultimately reaching US$99,000 on November 22nd. The day after Meitu decided to sell its holdings, December 5th, Bitcoin surged past US$103,000, a single-day increase of over 5%. For Meitu, selling at the market peak proved to be a shrewd strategy, effectively locking in substantial profits.

The RMB 571 million profit from the cryptocurrency sale has a clear allocation plan. The announcement indicates that the board of directors plans to use approximately 80% of the net proceeds for a special dividend, with the remainder used as general operating capital to further develop its image and design products based on a paid subscription model. This strategy reflects Meitu's intention to refocus on its core business and reward shareholders through dividends.

It's noteworthy that Meitu's core businesspaid subscription-based image and design productsperformed remarkably well in 2023. Financial reports show that this business generated RMB 1.33 billion in revenue in 2023, a year-on-year increase of 52.8%; and RMB 930 million in the first half of 2024, a year-on-year increase of 54.5%, accounting for 57.4% of total revenue. Simultaneously, Meitu continues to increase investment in R&D and AI computing power. In the first half of 2024, R&D expenditure reached RMB 425 million, a year-on-year increase of 44.52%. This demonstrates Meitu's continued investment and confidence in technological innovation and future development.

Meitu's vast user base provides solid support for its business growth. The announcement states that the company's users process hundreds of millions of images and videos daily, with approximately 83% using AI-powered features. As of June 30, 2024, Meitu had over 10.81 million paid subscribers, a historical high, with a paid penetration rate of approximately 4.2%; and 258 million monthly active users, a year-on-year increase of 4.3%. These figures indicate the strong competitiveness and user stickiness of Meitu's products.

Facing the current wave of large language model technology, Meitu has adopted a cautious and pragmatic approach. Meitu's founder, chairman, and CEO, Wu Xinhong, stated: "Engaging in a model arms race is not Meitu's core strategy. We will control our investment in models while ensuring the competitiveness of our applications." He emphasized that Meitu will not directly compete with large tech giants in the video large model field. Wu believes that "models are applications" is the trend, and Meitu will focus on the application level of models to tap into larger market opportunities.

News of Meitu's cryptocurrency sale also positively impacted its share price. On December 5th, Meitu's share price rose by 6.29%, closing at HK$3.04, with a total market capitalization of HK$13.787 billion. This indicates that the market is optimistic about Meitu's strategic retreat and the prospects of its core business.

In conclusion, Meitu's successful exit from its cryptocurrency investment not only generated significant profits but also opened up more possibilities for its future development. By investing funds in its core business and strengthening technological R&D and innovation, Meitu is poised to maintain its leading position in a highly competitive market. This event also provides a valuable case study for other companies undertaking high-risk investments, highlighting the importance of risk control and strategic adjustments. In the high-risk, high-reward investment field, prudent decision-making and flexible adaptability are key to ultimate success.