Expanding Global AI Imaging And Smartphone Adoption Will Drive Engagement

Key Takeaways

• Rapid AI feature integration, strategic partnerships, and e-commerce expansion are strengthening Meitu's engagement, diversifying revenue streams, and positioning for long-term top-line growth.
  
• Rising global demand for digital self-expression fuels robust subscription growth, boosting user engagement, higher ARPU, and improved operational efficiency for sustained profit increases.
  
• Rising competition, reliance on third-party AI, shifting user trends, weak overseas monetization, and mounting costs threaten Meitu's growth, innovation, and long-term profitability.

Catalysts

An investment holding company, engages in the development and provision of products that streamline the production of photo, video, and design with other AI-powered products in Mainland China and internationally.

• Rapid international user growth-particularly outside of Mainland China, where monthly active users increased by 15.3% and revenue by 35.9%-signals Meitu is benefitting from expanding smartphone penetration and global demand for AI-enhanced imaging tools, likely to drive sustained increases in user base and recurring subscription revenue.
  
• Successful integration of advanced AI features (AI Wardrobe, AI Flash, and RoboNeo) has significantly improved user engagement and willingness to pay, demonstrated by a 45.2% year-on-year revenue growth in the core Photo, Video, and Design (PVD) segment and a rising subscription rate, pointing to higher future ARPU and improved gross margins.
  
• Strategic partnerships with leading AI/cloud providers (notably Alibaba) are accelerating the rollout of vertical AI applications and new monetization opportunities, including e-commerce integrations (AI try-on, image tools for merchants), which can diversify revenue streams and support top-line growth.
  
• Meitu's ability to quickly deploy and iterate AI-powered features using a model container approach reduces R&D inefficiencies and positions the company to capitalize on industry convergence between content creation, social engagement, and commerce, supporting both operational leverage and future earnings expansion.
  
• The societal shift among Gen Z and Millennials toward digital self-expression and creation of video/image-centric content underpins robust long-term engagement with Meitu's platforms, reinforcing a foundation for recurring premium subscriptions and continued net profit growth.

Meitu Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Meitu's revenue will grow by 22.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.4% today to 24.1% in 3 years time.
• Analysts expect earnings to reach CN¥1.6 billion (and earnings per share of CN¥0.35) by about August 2028, up from CN¥898.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥1.9 billion in earnings, and the most bearish expecting CN¥1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.6x on those 2028 earnings, down from 53.0x today. This future PE is greater than the current PE for the HK Interactive Media and Services industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Meitu Future Earnings Per Share Growth

Risks

• Intensifying competition from major global players in AI-powered imaging and content creation, as well as rapid advancements in generative models (including from large general AI companies), could erode Meitu's market share and dilute pricing power, potentially leading to slower revenue growth or margin compression over time.
  
• Continued dependence on third-party foundational AI models (such as Alibaba's Tongyi and Wanxiang), rather than building proprietary foundational models, may constrain Meitu's ability to differentiate and innovate in the long run, and exposes the company to risks if partnerships falter or costs increase, thus pressuring net margins and earnings sustainability.
  
• Saturation and changing consumer preferences in the mobile photo editing and beauty app market-especially a shift toward authenticity and less filtered content-may gradually reduce the appeal of Meitu's core products among younger demographics, impacting active user growth and, as a result, limiting subscription and advertising revenue.
  
• Limited monetization of Meitu's international productivity and leisure tools, as indicated by lower profitability outside Mainland China and uncertainty around subscription conversion rates, exposes the company to elevated earnings volatility if domestic growth slows or if global expansion fails to deliver significant recurring revenue.
  
• Structural cost pressures, including growing R&D, talent, and marketing expenses to keep pace with industry innovation and user acquisition (particularly for vertical and overseas markets), may outpace revenue growth if new product launches and productivity tools do not achieve hoped-for scale or monetization, compressing future net profit margins.

Valuation

• The analysts have a consensus price target of HK$13.042 for Meitu based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$15.73, and the most bearish reporting a price target of just HK$10.86.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥6.5 billion, earnings will come to CN¥1.6 billion, and it would be trading on a PE ratio of 44.6x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of HK$11.34, the analyst price target of HK$13.04 is 13.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.