MEITU (01357) Q2 2026 Earnings Call Transcript

Good afternoon, everyone. Welcome to METO's 2026 Interim Results Presentation. Simultaneous English interpreting will be provided throughout the meeting. The management present today include founder of the company, chairman and CEO Mr. Xinhong Wu, CFO and Company Secretary, Mr. Gary Nguyen and CPO and President of the Imaging Products, Mr. Jian Yicheng A warm reminder for you guys Today's speech may include some predictive statements Many risky factors we cannot control may lead to discrepancies between actual results and our statements For online participants, please click Rename button with your real name and affiliation name. After the Q&A session, please state your name and affiliation before raising your question. For online participants, you can question via audio or text. Now, let's welcome the management to share about the updates of the company. Thank you.

Thank you. Good afternoon. Thank you for joining us today. for our interim results presentation. In the first half of 2026, our continued focus on vertical use cases translated into tangible results, driving growth in our core businesses and further improving profitability. To date, the goals of 2026 made to multimedia festival have been delivered on schedule. Applications for productivity such as Design Kit and Kaipai continue to unlock commercial value, while new products including Pitchy and MVland and have also brought growth opportunities. We are very optimistic about the opportunities at the AI application layer. For me too, this is an important window. Based on this, in the first half of the year, we continue to upgrade our existing products, including accelerating the deployment of agent teams across our applications for productivity. So the agents move beyond individual tasks and collaborate across workflows. We are already seeing the early results. In both the first and second quarters of this year, total AI credits consumed by users increased by more than 46% sequentially. This indicates continued improvement in both user engagement and willingness to pay. At the same time, user needs and product formats continue to evolve. To capture this window, we need to accelerate the duration of existing products and also identify and validate new opportunities more efficiently. Last year, we started our internal AI innovation studio. Two months ago, we also launched the Me2 HatchCatch to find high-potential AI imaging products. To date, we have received 109 submissions, and we will select those suitable for strategic investment or in-depth collaboration. In overseas markets, we encourage our product teams to get closer to local user and use cases. in markets such as Brazil and Mexico were deepening our understanding of local content creation habits, the relationship between content and consumer acquisition, and unmet user needs. These new product explorations and market studies showed us a clear trend. That is, more and more users are using social media to build their personal IP and branding. in order to acquire customers and monetize. What this user's need is no longer one-time creation. They need to continuously create content and operate their IP, expand their social influence, and build reusable assets. This showed us that beyond content creation, there may be opportunities to, based on user needs, extend further into what comes after creation. I will also like to share some of our thinking on this. In summary, we hope to around content, connect, creation, distribution, and asset accumulation. First, AI content creation. This is the starting point of content in the area we know best. Now our products, the variety covered multiple formats including marketing videos, MV, talking videos, and AI short dramas. We hope that while focusing on creation where we're strongest, we can expand our user base and content scale. Second, AI content distribution. This is where content reaches audiences and creates commercial value. Once the creative work is completed, the next Next question is, how to reach more audience and unlock its commercial potential? On distribution channels, we have our own ones, including Meta, Portfolio, and Ziklu, while connecting to external channels, such as social media, video platforms, music streaming platforms, and offline stores. While we accumulated many users, we're also finding high potential content at an earlier stage. Third, the AI asset library, the foundation for content accumulation. We want content to remain usable after creation distribution and thus generate long-term value. They can take many forms, including reusable materials, long-term IP and virtual characters, as well as copyrights of music, scripts, and visuals. This is not a new initiative. These capabilities have already emerged in our product portfolio in different forms. Take Kaipai as an example. A talking video creator uses Kaipai to produce a video. That is creation. Once completed, they want more people to see it. That is distribution. Going forward, we can support the journey from creation to promotion within the product. And later, the creator's persona, voice, and script templates cannot be reusable. And the next video becomes faster and more consistent. And MVLand, which we launched at this year's May 2 Multimedia Festival. A music studio uses MVLand for creation. The content then goes into streaming platforms and social media for distribution. The copyrights and virtual identities accumulated through each creation become assets. These assets can be licensed and reused, while virtual artists can build their audiences on commercial value, thus creating a positive cycle. We will, based on this, continue to expand and improve MVland. In the future, we will continue to connect the capabilities more systematically, starting with where we have already saw clear demand and positive signals. Building our strength in AI creation applications may to what extent into AI content distribution and asset libraries, enabling content to be created, circulated, and accumulated within our ecosystem, building a value chain for the AI era. Sure, we'll do it step by step. Next, we will continue on our existing products and explore vertical use cases. Well, through more efficient innovation mechanisms, we'll try to identify and rapidly validate new growth opportunities. Whether through internal development or strategic investment, we will consider both business synergies and return rates, and focus resources on areas with the strongest value and potential. Going forward, we will continue to capture the window for AI applications while balancing growth quality and operating efficiency, driving sustainable growth, and creating long-term value for shareholders. Next, I will hand over to Xiaobai, our Chief Product Officer, share some of her latest product thinking and progress with specific cases.

Thank you, Xinhong. Next, with a few specific products, I'll share some of our recent new insights. First, two fastest growing products after the festival, Pitchy and MVLand. As of now, both products' ARR has passed 0.5 million US dollars. They are among the best. Pitch has grown fast since its launch. This year, it has a chance to reach 1 million US dollars in AR. But more worth sharing than the numbers, it's users. Today, most of Pitch's users are cosplayers, namely. This group retouches a huge amount, dozens or even hundreds of photos from one shot, different from C and users. The care most is not exactly how weather it looks like me. They are sensitive to that point. Cosplay by nature is playing a character. So they focus more on whether the final outcome has quality and could be shareable on social media. Because for many professional callers, image quality directly affects follower growth. At deals and commercial shoots, many callers treat this as a job, not only a hobby. this gives us a very important hint when personal image itself becomes a means or material production users demand for imaging products and willingness to pay will both change like me to app and beauty cam more serve later scenarios the core value is still make me look better. While peachy is not for messy end users, but for those who monetize their personal image, like streamers, influencers, models, causers, and so on. For them, a good-looking image is not just about consumption, but production. So their willingness to pay is naturally higher than C in users. These are our observations on Peachy. Next, MVland. It now has the second highest AR among the company's new products after Peachy. It might be very niche, but now it seems to be different. It could be creative work and it can also be marketing content. MV could be work and also advertising or marketing materials. For musicians, traditional MVs cost a lot and take long. The result, the vast majority of songs have no MV and can only get buried on traditional musical platforms. But today, the key place for music discovery has shifted to social media. And MV is exactly the ticket for a song to be seen. MVland lowers the production cost, which is like giving more songs a chance to be distributed. This is a form we have tried for past several months. Another type is the marketing MV. We have a saying inside, everything can become an MV. When marketing, it could be spoken or it could be sung. Like Kaipai, focusing on talking videos, we can speak it out. We can talk about it. But for normal sellers, they can also utilize AI to produce a short MV. and communicate it on the social media for a milk tea shop or making the advertising materials for new clothes. They can use this interesting way to promote. More in the past, it could be a staic poster, but I believe they could use this in the future. We hope to turn MV from a professional content format in the music industry into a marketing form that everyone can use. This also links to what Xinhong just said on distribution. Creation and distribution are both essential. Without good content, distribution has no immuination. But without effective distribution, good works are also hard to be seen. So what MVLand wants to do is connect creation and distribution and build relevant asset accumulation. For example, the virtual persona, so that every song can have the ability to be seen, spread, and marketed. Third, Kaipai. One insight we've formed recently, the creator density. After the festival, we went to Sao Paulo for research. At first, we watched TikTok locally. the likes are central but the granularity may not be very fine so we wondered are there less creators in brazil but after our research back in china the truth is totally the opposite there are so many creators in brazil but what's truly scarce is professional creators who can make money from content so now we distinguish two metrics one is later creator density one is professional creator density the labor creator density you can share your life but they don't monetize from their content for professional creator density. They need to rely their living on the content they make. If there are many creators in the market, but just recording their life, they have a chance using Meitu's app to become professional. So when later creators are many, while professional creators are less, this is our chance this is why campus growth in china is so good for healthcare insurance real estate and food industry they know how to run their own business but they may not understand how to select their topic or advertise them they don't know how to run a social media account So we give them a chance. They may not use professional tools, but they could be gazi professional content. So the leading indicator is not population, but creator structure. Places with large base of later creators and many people wanting to go professional and monetize content are our opportunity points. Finally, design kit. One of the major changes is the shift of user habits. In the past two or three years, the e-commerce content is moving from shelves to social media. In the past, consumers saw a product on social media, then went to an e-commerce platform to view the detail page. their decision focused on shelves e-commerce like amazon but now it is totally reverse they see a product on social media and they go to the live streaming they just decided to buy so social media can provide a whole chain for purchasing on so more and more purchasing decisions happen on content flow in social media this is directly impacting our design kit product in the past the largest group serves is cross-border e-commerce merchants the operating model is extending. So no matter it is about the agent or the cutout function, we centered around the shelf-focused e-commerce, the main picture or the detail page. But now they need more pictures, texts to form their account metrics. In the past, e-commerce may need to spend 80% on traditional image, 20% on social media. Now the proportion is reversed. This is a new designing point for us. So DesignKit will take two steps first. Next, make the capability for e-commerce material solid, and on a basis build up accumulation of product, brand, and model assets. This is what we have achieved for the first phase. Second, we extend to social commerce and around two types of content, product and service. As the starting point, we help merchants bring business into social content feed. put these products back into the framework Xinhong just described. In fact, creation, distribution, and accumulation, these three stages have all started to appear in our products. On the creation side, the Me2 app and Beautycam are the most popular creation points, further solidifying our user scale. Pitchy MVland, Kappa, and RoboNeo extend creation capability into personal images, persona, MVs, talking videos, and short dramas. These daily update content forms the growth driver for productivity scenarios in the coming years. On the distribution side, CapEye extends from creation to promotion. MVland connects MV creation to distribution. The Me2 app also keeps helping brands and IP expand exposure. For filters, Seiko lets design content be seen and treated in its creator community. AI asset accumulation, every creation and circulation is accumulating. For example, Pichi uses image styles, MVLens, music copyrights, and virtual singers, design kits brand and product assets. Seiko's years of design works. All are entering the asset library, being called again and again, and feeding back into the next creation and distribution, building Meitou's complete content value chain in the AI era. This also enhances our foundation from productivity tools to distribution to communication and make it deeper. Now let's welcome Gary to share the operating and financial performance of the first half.

Thank you, Xiaobai. Let me start with a few key metrics. As of June 2026, overall MAU was about $282 million. Applications for productivity reached $33 million, record high. Applications for leisure remained stable. Paying subscribers exceeded $18.44 million, among which applications for productivity reached 2.35 million, up by nearly 30%. Applications for leisure reached 16.09 million, up by more than 80%. Our overall user base remains stable, while for application productivity, both the user scale and paying subscriber base continues to grow. Next, a few ARPPU highlights. Now, the ARPPU for productivity application is currently 150% than of the latest application, but we believe there's still more headroom in the future. Now, the ARPPU gap reflects the limitation of the traditional subscription model, that is, a cap on user spending. You won't want users are willing to pay more. The product lack a mechanism to capture that. In the first half of 2026, we integrated the agent's capabilities across our products, lifting the limit. As users approach more complex tasks at a higher rate, they will consume more AI credits. This is already visible among high-value users of single products. For example, Design Kit already has several thousands high ARPPU users who has analyzed spending as approximately 10 times of the total. Well, the number of such users has increased by six times compared with December last year. Another example is MVLand. Within only a few months, its average monthly ARPPU has already reached approximately ARNB 220, comparable with pricing levels for professional creative applications. it demonstrates that we are capable of building products that monetize at a much higher level. Now, let me return to financial results. First, let me clarify the basis of a comparison. As the cosmetic supply chain management services business under the solutions beauty industry was classified as a discontinued operation in our 2025 annual report, the following year-on-year comparisons are presented on a continuing operation basis. In H1 2026, the group recorded total revenue of RMB 2.21 billion, an increase of 22.1%. Within this, photo, video, and design products grew by 30.9% to RMB 1.8 billion. By product category, revenue from applications productivity accounted for more than 80% of the photo, video, and design products. This growth rates exclude the stock photo business that we exited at the end of 2025, which contributed approximately RMB 27 million of revenue in the first half of 2025. Revenue from applications for leisure accounted for approximately 82% and increased by more than 30%. By market, revenue from markets outside of mainland China increased by 41.7%, accounted for 48% of the total revenue. For an advertising business, revenue in the first half was $410 million, down 4.4%, primarily due to lower revenue from brand advertising and other traditional advertising formats. As we have mentioned in previous presentations, we remain cautiously optimistic about the advertising business. Going forward, we will continue exploring opportunities to combine AI capabilities with brand marketing. Finally, revenue from others was approximately 29.1 million RMB, increasing by 3.9% year-on-year. For cost sales, for the first half it was $630 million, up by 41%. Our largest cost item, revenue-sharing fee-to-payment channels, was $380 billion. This increased alongside subscription and in-app purchase, which remained broadly stable as a percentage of photo, video, and design products revenue. Second, computing and cloud costs accounted to $130 million, over half of which was computing costs directly linked to usage. In addition, supported by our self-developed models and our capabilities to fine-tune open-source models, we kept third-party API costs at a mid-single-digit percentage. During the first half, more than 96% of the generated outputs were powered by our self-developed model layer, churning to gross profit. For the first half, it was 1.58 billion RMB, up by nearly 60%, while gross margin was 71.5%, compared with 75.3% in the same period last year. This is mainly attributable to changes in revenue mix. First, within photo, video, and design products, AI-native applications' productivity grew faster, and they now have higher API cost ratio. Mature applications maintained stable growth margin levels. For these early-stage AI-native products, our current priorities are product validation and user growth. As user scale expands and patents become more mature, we will improve their growth margin profiles. Second, advertising, which carries a higher growth margin, accounted for a lower proportion of the total revenue, which also has some impact on the overall margin. For expenses, selling and marketing expenses were of 330 million RMB, up by 12.7%, representing 15% of the combined revenue. By origin, spending in mainland China was primarily for driving growth in applications for productivity, while in international markets it was mainly for applications for leisure. For products with validated demand and color growth opportunities, we will continue to invest and monitor customer acquisition efficiency. R&D expenses were RMB 473 million, up by 4.8%. The growth rate was affected by comparison base in first half 2025, which included certain general-purpose foundational model training expenses. Including this, the total expense would be increased approximately 11.1%. Going forward, we will continue to concentrate resources on R&D talent, vertical model training, and application level optimization. Administrative expenses were $223 million, largely in line with last year. On profitability, as revenue continues to grow, the gross profit once again grew faster in operating expenses in the first half, further improving operating leverage and the overall profitability. So adjusted net profit attributable to owners of the company was $6.5 billion for better comparability with last year. Adjusted net profit includes results from discontinued operations. The IFRS net profit attributable to owners of the company was $620 million, representing an increase of 40%. I would also like to share our approach to investment in new products and resource allocation. You see that we have launched quite some new products recently. Some such as Pitchy and Newland are growing rapidly, while some have been discontinued. This reflects the speed of evolving AI industry and therefore the speed of validation. For early-stage opportunities, we try to use small teams and limited initial investment to bring products to market quickly and validate user demand and business models. Once we see clear signals in user growth and monetization, we will scale up R&D, marketing, and other resources. Through this approach, we aim to maintain a rapid pace of iteration while controlling the cost of exploration and improving resource efficiency. Going forward, we will continue innovation and globalization, capturing long-term opportunities while maintaining good resource allocation and investment returns, and therefore healthy financial performance. Finally, shareholder return. First, in line with our past practices, the board has approved an interim dividend of HKD 0.067 per share, representing 40% of adjusted net profit attributable to owners of the company. Second, regarding the HKD 300 million share repurchase program announced in March last We have repurchased about $230 million, with $70 million remaining. Going forward, we will assess and execute remaining repurchases as appropriate, taking into account the market conditions and other requirements. I would also like to clarify our principles regarding resource to disclosure. Recently, we have noticed that some investors interpreted whether the company issues a positive profit alert or profit warning as an indication of managing view on whether the results are good. Actually, there is no link. Under the requirements related to the inside information, based on Part 14A of Securities and Futures Ordinance and Rule 13.09 of the Listing Rules. Whether the company is required to issue a positive profit alert or profit warning in advance does not depend on whether the results themselves are positive, but whether they constitute inside information. In other words, whether the annual interim results represent material deviation from prevailing market expectations. Since we began publishing quality disclosure this year, the market has been able to learn more about our latest operating performance. The likelihood of actual results deviating also decreased, and accordingly, there may be fewer circumstances requiring a positive profit alert or profit warning. Therefore, having an announcement or not should not be interpreted as an indication of the results. We will continue to fulfill our disclosure obligations in accordance with the rules. And that concludes our presentation today. We will now move on to the Q&A session.

Thanks, Gary, for his sharing. Now we're moving to the Q&A session. If you're on the floor, please raise your hand. Our staff will give you the microphone. If you log in via mobile app or personal computer, please click the raise hand button. After you're unmuted, you can speak your questions. You can also text your question in the chat box. We will read it aloud. For investors in Zoom, you can also click the button or text your question. for those who dial in please press asterisk plus one first question on the floor i'm an analyst from swiss bank congratulations on company's performance i have two questions centering on one topic on the first half we developed so many new products peachy and mvland especially mvland we can see it breaks the boundaries or extends our functions so So I would like to ask how we discovered so quickly these demands. I saw the ARP value and the ARR value are both impressive. Second question about the verifying mechanism of new product. What KPI decides the continuation of a project for the internal talent accumulation? Do we have boundaries in the future or we are just exploring?

Management answers.

First, I talk about the discovery of demands of MVLand and PG. For MVLand, 12 years ago, MeiPai, we already discovered it. But the main difference is that Meipai, based on users' real experience. After its launch in May 2014, the download reached 5 or 6 million. So it proved one thing. Users like to make MV gathering their life materials. So you can't regard MVLAND as an Meipai in AI era, but for the initiating phase, it targeted professional musicians to solve their problems because we adopted different approaches. we want to first serve the musicians well and we want to move downward. For example, the MV could satisfy the needs and the aesthetic values of the professional musicians. We believe it could serve more audiences or population. It is not a brand new scenario. This is what we want to define the content format. we can use the form of music video to do more, even if it might seem a little bit niche nowadays or in the past. For example, leveraging the advantage of AI models, Xinhong adds how it digs these demands from our existing products. We discover new trends or demands, For example, Pichy, we started from the Meitool app and Beautycam and found young users or KOL, they're dealing on portrait photos. In this process, how AI could solve their pain points, how to remember their preferences or different traits to do many pictures at one blow, or we could make it more sensitive to social media. Besides Pitchy and MVLand, for example, Kaipai and other, we used the prompter function to discover users' demands. We will continuously do user layering and demand the digger. Now we center around different formats. we do verification. Talking video is a format and MV is another format. We believe every format deserves larger potential. For those who didn't perform well, we will center around different metrics to do evaluation. For example, we merge or we cancel to ensure limited resources are suspended on good performing products in the future will not extend our boundaries endlessly we will do not do things which do not relate our field or professions the ai content creation tools It will naturally extend to distribution because all content needs advertising. Many content could be accumulated as users' assets or copyrights. This is just a flywheel of content. Centered around this flywheel, we can verify or check the authenticity of many assets or IP. i believe or we consider compared with the pure application in the past we can better satisfy users needs the content created could be seen it could bring revenue to users this is actually common demands of our users and how to accumulate long-term valuable assets. Based on insights above, we form our new strategy forward. Thank you. About how to make ARP value higher, core lies in finding users' quality demands. they would use this product more frequently of course choosing the path is also important as well for creating MV in the era without AI it would be expensive around 50 to 100 thousand RMB in the past but now with AI it's much cheaper However, if we pick products from these fields, the ARPU value would naturally be higher.

Thank you for your question. Next, lady from the first row. Just a minute, please. Hi, management. Lydia from Morgan Stanley. I heard that this product moves from creation to distribution to accumulation. It's really innovative. A new perspective to see me too. But in the past, people are positioning me to as a light asset, tool type, app company. But I heard that you will be exploring into the solution when you don't know if you are moving into operation. So please, management elaborate on that, including the impact of future business model and management model as well as finance. Thank you. I'll start on this. First, we believe that distribution we have mentioned is really a shared demand of the industry. We can see that whether the app itself or others, they all need distribution, including game, media, and music. All industries do value distribution. So in this field, we worked on it previously too, but rather on the app itself. Now, aligning with the creator's needs, we are expanding distribution to content from team building. We can say that based on the current distribution team, we are expanding that. We're building on that. It's not starting from the ground, because we have already been doing it. Yeah, OK. I would like to add a point. That is, distribution is more like better meeting creators' In the past, Kaepi and Emuland, these creation tools, after completing the content, user would naturally want to distribute but in the past we only have the first step ready and users would have to distribute for themselves or use third-party channels to better attract traffic or distribute into social media and e-commerce and live streaming distribution is more likely based on creation. It's a backchain service. It's not brand new. It's really just an add-up to the current product. After creation and distribution, the creators will eventually, on different platforms and in its own brand, they can have their own persona, their assets, their licensing rights. So you can understand that as we are serving the more diverse needs of the current consumers. This is a new cycle. Yeah, so we have a higher value for the users.

Next question on the floor. Analyst Vicky, about the distribution of content and the accumulation of assets. Can you share more about what are our advantages and what challenges did we face? Second question, the MAU oversees this increase in speed has slowed down. What trends or differences or changes did the management observe? First, I answer about our advantage and challenge. For distribution, one major advantage is that we have our own channel. We have our app matrix. Meitu app, Beautycam, ZQOL, they play a very good role in distribution. For example, many good IPs, they turned to Meitu's app to do their distribution. We can see that Meitool app can verify many IP or creation assets, whether it could be loved by users and from users. Can it be more popular among users compared with other companies? This is our advantage. we have our own channel or source. Next, when it comes to challenge or shortcomings, how to build external sources or channels. Other social media, online video platform or e-commerce platform they are in broader sense distributing channel how we can buy view metrics this is not pure disadvantage but we just didn't develop relatively much more distributing platform This would also be a major goal for us. For products overseas, we now focus more on Higgs Field in US. Its ARR was 500 million US dollars. Now it reached 700 US dollars. You can take it as there are so many B end users and studios, advertising and creating companies, they would use this to do their advertising video on social media because we cannot 100% copy its mode or model, but we can learn from it, how we can builds a distribution channel to sell other products. Because one of its logic, because the products need to be advertised on social media, you would find MC and other companies, you give them or they give you a budget, they would find 1,000 or 100 KOL to do advertising. Among them, 10 might go viral, but this is traditional. Now we focus more on the efficiency. If you already have a bunch of creator users, if they use your tool, they will naturally publish it. If you let them just add your tag, if the content they make goes viral, they can submit this link to our creator platform we would analyze the metrics of this video or work we would also give them a kind of a revenue or boost this is different from what we do in the past on social media in the past we don't know whether it would go well but now we make sure we pay this money to those viral videos for we can take advantage of the long tail creators but it doesn't mean that it has a prerequisite not all videos can be popular or viral on the platform but we need to find those ones for MVLand RoboNeo or Capai it's naturally suitable for social media So we can rely on good, high-quality creators to achieve better advertising and distribution.

Thank you. Now we move on to the next question. We have a question from Common Finance. Ms. Chenzi from China Securities. We're unmuting you right now. You're unmuted. You can start questioning in a minute. Next question. Chenxi from China Securities. You can start any minute. Due to technical issues, we will move on to the next question. Okay, now we move on to the next session. Thank you for your questions and answers from management. If you have other inquiries about the performance, you can contact the IR team. Next we move to media Q&A session. This session will not be interpreted. You can leave the Zoom meeting room now. Thank you again for your participation.