Coin speculation cannot save Meitu

The risk is too great.

Coin speculation cannot save Meitu

The article 丨Wired Insight, author 丨Li Xin, editor 丨Ziye

“Someone has to be the first to eat crabs.” Cai Wensheng, chairman of Meitu, said in his circle of friends after the company made a big purchase of cryptocurrency.

However, this crab comes with risks in its deliciousness. After briefly enjoying the floating profits from cryptocurrencies, Meitu quickly fell into losses.

On May 24, Meitu hit the hotspots with a loss of 13 million yuan from cryptocurrency speculation, and Meitu’s share price also fell into volatility with the rise and fall of the cryptocurrency.

“While the share price is not related to the company’s main business, but to the virtual currency it invests in, shareholders will be suspicious of the general direction of this company, which is not a good thing for the company’s image.” Cai Kelong, a senior researcher at the Institute of Financial Technology of Renmin University of China, has told the media.

It is worth noting that for a long time Meitu was in a loss-making situation, and only in 2020 it announced its first profit, with a net profit of 60 million for the year, and this time, due to the speculation of coins, Meitu lost the equivalent of a quarter’s earned profit.

Over the years, Meitu has also been exploring various commercialization paths, but none of the development has been smooth. Today, Meitu’s e-commerce business has been completely shut down, short video business is lukewarm, social attempts are still being explored, and medical beauty business is just starting.

So far, Meitu still hasn’t found a virtuous commercialization path for itself. Perhaps because of the pressure on revenue, Meitu chooses to make money by speculating on coins, but can Meitu withstand the ups and downs of cryptocurrencies?

Obviously, coin speculation cannot save Meitu. The company’s development can only be sustained by a solid business system, and Meitu can only continue to stand at the poker table if it continues to find new business breakthroughs.

From hundreds of millions of floating profits to hundreds of millions of losses, Meitu’s coin speculation has had a big ups and downs
Meitu has become a major “coin speculator”.

Since this year, Meitu has made three high-profile announcements about buying cryptocurrencies.

On March 7, Meitu bought cryptocurrencies for the first time, including 379 bitcoins at a purchase price of $47,214 and 15,000 ethereum at a purchase price of $1,473.

On March 17, Meitu made a second purchase, which included 386 bitcoins at a buy price of $55,946 and 16,000 Ether coins at a buy price of $1,775.

On April 8, Meitu spent another $56,922 to purchase 175 bitcoins.

So far, Meitu has held more than 940 bitcoins with an average buy price of about US$52,610; and 31,000 Ether coins with an average buy price of about US$1,629, for a total investment that has reached US$100 million.

“This should be considered the first Hong Kong listed company to buy BTC digital currency, and the first listed company in the world to use ETH Ether as a currency value reserve.” Mito Chairman Vincent Tsai is quite proud of his company’s purchase of cryptocurrency.

It’s also true that Mito briefly ate the dividends of the cryptocurrency surge after purchasing cryptocurrencies. On April 13 this year, when the cryptocurrency market was at its best, bitcoin price once surpassed the $63,000 mark and ethereum broke through $2,200.

Based on this price, Meitu’s cryptocurrency assets held by Meitu had a maximum float of $27.48 million (about RMB 177 million), while Meitu’s adjusted net profit for the year 2020 was only RMB 60.9 million.

It’s no wonder that Cai continues to purchase cryptocurrencies, after all, speculating on coins is not only more profitable than the company’s business, but also faster.

However, money from coin speculation comes and goes even faster.

Since May 12, cryptocurrencies such as bitcoin and ethereum have plummeted one after another.

On May 19, the cryptocurrency world suffered a “bloodbath”, bitcoin home data shows that the past 24 hours, the cryptocurrency market, 220,000 people burst positions, burst the amount of 12.2 billion yuan.

According to Insight, bitcoin fell below the $39,000 mark that day, down more than 14% in 24 hours, with a low of $300 million per piece that day; ethereum wasn’t much better, also falling below the $2,900 mark, down more than 17%, with a low of $1,750 per piece that day.

Based on the maximum drop, the cryptocurrency held by Meitu was once floating at a loss of $19.691 million (about 127 million yuan) on that day.

In just the past month, Meitu has gone from a float of hundreds of millions of RMB to a float of hundreds of millions of RMB.

For this reason, Meitu, which has long faded out of the user’s view, was also in the hot search for a while due to its investment in cryptocurrency losses.

Even, on the investment platform, there were individual investors who questioned, “What kind of decision made Meitu invest in bitcoin at a high level?”

However, to date, Meitu has not responded to questions related to the huge profit and loss in cryptocurrencies, nor has it issued an announcement regarding the sale of the virtual currency.

On May 25, during Meitu’s earnings conference, Meitu CEO Wu Xinhong said that there are currently no plans to continue investing in cryptocurrencies, as the amount approved by the board of directors is $100 million, which is all it has for now.

Meitu’s share price has also fluctuated with the rise and fall of cryptocurrencies so far this year. After Meitu announced its heavy position in cryptocurrencies in March, Meitu’s stock price rose by more than 14% at one point on March 8, while it has fallen all the way since May. As of press time, Meitu’s share price is HK$2.04 per share, a 55% plunge from this year’s high of HK$4.50 per share, which has been cut.

At the earnings conference, Wu Xinhong also said, “The purchase of cryptocurrency is more of an asset allocation and the layout of overseas business, and will not be a short term operation.”

This means that Meitu will not sell cryptocurrencies in the short term, but the drastic fluctuations in the cryptocurrency market may be an untimely bomb for Meitu.

Meitu speculates on coins, soldiering on
“Everyone regrets missing out on Tencent and regrets why they didn’t buy it in the first place, watching it rise from HK$3.7 to now. This is also likely to repeat on Meitu, from the number of users, Meitu also has a large enough space.” In 2016, Meitu listed when Cai Wensheng put out such a bold statement.

But today, not only has Meitu’s share price fallen below its issue price for a long time, its user base has also shrunk significantly.

According to Meitu’s 2020 earnings report, Meitu’s total monthly active users stood at 261 million, down 7.6% year-on-year. In response, Meitu explained that the vast majority of the decline was due to a drop in monthly active users in India, as several applications were banned by the Indian government.

By product, the number of users for each of Meitu’s products showed a decline. 2020 saw Meitu’s monthly active users at 115 million, down 1.5% compared to 116 million in 2019, and Meitu’s monthly active users at 61.85 million, down 7.4% compared to 66.8 million in 2019.

Not only is the number of users of domestic products declining, the monthly active users of BeautyPlus (Beauty Camera Overseas), an overseas product of Meitu, also slipped to 55.14 million, down 16.6% compared with 66.14 million in 2019.

Perhaps the continued downturn in its main business brought about operational pressure, and Cai, who had been exposed to bitcoin as early as 2011, began to soldier on, trying to generate profits for the company by investing in bitcoin.

Once upon a time, Cai, a venture capitalist, invested in okcoin in 2014 and purchased his first bitcoin. Since then, Cai has been hanging out with many high-end blockchain players and became convinced that blockchain is the future.

For this reason, in early 2018, Meitu released a blockchain solution white paper, stating that it would build a blockchain ecology based on AI technology; in February, Meitu also shelved a blockchain wallet product, “Beike Wallet”.

Cai also didn’t stay idle, as he actively discussed blockchain technology in the then-famous “Sleepless Blockchain Group at Three O’Clock”.

In a group sharing, Cai said bluntly: “Blockchain is the biggest bubble in the history of mankind …… And the bubble is also the catalyst to drive the technology revolution …… After each bubble, these industries can really change the development of the world. We can only embrace the bubble, and not participating is the biggest risk.”

Today’s Cai, chose to embrace the bubble, but this bubble, is not well controlled.

The ups and downs of cryptocurrencies were staged many times years ago. One day in April 2013, Bitcoin plummeted from $233 to $67 in 24 hours, a 71% drop, and the immediate cause of the accident was the trading platform Mt.

In November of that year, the price of bitcoin suddenly increased from its original stable level of around $120 to $1,150. While everyone was ecstatic, in mid-December, the price of bitcoin saw another direct cut.

Combing through the history of Bitcoin after its birth, it can be found that cryptocurrencies have a huge range of ups and downs and more influencing factors, such as exchange hacks, general market pullbacks and policy regulation risks can affect cryptocurrency prices.

This time, Meitu also lost a lot of money because of the plunge of cryptocurrency, and it is worth noting that, as a listed company, the funds Meitu used to invest in cryptocurrency were also partly raised from the stock market, which means Meitu actually invested in cryptocurrency with the money of its stockholders.

It is natural for controversies to arise as the company’s profit is made by using the shareholders’ money to buy cryptocurrencies, and the shareholders bear part of the risk if they lose.

This aggressive style of Cai Wensheng has also caused Meitu to suffer a lot of losses.

In 2018, as chairman of Meitu, Cai Wensheng uncharacteristically participated in the Meitu strategy launch after starting to manipulate a series of business adjustments of Meitu, which mainly included discontinuing the e-commerce business and closing the cell phone business.

You know, at that time, the cell phone was the most profitable business of Meitu, so internal opposition was extremely loud, but the cell phone business was still abandoned by Cai Wensheng, and Meitu has not been able to prove its profitability.

Coin speculation cannot save Meitu

Meitu T9 phone, image source Meitu CEO Wu Xinhong Weibo

It was not until 2020 that Meitu announced its first full-year profit since its founding, with a net profit of RMB 60 million that year.

However, behind the profitability, Meitu’s main business has fallen into a growth bottleneck. 2020, Meitu achieved full-year revenue of RMB 1.2 billion, of which online advertising revenue was RMB 680 million, accounting for 56%. However, compared to 2019, online advertising revenue dropped by 9.5% year-on-year.

It can be seen that not only does Meitu’s main business show weakness, but it has also failed to find new growth points, and now that Cai Wensheng has once again taken a dangerous step, Meitu may not be able to withstand the torment anymore.

The troubled Meitu
As a tool product, Meitu has a significant number of users, with 450 million monthly active users by the time it went public in 2016. But because it is a tool product, Meitu has always been stuck in a commercial dilemma.

Because of this, Meitu has been making various commercialization attempts.

In 2013, Meitu released its first MeituKiss smartphone when the domestic cell phone market was still unstable and various brands emerged, and Meitu won a lot of market with its excellent shooting function. That year, the smart hardware brought Meitu 51.3 million yuan in revenue, which also started a 3-year high growth dividend period for Meitu’s smart hardware.

By the time Meitu went public in 2016, the smart hardware revenue had reached 1.473.9 billion yuan, accounting for 93.4% of the total revenue, but the smart hardware increased revenue but not profit, and Meitu’s cell phone business had been in a loss-making state, coupled with the gradual stabilization of the domestic cell phone industry, Meitu’s cell phone, which mainly focuses on taking pictures, was gradually squeezed out of the market.

In 2019, Meitu Mobile released a farewell letter, saying that it would close its cell phone business in the middle of the year and exclusively license the brand to Xiaomi Group. However, in Meitu’s 2020 earnings report, Wu Xinhong said the exclusive license with Xiaomi had ended, and Meitu would no longer enter the manufacturing and sales industry of cell phones in the future, and Meitu withdrew from the cell phone business in this regard.

In addition to the cell phone business, Meitu’s short-form video product “Meipai” also fell out of favor in the trend of the times.

In 2014, Meitu launched the short video product “Meipai”, which once won the App Store free list, with a maximum monthly activity of 150 million, and became the traditional three giants of short video with Seconds and Quick Hands.

In 2015, Meipai was indirectly blocked by Sina Weibo, and the microblogs shared by users using Meipai were only visible to the bloggers themselves, which had a significant impact on Meipai, which was then taken offline and suspended for 30 days in the Android and iOS app stores due to ineffective rectification of content violations, which dealt a fatal blow to Meipai.

Meitai’s paid users also plummeted from more than 300,000 to about 130,000, and its commercialization ability shrank sharply.

At the same time, Meitu’s core product, Meitu Xiuxiu, also lost its competitiveness as the shooting performance of smartphones continued to improve, and as a tool product, Meitu Xiuxiu had difficulty realizing good cash.

With its main business difficult to commercialize, Meitu has been exploring new channels to realize cash, and has tried various industries such as e-commerce, social, and medical beauty.

In 2017, Meitu entered e-commerce, launching “Meitu Shop”, which focuses on B2C2C buyer model, and “Meitu Custom”, a personalized customization platform, but due to unclear positioning, Meitu Shop failed to achieve the expected results.

Meitu quickly transformed Meitu Shop into “Meitu Beauty”, which mainly focuses on AI skin measurement function, and wanted to achieve a closed loop of self-operated e-commerce by recommending makeup and skin care products, but it was also closed soon after operation due to the lack of obvious results.

Meitu Custom originally wanted to provide users with customized picture products through the massive pictures generated by Meitu’s shooting software, such as printing and dyeing pictures on pillows and shirts, but this idea was soon proven to be a pseudo-demand, and Meitu Custom was soon discontinued.

After that, Meitu began to implement the “beauty and social” strategy, intending to change Meitu Xiuxiu from a tool product to a social product, and also announced its entry into the medical beauty industry.

Obviously, Meitu’s various commercialization attempts did not help it get out of trouble, but rather exacerbated its losses.

Relevant data show that from 2013 to 2019, Meitu has accumulated a loss of 12.126 billion yuan. Especially between 2016 and 2019, before and after the IPO, the company’s net profit lost 6.261 billion yuan, 197 million yuan, 1.255 billion yuan and 397 million yuan, respectively.

Nowadays, Meitu can be described as facing a decline in its main business and new business is still in the exploration period. Under multiple pressures, Meitu may hope to invest in bitcoin to turn around, but this is obviously unrealistic.

The volatile nature of the cryptocurrency industry, with its sharp rises and falls, will not only affect the company’s financial situation, but may also affect its original operations.

A solid, growing business is the key indicator of a company’s survival, and this is something Meitu must continue to explore.

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