The listed company lost more than 100 million yuan in "cryptocurrency speculation"

Meitu, which purchased cryptocurrencies in a high-profile manner a few months ago, has released its first-half performance report. The purchase of Bitcoin has become the main reason for dragging down the company's first-half performance.
It is reported that Meitu purchased Bitcoin and Ethereum three times in the first half of the year, with a total purchase amount of US$100 million. When Bitcoin was at its best, its floating profit even doubled. However, the recent sharp drop in Bitcoin also led to a 112 million yuan impairment loss on Meitu's Bitcoin in the first half of the year.

On August 25, Meitu released its performance report for the first half of 2021. The report showed that in the first half of the year, Meitu achieved operating income of 806 million yuan, a year-on-year increase of 44.6%; net loss in the first half of the year was 129 million yuan, a year-on-year increase of 708.6%; net loss increased significantly to 137.7 million yuan, a year-on-year increase of 450.8%.

As for the reason for the loss, Meitu stated in the announcement that the substantial increase in net losses was mainly due to the increase in one-time expenses caused by the decrease in the fair value of the impaired purchased cryptocurrencies.

Since March, it has purchased $100 million worth of cryptocurrencies in three installments, and its floating profit has doubled at its peak. In fact, Meitu disclosed in an announcement released on July 6 this year that the company purchased 31,000 Ethereum and 940.89 Bitcoins in three installments in the first half of this year, with a total consideration of approximately $100 million.

A total of $100 million of digital currency was purchased, which is consistent with the amount previously rumored. At the Meitu earnings conference on May 25 this year, regarding whether to continue investing in cryptocurrencies, Wu Xinhong, the founder and CEO of Meitu, said that there is no plan for the time being, because the amount approved by the board of directors is $100 million, which is the only amount available for the time being. In other words, Meitu’s “cryptocurrency speculation” quota has been used up.
The period when Meitu bought a large amount of cryptocurrencies was also the time when the cryptocurrency market was booming. Someone roughly estimated that Meitu's "cryptocurrency speculation" had made a maximum profit of more than 100 million US dollars, that is, Meitu's "cryptocurrency speculation" once doubled its income. However, as countries tightened their cryptocurrency regulations, the cryptocurrency market took a sharp turn for the worse.

According to Meitu’s announcement, in the first half of the year, Meitu lost $17.3 million from purchasing Bitcoin, but made $14.7 million from purchasing Ethereum.

However, in the semi-annual report, Meitu included cryptocurrency investments in intangible assets. According to the market price at the time, the fair value of Ethereum and Bitcoin purchased by Meitu was approximately US$65.2 million and US$32.2 million, respectively. The fair value of purchased Bitcoin decreased by approximately RMB 111.9 million as of June 30, 2021, and the fair value of purchased Ethereum increased by approximately RMB 94.9 million as of June 30, 2021. In accordance with the relevant accounting standards under the International Financial Reporting Standards, Meitu will record the purchased cryptocurrencies as intangible assets and measure them using the cost model. The reduced fair value of the purchase of Bitcoin as of June 30 was recognized as an impairment, and the increased fair value of the purchase of Ethereum was not recognized as a revaluation gain.
Why trade in cryptocurrencies? Meitu: Asset allocation to diversify risks and prepare for the company to enter the blockchain industry

As for why Meitu is keen on "speculating in cryptocurrencies", Wu Xinhong once said that "buying cryptocurrencies is more about asset allocation and the layout of overseas business, and will not be a short-term operation."
When purchasing cryptocurrencies three times this year, Meitu revealed in the announcement that the company established a "cryptocurrency purchase plan" mainly for two purposes: asset allocation to diversify risks and to prepare for the company's entry into the blockchain industry.
As for how Meitu will enter the blockchain industry, Meitu mentioned in the announcement of its first purchase of cryptocurrency that "the group is currently evaluating the feasibility of integrating blockchain technology into its various overseas businesses" and "when the group may launch its own dAPP (decentralized application) in the future, Ethereum can be used as a fuel reserve and as an investment in blockchain projects that accept Ethereum as consideration."

However, in the two subsequent announcements of cryptocurrency purchases and the semi-annual report, Meitu did not mention the above content, but only emphasized the value of cryptocurrency for asset allocation.
In addition to the huge losses from "cryptocurrency speculation", Meitu's revenue in the first half of the year increased significantly, mainly from the premium subscription service business. However, apart from the drag of cryptocurrency, Meitu's other businesses in the first half of the year were still profitable. In fact, since Meitu went public in 2016, the company has been losing money for four consecutive years, but the extent of losses has been narrowing. If the losses caused by the decline of cryptocurrency are excluded, Meitu's losses in the first half of the year are expected to be further reduced.

In terms of operating income, Meitu's revenue in the first half of the year was 806 million yuan, a year-on-year increase of 44.6%. Among them, online advertising revenue was 393 million yuan, a year-on-year increase of 23.3%, premium subscription services and in-app purchases revenue was 211 million yuan, a year-on-year increase of 150.7%, Internet value-added services revenue was 35.339 million yuan, a year-on-year increase of 65.6%, and other business revenue was 167 million yuan, a year-on-year increase of 25.2%.

Meitu's premium subscription service has performed well since its launch, with rapid growth in the first half of 2021. Premium subscription service revenue accounted for 26.2% of total revenue, up from 15.1% in the first half of 2020. As of June 2021, the app has about 3 million active premium subscribers, and there will be a lot of room for growth in the future.
Meitu said that the rapid growth of premium subscription service revenue is mainly due to Meitu's continuous innovation of product functions, which brings better product experience to users, attracts new subscribers and increases membership renewal rate. Under the new model of premium subscription services, Meitu allows users to enjoy more convenient tools, richer creative content, and more advanced imaging functions, so as to obtain a better experience. For example, through the effect of subscription rights, users are attracted to unlock paid premium functions such as orthodontics, facial reshaping, video prompters, etc.; and more unique premium rights are unlocked for paying users on a regular basis, innovative materials are launched, and more functions with high user stickiness are upgraded.

However, the number of Meitu's monthly active users has slightly decreased, from 261 million in the first half of 2020 to 246 million at the end of June this year, a year-on-year decrease of 5.8%. Among them, the number of monthly active users of Meitu Xiuxiu fell slightly by 0.% year-on-year, the number of users of Beauty Camera increased by 1.2% year-on-year, while the number of Beauty Plus and other businesses decreased by 17.8% and 18.9% year-on-year respectively. In terms of the geographical location of users, the number of users in mainland China remained generally flat, while the number of overseas users decreased by 14.5% year-on-year.

Meitu's Chief Financial Officer Yan Jinliang said, "Meitu has successfully found a second curve of revenue growth through premium subscription services, and has begun to see good signs of innovative businesses in the field of beauty. We remain cautiously optimistic about the full-year profitability in 2021, and will provide users with a better user experience through R&D investment, business innovation, and other forms, and continue to create long-term shareholder value."

Wu Xinhong, founder and CEO of Meitu, said on Weibo that with the joint efforts of Meitu partners, after achieving full-year profitability in 2020, Meitu continued to grow in the first half of 2021, with premium subscription revenue increasing by 150.7% year-on-year, opening up the second curve. There is still a long way to go for entrepreneurship, and Meitu will focus on promoting the beauty strategy, helping users to become more beautiful in all aspects, and promoting the digital upgrade of the beauty industry. (China Fund News)