Selfie touch-up app Meitu to launch HK$5bn IPO

Meitu, the Chinese photo-editing app maker, is to launch an initial public offering (IPO) in Hong Kong next week, and hopes to begin trading on December 15.

Xiamen-based Meitu, which makes apps used to touch up selfie photos, will offer 57.4 million shares in Hong Kong, 10 per cent of its global offering. The price will range between HK$8.50 and HK$9.60 per share, raising between HK$4.9 to HK$5.58 billion globally, the company said on Friday.

It would be the biggest Hong Kong first-time share sale by a technology company since Alibaba.com Ltd’s US$1.7 billion offering in 2007. New York listed Alibaba Group Holdings owns the South China Morning Post.

Meitu officials said they chose to list in Hong Kong because they have confidence in the city as a global financial hub.

“Most of our fans are in China, so it made sense to list in Hong Kong,” said founder and chairman Cai Wensheng. “We hope that these users can also be our shareholders.”

Meitu racked up a 2.2 billion yuan loss for the first six months of the year, and expects to remain in the red until the end of next year.

“Although we are still seeing losses, revenues and gross margins are rising,” said Ngan King-leung, its chief financial officer. “We have great confidence in our future.”

Meitu plans to use about 29 per cent of the IPO proceeds to expand its smartphone capacity, as well as grow its internet services and fund research and development. So far the company has focused solely on expanding its user base, Ngan said.

But some analysts have questioned Meitu’s monetisation strategy and business model.

Meitu has 446 million monthly active users of its various mobile apps, but 95 per cent of its revenue comes from selling its brand of smartphones.

The company sold less than 30,000 phones in the first half of the year in a market that sells over 100 million smartphones per quarter, according to Jessie Ding, research analyst at market research firm Canalys.

“[Meitu] has a very tiny proportion,” Ding told the Post.

“These funds can help it invest more in smartphone hardware and research,” Ding said.

“But they need to convince shareholders their user base can really be turned into paid customers, which can bring in profit.”

Jeffrey Towson, professor of investment at Peking University, said while the company positions itself as “a beauty ecosystem”, including social networking and e-commerce, “they are a long way from that today”, although he remains optimistic on Meitu’s large user base and increasingly popular apps.

“They’re a small smartphone plus software company, and there’s power in the software side,” he said.

Meitu’s IPO will open on Monday morning and close Thursday at noon, with the final share price to be determined in Thursday.

Morgan Stanley, Credit Suisse and China Merchants Securities are joint sponsors of the offering, according to a pre-listing filing with the Hong Kong Stock Exchange.