Can the Bitcoin-enabled Meitu change its fate against the odds?

Apr 27, 2021 Financial Service

 

On April 8, Chinese app developer Meitu announced it has bought over 175 Bitcoin. The Hong Kong Stock Exchange-listed company has invested $100 million in bitcoin and Ether positions since adopting a "cryptocurrency investment plan".

In fact, this is not the first time Meitu has purchased bitcoins. 

On March 5, the company purchased 15,000 Ether and about 379 Bitcoin. It further expanded its holdings with 16,000 Ether and about 386 Bitcoin on March 17. The deal was by Meitu HK, a wholly-owned subsidiary of Meitu Group, and part of Meitu's ambitious Cryptocurrency Investment Plan. 

To date, Meitu's total investment in cryptocurrencies has reached US$100 million, completing the purchase limit of the investment plan in the previous announcement. According to a rough estimate, without considering the fees and without Meitu reducing its position throughout the whole process, the float of its Bitcoin and Ether purchases is close to US$19.05 million, which is more than 200% of Meitu's annual net profit in 2020 after converting to RMB. 

The reality, however, is the opposite of the happy news of a profit on the books. As a Hong Kong-listed company, Meitu's crazy purchase of cryptocurrencies instead of running its main business has drawn a lot of questions and criticism from the outside world.

"The reasons for and benefits of the Further Bitcoin Acquisition are the same as the ones disclosed in the Previous Announcements," Meitu stated in an announcement. "The Board believes cryptocurrencies have ample room for appreciation in value and by allocating part of its treasury in cryptocurrencies can also serve as a diversification to holding cash in treasury management. And it would demonstrate to investors and stakeholders the company's ambition and determination to embrace technological innovation, thus preparing it for its entry into the blockchain industry."

But is that really the case? 

 

Meitu's attempts all ended in failure

Founded in 2008, Meitu has become one of China's top Internet enterprises owing to its leading AI-driven image-and-video processing technologies and social community. Meitu's mission is "to let everyone become beautiful easily", with the concept of "beauty", or Mei in Chinese, as the company's core ideal. Meitu has been listed on the Hong Kong Stock Exchange since December 15, 2016.

However, good times did not last long. Since 2017, Meitu's share price has been falling, and in the second half of 2019 to 2020, it even hovered around HK$1 for a long time. 

Despite the poor stock market performance, it has to be admitted that Meitu is very good at seeking opportunities. 

In May 2013, Meitu stepped on the smartphone market and launched what was then the first selfie-focused smartphone in China. Thanks to its clear and unique positioning, advanced image processing technology, and more obvious differentiation from other smartphone manufacturers, Meitu quickly rose to fame and even signed Angelababy as its spokesperson, and later released joint limited edition models with famous IPs. 

Subsequently, the smartphone business became the main source of income for Meitu. In the following five years, the proportion of smartphone business revenue to Meitu's total revenue was 59.7%, 87.8%, 89.9%, 93.4% and 83%, respectively. 

However, starting from 2018, smartphone shipments in China have shown a decline. An objective factor is that the smartphone market has experienced six consecutive years of rapid development, making the market sharply saturated, and smartphone manufacturers such as Huawei and Apple are very balanced in terms of both image and system and ecological performance. 

Due to the inherent weakness in the smartphone supply chain and too much emphasis on the function of beauty selfie, Meitu has been criticized by users. As a result, the sales of Meitu smartphones in 2018 directly cut, and in April 2019, Meitu announced the closure of its smartphone business, and authorized the development, production, sales and promotion of Meitu smartphones to Xiaomi, hastily ending the war in the smartphone field. 

Another market is short video field. 

In May 2014, Meipai was officially launched, more than two years before the launch of Douyin. After its launch, Meipai topped the App Store for 24 days in a row and became the first app in the world in terms of non-game downloads in the App Store that month. 

In January 2016, Meipai launched the live streaming function, and in June of the same year launched the gift system function, whether it is shooting short videos or live streaming can accept online gifts from fans, Meipai quickly became the most representative live streaming platform. As of June 2016, the total number of videos created by Meipai users reached 530 million, with a daily per capita viewing time of 40 minutes and 141 million monthly active users. 

Although Meipai was once the absolute dominant player in the short video field, its positioning was limited to "tool" for a long time and initially relied excessively on Weibo for socialization, resulting in Meipai's own weak social attributes, which prevented it from becoming a community platform like Kuaishou. In addition, Meipai is relatively backward in terms of updating its gameplay and is slow to reflect user needs, so it is slowly being eliminated from the game. 

Public data shows that from 2013 to 2019, Meitu has accumulated a loss of about 12.1 billion yuan. An obvious situation is that against the backdrop of difficulties in making breakthroughs in its main business, Meitu urgently needs a way to make money quickly. 

 

Is it feasible for listed companies to invest in cryptocurrencies? 

In fact, it's not just Meitu, Tesla is also betting heavily on cryptocurrencies. 

Tesla CEO Elon Musk changed his Twitter bio to just "#bitcoin" on Jan. 29, and bitcoin then soared to $38,000, jumping 18 percent at one point. 

A week later, when asked about Bitcoin, Musk first responded that he needed to "watch what I say," then gave an answer that roiled the price of the cryptocurrency again. "Bitcoin is a good thing," he said, adding he's "late to the party" and should have bought eight years ago.

Musk's high-profile entry has swept the otherwise calm waters into a hurricane. 

On Feb. 8, Tesla announced in an SEC filing that it has bought $1.5 billion worth of bitcoin. And it would start accepting bitcoin as a payment method for its products, as allowed by law. 

After the news broke, Bitcoin prices surged to new highs following Tesla's announcement, reaching a price of at least $44,200. Tesla shares were up more than 2% in the next day morning.

The interesting thing is that Tesla is profiting from this. According to foreign media calculations, Tesla holds more than 42,000 bitcoins, ranking second in the number of bitcoins held by public companies worldwide. As of now, Tesla's float has exceeded $990 million, which is 37% higher than its net profit of $721 million in 2020. 

It cannot be denied that both Meitu and Tesla have made more rapid and substantial gains from their investments in cryptocurrencies than any other gains. 

In the opinion of one industry insider, buying bitcoin, whether characterized as speculation or investment, and whether speculation is profit or loss, has to be based on the health of the main business. "In the case of a sluggish main business, the speculative behavior of listed companies is instead a danger signal, which means that once the bull market passes and the market makes adjustments, then the listed companies will easily have a financial crisis." 

 

Upcoming heavy-handed regulation 

The issue of regulation has been the sword of Damocles hanging over the cryptocurrency market. 

Jesse Powell, CEO of Kraken, one of the world's four largest cryptocurrency exchanges, warned that governments around the world could clamp down on the use of bitcoin and other cryptocurrencies, saying, "I think there could be some crackdowns, and regulatory uncertainty around crypto isn't going away anytime soon." He feels the U.S. is more "shortsighted" than other nations and "susceptible" to the pressures of incumbent legacy businesses — in other words, the banks — that "stand to lose from crypto becoming a big deal." And it's true. 

At the Boao Forum for Asia on April 18, Zhou Xiaochuan, vice chairman of the Boao Forum for Asia and former governor of the People's Bank of China, and Li Bo, deputy governor of the central bank, both talked about bitcoin. 

"We regard Bitcoin and stablecoin as crypto assets ... These are investment alternatives," Li Bo, deputy governor of the PBOC, said.

Zhou said that "it is necessary to distinguish digital currency and digital assets. For digital assets such as bitcoin, it is not necessary to draw a conclusion now, but it is necessary to remind and be careful. In China, financial innovation should be clear about its benefits to the real economy."

The United States, India and other countries are also surprisingly consistent in their attitudes towards cryptocurrencies. 

On Feb. 26, U.S. Treasury Secretary Janet Yellen warned that bitcoin is an "extremely inefficient" way to conduct monetary transactions. "I don't think that bitcoin … is widely used as a transaction mechanism. To some extent, I'm concerned that it's often for illicit finance. It's an extremely inefficient way of conducting transactions, and the amount of energy that's consumed in processing those transactions is staggering"  

A recent anti-money laundering rule proposed by the U.S. government would require people who hold their crypto in a private digital wallet to undergo identity checks if they make transactions of $3,000 or more. In addition, India also proposed a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets, a senior government official told Reuters in a potential blow to millions of investors piling into the red-hot asset class. And the bill would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied.

It is still difficult to predict what the future of cryptocurrencies represented by Bitcoin will be, but the only thing that can be foreseen is that cryptocurrencies are about to receive the most stringent regulation in the history of various countries.

This is an article from WeChat official accounts DoNews (ID: ilovedonews), written by Yin Taibai, translated by Chris Yuan.