According to an iResearch report, China’s photo app market user base is expected to grow from 226.7 million average Monthly Active Users (MAUs) in 2015 to 714.6 million by the year 2020. The report also reveals that as of June this year, nearly 71% of social network users in China shared at least one photo per week, and almost 21% of these people has used a photo app to enhance photos before sharing them on social media. China’s Meitu is benefiting from this photo sharing trend.

Meitu’s Offerings

Xiamen, Fujian, China-based Meitu was founded in 2008 by Xinhong Wu and Wensheng Cai. The company was set up to transform the way people are able to view their selfies. Today, the app allows its users access to a portfolio of innovative photo and community apps that are focused on improving the look of selfie photographs.

Meitu has a portfolio of six core photo apps including MeituPic, BeautyCam, BeautyPlus, SelfieCity, MakeupPlus, and Meipai. Its apps have been activated by more than 1.1 billion unique devices globally. The Beauty line of apps is a popular tool for advertisers in women-focused segments including luxury goods, cosmetics, and fast-moving consumer goods. As of June this year, Meitu’s apps saw 446 million MAUs, reporting a growth of 81% over the year. The apps have been used to generate nearly 5.6 billion photos, of which 54% were posted on major social networks in China.

Meitu has also diversified into live video streaming through its service Meipai. Meipai attracted over 141 million MAUs as of June this year and recorded an average daily time spent per use at 31.5 minutes. Meipai users have uploaded over 430 million videos since the release of the service.

While China remains the predominant market for Meitu, it is also seeing an increased international presence. As of June this year, Meitu had more than 370 million overseas users.

But Meitu hasn’t stopped focusing on its photo editing apps, it has diversified into smartphones as well. It launched its own smartphone that has been designed with the intention of taking better selfies. The phone has been well received and its hardware segment helps bring in more than 95% of its revenues.

Meitu is now planning to expand to E-commerce as well. It is working on launching a social e-commerce platform that will grant users access to a shopping portal for authentic, branded, fashion-related merchandise. It is also rumored to be building an AI capability in the app that will help detect users’ age, skin condition, and other facial features and then use the data to sell skincare products.

Meitu’s Financials

For its mobile app business, Meitu operates on a freemium model. The app is free to download. It counts on monetization through advertising and sale of virtual goods. Overall revenues have grown from RMB 488.05 million (~$73.35 million) in 2014 to RMB 741.81 million (~$111.5 million) in 2015. For the six months ended June this year, Meitu saw revenues grow nearly three times to RMB 585.46 miillion (~$88 million). By segment, phone sales accounted for 95.1% of revenues for the period and Internet services and others brought in the remaining 4.9% share.

Meitu is yet to report profits. Losses have grown from RMB 1.77 billion (~$266 million) in 2014 to RMB 2.22 billion (~$333.7 million) in 2015. For the six months ended June this year, losses grew from RMB 1.27 billion (~190.9 million) a year ago to RMB 2.19 billion (~$329.18 million). It plans to break even by the year 2017.

Meitu has been venture funded from investors including Keywise Capital Management, Ceyuan Ventures, China Asset Management Co., Ltd., Foxconn Technology Group, H Capital, Idea Bulb Ventures, IDG Capital Partners, Innovation Works, Qiming Venture Partners, and Tiger Global Management. Meitu has not disclosed the total amount of funds that it has raised so far. A private funding round held this year led by Keywise Capital Management is said to have valued Meitu at $3.8 billion.

Last month, Meitu filed documents at the Hong Kong Stock Exchange to go public. Analysts estimate that it is seeking a valuation of $5 billion through the IPO which will help it raise $700 million.

Meitu’s high valuation is probably due to its smartphone business. Its app segment has a very limited possibility of turning profitable. There are plenty of free photo editing alternatives available in the market that make the possibility of Meitu operating the service as a paid-for model difficult. Also, the apps have very narrow functions and thus have little chance of becoming a platform of choice for social media.