The developer of selfie apps, China’s Meitu Inc., is discussing a share sale that would value the company at about $5 billion and is said to be in talks with investors ahead of its planned initial public offering in Hong Kong, reported the media quoting people with direct knowledge of the matter.
However, with international investors more skeptical about the company’s potential and with local Chinese funds willing to pay up for what they see as the next big growth opportunity, investors are split in their view of that value.
Helping people appear more attractive in photos by slimming faces, lengthening limbs and even applying make-up, Bottom of Form
Meitu’s apps has about 450 million monthly active users. The sources said that these beauty-conscious loyalists can be turned into a lucrative base for e-commerce and advertising opportunities, the Xiamen-based company is convinced. The company has limited proof it can profit from the popularity of its apps and still generates 95 percent of its revenue from selling mobile phones, skeptics point out.
According to terms for the deal, as Meitu and its investment bankers talks with potential investors from this week through Dec. 2, valuation will be a key area of discussion. Aiming to become Hong Kong’s biggest technology listing in nearly a decade, the company has said it is aiming to raise about $750 million.
“There should be ways to monetize the user experience. I think there’s excellent progress being made from photos to videos and from a tool to a social network. When those two businesses are believed to be more mature, that would be a great time to add more monetization,” said Kai-Fu Lee, an early Meitu investor and a non-executive director at the company.
Meitu has to balance valuation and stability. Te sources said that it could reach $5 billion or perhaps higher if it sold most of the IPO shares to the Chinese funds. And yet, to limit volatility of the shares when they start trading, the company is seeking big-name financial institutions as cornerstone investors. That may push the valuation below $5 billion, the people said.
In the first six months of 2016, Meitu’s revenue rose more than three-fold to 585.5 million yuan ($88 million). Narrowing about 8 percent from a year earlier, it had an operating loss of 279 million yuan during the same period.
For its high-flying stars, China’s technology market has proven tumultuous. Smartphone company Xiaomi Corp. climbed to the top of China’s handset market and earned a valuation of $46 billion in 2014. But its valuation would likely be lower if it had to raise money today and it has since fallen to fourth in the country.
Meitu will conduct calls with Singapore money managers and plans to test demand this week from investors in Hong Kong, London, New York and Boston. It will meet with select Asian investors next week.
While around 25 percent of the IPO proceeds will go toward strategic investments and acquisitions, the company plans to use about 35 percent of the amount to expand its smart hardware business.