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Photo/Zhang Xiaoqing (NBD)

Feb. 20 (NBD) -- China's top photo-editing firm Meitu, Inc. entered into an agreement to purchase a 31 percent stake in Dreamscape Horizon Limited, an indirect wholly-owned subsidiary of Hong Kong-listed game company Leyou Technologies Holdings Limited, for a total consideration of about HKD2.7 billion (345.2 million U.S. dollars). 

Dreamscape Horizon Limited, incorporated in the British Virgin Islands, engages in the online video games operation and retail game development. 

The deal, which will be conducted through Meitu Investment Ltd, is deemed as part of Meitu's "Beauty and Social Media" strategy, under which the beauty app company is dedicating itself to grabbing a share of the social media space while continuing to explore new ideas about beauty. 

Leyou and its subsidiaries have extensive experience in gaming. Warframe, a game developed and published by Digital Extremes Ltd., indirectly owned as to 97 percent by Dreamscape Horizon Limited, is one of the 100 top-selling games of 2018 on Steam, the largest digital marketplace for PC games.

Through the acquisition, Meitu aims to expand its business lines and diversify its income streams geographically. Currently, the photo enhancement app provider's revenue is largely tethered to the Chinese market. The new purchase is expected to enhance Meitu's overseas business. 

Meanwhile, Meitu will leverage its large user base both in China and overseas to explore potential areas of strategic cooperation with Leyou and its subsidiaries to strategically design, market, and distribute games by reference to the age, gender and preferences. 

By venturing into the gaming sector, the company can reach out to more male customers to expand the customer base for its social media platform.  

To Meitu, the largest challenge is the increasingly weakening market demand for its photo-editing tool kits, as such functions have been integrated as plug-ins or mini programs into many social networking or video apps, news outlet Jiemian said in a previous report. If the company couldn't evolve from a utility app into a pan-entertainment community, it might end up vanishing from the market, the report warned. 

Despite efforts in driving growth through the development of hardware products, advertisements, value-added services, and e-commerce services, Meitu hasn't yet managed to turn profitable. 

Data shows the company lost more than 6.2 billion yuan (917.7 million U.S. dollars) cumulatively between 2013 and June 2016, and the loss for 2017 stood at 197 million yuan (29.2 million U.S. dollars). 

The interim report for the first half of 2018 showed the company's net loss for the January-June period of last year was 127.4 million yuan (18.9 million U.S. dollars). Monthly active users of Meitu's products including BeautyCam and Meipai totaled 349.9 million at the end of June 30, 2018, down 15.9 percent from a year ago. 

What's worse, its stock price has plunged more than 80 percent since early 2018, trading at about HKD3 (38 cents) per share Wednesday. 

Apparently, branching out to the gaming market is a new attempt of Meitu to create new sources of revenue.  

The success of games like Love And Producer and Travel Frog indicates female players will be the next driving force in the mobile game market. With an enormous base of female customers, Meitu will be able to get started easily in the gaming industry, but whether games could become a strong growth driver of the company remains to be observed.  

 

Email: lansuying@nbd.com.cn

Editor: Lan Suying