The imminent Hong Kong debut of Meitu Inc., whose main claim to fame is selfie touch-up apps, offers investors a rare chance to get in near the ground level of China’s nascent, booming smartphone economy.
Meitu banked on China’s growing pre-occupation with ideals of comeliness, a passion that’s inspired countless internet memes and a surge in cosmetic surgery. Its apps help 446 million people slim faces, lengthen legs and otherwise craft the attractive online appearance considered so essential among the country’s social media mavens. The startup could end up raising as much as $1 billion, the Wall Street Journal has reported.
A nationwide obsession with perfect selfies helped revenue surge more than three-fold to 585.5 million yuan ($88 million) in the first six months of 2016. It made an operating loss of 279 million yuan during the same period, narrowing about 8 percent from a year earlier.
Yet investing in the company isn’t for the faint-of-heart, as the company points out over some 30 pages dedicated to outlining myriad threats to its outlook. Here’re just three risk factors called out in its initial listing prospectus:
1. Users may turn on us.
The secret fear of a large swath of the planet’s apps is they may just be a flash in the pan. The company’s monthly active users had grown to 446 million as of June, from just 88 million in 2013. But that could end because “‘we can’t necessarily always keep pace with constantly evolving tastes. It could be that we can’t push out new products or serve customers in a timely manner, or push out new products that fail to win customer acceptance.”
2. Users may get up to all sorts of shenanigans that then attract government scrutiny.
China’s internet sector lives in constant fear of a crackdown by a government hyper-sensitive to undesirable content, from raunchy images to debate about Communist Party figures or policies. User-generated content in particular is difficult to police. The company was fined in 2015 after users uploaded songs blacklisted by official agencies.
“In the future, it’s possible users will again post illegal or unsuitable content, damaging our reputation,” the company said in its prospectus. “The government or supervisory agencies could sue us.”
3. We make a lot of money from smartphones.
That’s right, Meitu doesn’t earn a lot from its mobile apps. Rather, the company got more than 95 percent of its revenue in the first half from selling hardware such as an own-branded device tailor-made to crank out sublime selfies. Never mind a global smartphone market now poised for its worst-ever year: the company warns that rising component costs could present a problem down the line.