Bank of America Initiates Coverage on Meitu with Buy Rating, Eyes AI-Driven Growth
Bank of America Securities initiated coverage on Meitu with a Buy rating and a price objective of HK$13.5(US$ 1.73),representing HK$9.19(US$1.18) share price. The September 9 report highlights the Chinese photo editing platform's transformation from an advertising-dependent model to a high-margin subscription business powered by artificial intelligence capabilities.
The investment bank's bullish stance reflects growing confidence in Meitu's ability to monetize its 280 million monthly active users through AI-enhanced features and expanding productivity tools, positioning the company as a comprehensive visual content creation platform rather than just a photo editing app.
Subscription Model Driving Operating Leverage
Bank of America analysts project Meitu's adjusted net profit will surge at a 42% compound annual growth rate from 2024-2027, with adjusted net profit margins expanding from 17.5% in 2024 to 28.1% in 2027. This dramatic improvement stems from the company's successful pivot toward subscription revenue, which is expected to comprise 80% of total revenue by 2027, up from approximately 60% in 2024.
"The rising subscription revenue is amplifying Meitu's operating leverage on three main factors: higher revenue stability/growth visibility, improving gross profit margins on rising percentage of subscription revenue, and technology scalability with low customer acquisition cost," the report states.
Revenue from photo, video, and design products – predominantly subscription-based – jumped 57% year-over-year to RMB 2.09 billion yuan (US$290 million) in 2024, accounting for 62% of total revenue. Bank of America expects this segment to reach 83% of total revenue by 2027.
AI Features Boost Paying User Conversion
The report emphasizes Meitu's significant runway for paying user growth, noting the company's 4.7% paying ratio in 2024 remains well below competitors like Tencent Music Entertainment Group at 22.5% and iQiyi at 25%. Analysts forecast the paying ratio will nearly double to 8.2% by 2027, driven by AI-powered features that create compelling premium experiences.
"AI-powered functions could accelerate the paying user penetration and convert more users who may not pay without AI functions," the analysts noted. Key AI features like "AI double chin removal" and "AI body slimming" have emerged as top drivers of new subscriber acquisition.
The company's proprietary MiracleVision multimodal foundation model powers increasingly sophisticated features, from text-to-image generation to natural language photo editing, creating what analysts describe as a "self-reinforcing growth cycle."
Global Expansion and Productivity Tools as Growth Drivers
Bank of America expects Meitu's international expansion to accelerate, with overseas monthly active users growing at an 11% CAGR through 2027. Overseas markets offer structurally higher paying user penetration due to greater willingness to pay for digital services and established subscription habits, similar to patterns seen with Spotify Technology SA versus domestic Chinese platforms.
The firm also highlights Meitu's expansion into productivity tools as a significant growth catalyst. Revenue from DesignKit, targeting e-commerce professionals, and Kaipai, focused on talking-video creation, is projected to grow at 58% CAGR from 2024-2027, reaching RMB 825 million yuan(US$114 million). A strategic partnership with Alibaba Group signed in May 2025 could further accelerate this business by providing low-cost user acquisition channels.
Valuation and Risk Factors
Bank of America's HK$13.5(US$ 1.73) price target is based on 45x 12-month forward adjusted P/E, set at 0.5 standard deviations above historical averages given the company's improving profitability outlook. This implies a 1.1x PEG ratio, below the 1.5x average for leading global SaaS companies despite Meitu's faster earnings growth trajectory.
Key upside risks include faster-than-expected paying user growth, accelerated overseas expansion, and potential commission rate cuts from Apple's App Store or Alphabet's Google Play Store. Downside risks encompass slower user conversion rates, intensifying competition from ByteDance and other AI tools, regulatory challenges in overseas markets, and potential valuation compression amid broader tech sector volatility.