On March 7, 2021, Meitu Inc., a prominent Hong Kong-listed company known for its popular photo-editing apps, announced a significant investment in cryptocurrency. The company purchased approximately $22.1 million in Ethereum and $17.9 million in Bitcoin, totaling $40 million. This amount represents about a quarter of Meitu's total revenue for 2019.
Why Did Meitu Invest in Crypto?
According to an official announcement, Meitu's board approved a cryptocurrency investment plan that allows the company to acquire up to $100 million in digital assets. The funds for these purchases came from the company's existing cash reserves, excluding money raised from its initial public offering.
The board provided several reasons for this strategic move:
- Potential for Appreciation: They believe cryptocurrencies have substantial upside potential and can serve as a hedge against the risk of cash depreciation due to aggressive money supply increases by central banks worldwide.
- Demonstrating Ambition: This investment is intended to signal to investors and stakeholders that Meitu is embracing technological innovation and preparing for a future in the blockchain industry.
- Following Institutional Trends: The board noted growing momentum and acceptance from traditionally conservative institutions, such as insurance companies and asset managers launching cryptocurrency funds.
Notably, Meitu spent more on Ethereum (ETH) than Bitcoin (BTC). Ethereum is an open-source, blockchain-based, decentralized software platform that uses its own cryptocurrency, Ether. The company stated that holding ETH is a logical preparation for two initiatives: potentially developing its own decentralized applications (dApps) on the Ethereum blockchain, where ETH would be used to pay transaction fees ("gas"), and for potentially investing in other blockchain projects that accept ETH as payment.
Market Reaction and Public Criticism
The market's initial reaction was positive, with Meitu's stock price opening significantly higher on the Hong Kong Exchange following the news. However, gains were not sustained, and the share price closed down 6.27% for the day.
The investment was met with considerable skepticism from the public and commentators online. Given that Meitu's core business is its suite of photo and video apps like Meitu秀秀 (Meitu XiuXiu) and Meiyan Camera, many critics labeled the move as "not focusing on its main business" and pure speculation.
Common criticisms included:
- "If you want to make money, just say so. If you truly believe in digital currency, why not develop your own instead of just buying others'?"
- "Tesla bought $1.5 billion, Meitu bought $40 million. They are just speculating on coins."
The Tesla Precedent
Meitu's investment draws immediate comparisons to Tesla's landmark $1.5 billion Bitcoin purchase, announced in February 2021. Tesla's disclosure caused a significant surge in Bitcoin's price.
In its filing with the SEC, Tesla outlined similar reasons, citing Bitcoin as a strategic investment and a new trend. The company also acknowledged the high volatility and associated risks. Crucially, Tesla announced plans to start accepting Bitcoin as payment for its products in the near future, where permitted by law, potentially making it the first major automaker to do so.
However, Tesla's investment was not without controversy. After reaching an all-time high in late January 2021, Tesla's stock price experienced a notable decline, falling approximately 33% from its peak in the weeks following the Bitcoin announcement.
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Analyzing Meitu's Financial Position
To understand the scale of this investment, it's important to look at Meitu's financial history:
- Revenue: The company reported total revenue of 9.8 billion RMB (approximately $1.5 billion at the time) in 2019. The $40 million crypto purchase equated to about a quarter of that annual revenue.
- Profitability: Meitu had a history of net losses from 2016 to 2019. While its revenue grew by 20.1% year-over-year in the first half of 2020, it still reported a net loss for that period.
This context makes a multi-million dollar investment in a highly volatile asset class a bold and potentially risky strategy for the company.
Frequently Asked Questions
Q: What cryptocurrencies did Meitu buy?
A: Meitu purchased two major cryptocurrencies: 15,000 units of Ethereum (ETH) and 379.1214267 units of Bitcoin (BTC), with total values of approximately $22.1 million and $17.9 million, respectively.
Q: Why did Meitu invest more in Ethereum than Bitcoin?
A: Meitu's stated strategy involves exploring blockchain technology integration. Ethereum's platform allows for building decentralized applications (dApps), and holding ETH prepares the company to potentially pay for transaction fees on its own dApps or invest in other ETH-based projects.
Q: Was Meitu the first company to do this?
A: No, Meitu followed a trend initiated by other companies, most notably Tesla. However, Meitu claimed to be the first Hong Kong-listed company to purchase Bitcoin and the first globally to hold Ethereum as a treasury reserve asset.
Q: What are the main risks of such an investment for a company?
A: The primary risk is the extreme price volatility of cryptocurrencies. A significant drop in the value of Bitcoin or Ethereum could negatively impact the company's financial statements and cash reserves.
Q: Did investors approve of Meitu's crypto purchase?
A: The initial market reaction was mixed. The stock price jumped at open but closed lower the same day, indicating investor uncertainty and perhaps skepticism about the strategic fit and timing of the investment.
Q: Is this a long-term strategy or short-term speculation?
A: Meitu's announcement framed it as a long-term strategic move for diversification and technological positioning. However, many external observers and critics viewed it as short-term speculation, akin to "copying Tesla's homework."