Goldman Sachs maintains Buy rating on Meitu, with new AI products driving ARR growth

Overview

This report is a review by Goldman Sachs of Meitu (1357.HK)'s results. The report's core view is that Meitu's main business maintained growth in 1H26, while AI productivity tools and new products drove ARR and paying-user growth. Although the exit from the traditional image library business led to downward revisions to revenue and earnings forecasts, the company's new AI features, MoE model, and expansion of new products continue to support medium- to long-term growth.

Core views

Goldman Sachs maintains its Buy rating on Meitu. Positive factors include productivity and leisure applications revenue growth of 40% and 32% YoY, respectively; approximately 20% YoY growth in paying subscribers; continued strong growth in AI productivity tools ARR; and validation of incremental revenue potential from new products such as MVLand. The main negative adjustment comes from the exit from the traditional image library business, which resulted in revenue falling below previous expectations and led to lower 2026-2028E earnings forecasts.

Analysis framework

The report revises revenue and earnings forecasts based on 1H26 operating guidance, user metrics, and subscription and AI credits revenue performance, and estimates the target price using the unchanged two-stage DCF methodology. The valuation considers long-term free cash flow growth, terminal growth rate, WACC, beta, risk-free rate, and market risk premium.

Methodology notes

• Valuation methodstwo-stage DCF

  two-stage DCF valuation

  The target price is based on a two-stage DCF methodology, with second-stage FCF growth assumed at 12% for 2032E-2036E, a terminal growth rate of 2%, and WACC of 11.5%.

• valuation_inputsWACC assumptions

  discount rate assumptions

  WACC is 11.5%, comprising a beta of 1.3, a risk-free rate of 3.0%, and a market risk premium of 6.5%.

• research_frameworkGS Factor Profile

  Goldman Sachs factor profile

  This framework compares the stock with the broader market and peers across growth, financial returns, valuation multiples, and composite dimensions, serving as an investment context reference.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meitu (1357.HK)

  Research subject; Hong Kong-listed equity asset

  Strengths

  Increasing adoption of AI features, growth in paying subscribers, strong growth in AI productivity tools ARR, and rapid ARR expansion following the launch of the new product MVLand.

  Weaknesses

  The exit from the traditional image library business caused revenue to fall below previous expectations and led to downward revisions to 2026-2028E earnings forecasts.

  Comparison

  The report places the company within the China technology coverage and relevant peer universe, using the GS Factor Profile as a relative comparison framework.

  Risks

  AI adoption and monetization below expectations, lower-than-expected monetization rates, and stronger-than-expected competition.

Key data

• 1H26 photo, video, and design products revenueRmb1.8bn, +31% YoY9% below Goldman Sachs' previous forecast, mainly due to the exit from the traditional image library business.
• Productivity applications revenue growth+40% YoY1H26 performance.
• Leisure applications revenue growth+32% YoY1H26 performance.
• MAU282mAs of end-June 2026; 276m at end-2025.
• Paying subscribers18.4m, approximately +20% YoYPaying users of productivity applications grew 30% YoY as of June.
• AI productivity tools ARRRmb620m, +48% YoYAs of June 2026; Rmb580m and +56% YoY in March.
• AI credits revenue+46% QoQ in 2Q26Also +46% QoQ in 1Q26.
• Earnings forecast adjustments2026E/2027E/2028E lowered by 7%/5%/8%Mainly due to lower revenue following the exit from the traditional business.
• Target priceHK$12.3Previously HK$14.3; lowered based on the DCF.

Impact & implications

The report suggests that Meitu's investment thesis is shifting from traditional image-related businesses toward AI-driven subscriptions, productivity tools, and content-generation products. If AI features continue to improve monetization and expand ARR, the company's long-term cash flow still has upside potential; however, near-term valuation has been affected by the exit from the traditional business and downward revisions to earnings forecasts.

Risks

• AI adoption and commercialization progress slower than expected.
• Monetization rate below expectations.
• Competition more intense than expected.
• The exit from the traditional image library business continues to weigh on revenue or earnings forecasts.

What to watch

• User adoption and paid conversion of new AI features based on the MoE model.
• Sustainability of ARR growth for new products such as Kaipai, Vmake, and MVLand.
• Quarter-on-quarter growth trend in usage-based AI credits revenue.
• Growth in MAU, paying subscribers, and paying users of productivity applications.
• Whether the company can achieve its guidance of at least 35% YoY growth in 1H26 net profit through operating leverage.