Key Takeaways:

• Meitu has completed a new funding for its Singapore-based Pixocial unit that accounted for a major portion of the company’s net income in 2022
• The new funding raised $22 million from participants including Fidelity’s Eight Roads investment arm, valuing Pixocial at more than $100 million

By Edith Terry

Meitu Inc. (1357.HK) is no slouch when it comes to looking for new ways to monetize its popular beauty apps. The company started out by creating a popular app that let people beautify selfies and share them with friends. Then it went on to create its own branded selfie phones and operated an e-commerce site for skin type analysis. It even got into cryptocurrencies at one point, in a poorly timed move that ended up costing it dearly.

Now, co-founder and CEO Wu Xinhong is hoping to recapture some of their company’s former glory that briefly made him a billionaire with plans to spin off Meitu’s Singaporean Pixocial unit that has become its latest money spinner, the company announced last week.

Meitu’s stock briefly soared not long after its 2016 Hong Kong IPO, but has sagged since then and now trades at less than half its listing price. But its latest move seems to have won favor with investors. The stock jumped by nearly 7% after the Xiamen-based company announced it completed a spinoff for Pixocial, its artificial intelligence (AI) digital solutions provider.

That deal also included $22 million in new funding that valued the company at about $140 million – a relatively small amount compared with Meitu’s own market value of HK$17.5 billion ($2.24 billion).

The deal may set up Singapore-based Pixocial for its own eventual IPO. It includes a share option scheme whose beneficiaries so far are Wu, who is Pixocial’s new chairman, as well as Song Mingyang, its new CEO. Song is Meitu’s former director of global product innovation, has a master’s degree in computer science from Carnegie Mellon University, and was based in California before moving to Singapore to co-found Pixocial.

Following the spinoff and fundraising, Pixocial is 80.6% owned by Meitu. It posted 2022 net income of 75 million yuan, making it a major contributor to Meitu’s own 94.1 million yuan in net income that year. Investors in the latest funding include Eight Roads, which is backed by U.S. fund giant Fidelity, as well as Hong Kong-based Future X Capital. The deal gives Eight Roads about 7% of Pixocial, while two Future X funds will collectively hold 6.3%.

Growing Subscription Business

Such clear divisions could allay foreign government concerns about the data privacy of users in their home markets, and keeping such data out of reach of the Chinese government. The U.S. has expressed particular concerns in that regard, especially towards ByteDance’s TikTok app that has gained a huge following in the market

But app users are fickle, and today Meitu, BeautyPlus and Airbrush are nowhere on either the App Store or Sensor Tower download charts. Could that change? Like many start-ups, Pixocial now has the capital to build its own business outside of China, and perhaps eventually list its own shares separately from Meitu.

This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.