On March 28, Weimeng (02013.HK) released its 2023 financial report. With the overall economic situation recovering weakly in 2023, Weimeng handed over a beautiful financial report.

Revenue in 2023 was 2,228 billion yuan, up 21.1% year on year; gross margin reached 66.6%, compared to 59.3% in the same period last year; adjusted EBITDA narrowed sharply to -0.75 billion yuan, reducing losses by 93.1% year on year; adjusted net loss decreased sharply by 73.4% year on year; operating cash flow of 60 million yuan in the second half of 2023 was corrected, with adjusted EBITDA of 13 million yuan. Furthermore, it is worth noting that in 2023, Weimeng's sales expenses decreased by 5.2% year on year, general administrative expenses were reduced by 28.2%, and good progress was made in cost control and organizational optimization.

If the previous market still had doubts about Weimei's performance, then such a financial report with overall improvements on the revenue side, gross profit margin, expense side, and profit side indicates that Weimeng has opened up room for revenue growth, achieved results in cost reduction and efficiency, and that performance has fully recovered.

However, if you look closely, you will find that behind this steady development in performance, AI is emerging. AI has been mentioned many times in Weimeng's financial reports, and since Weimeng WAI was released last year, Weimeng WAI has also left a continuous voice. Under the wave of AI technology reshaping the SaaS industry, judging from the corporate positioning, Weimeng is not an AI big model platform; it focuses on the AI big model application layer.

As Weimeng's highly anticipated business, Weimeng WAI integrates Weimeng's big model technology plus the accumulated know-how and data of Weimeng's SaaS and marketing businesses. The commercial imagination has yet to be verified, so how will Weimeng WAI succeed in actual application in 2023? Thanks to continuous application efforts, how much room is left to imagine the commercialization prospects of Weimeng WAI in 2024?

Deterministic application of AI: SaaS and marketing from “trial” to “ready to use”

In the past few years, the SaaS industry in China has been in a countercycle and has faced many questions. For example, the Chinese companies' habit of paying for software has not yet been formed, domestic companies are generally less willing to pay, and the repurchase rate is low. At the same time, SaaS's own usage threshold and technical threshold also affect the SaaS industry's market penetration rate. Various industry problems are constantly emerging, and domestic SaaS companies are under tremendous pressure. However, the advent of AI has given people hope for solving problems.

In the AI era, since the UI user interface is greatly simplified through dialogue, human calling software will gradually evolve into AI calling software. We are no longer facing cold software systems, but “AI assistants” one by one. AI is expected to give SaaS companies new capabilities and help the SaaS racetrack usher in a “singular moment”. Companies that can improve product functions first, seize the market, and increase customer stickiness will have more and more advantages. The next two to three years will be a window period for using AI technology to seize market share.

Officially aware of this, Weimeng officially released an AI application product based on a large model, Weimeng WAI, on May 24, 2023. It is a comprehensive product of a third-party LLM model+self-developed technology. It is perpendicular to existing business fields and empowers shopping mall construction, marketing, and graphic creation through AI.

Weimeng WAI does not build its own general-purpose big models. Instead, it draws on its strengths, develops large models, literature, etc., and incorporates its own advantages in vertical scenarios and data. It is one of the few big model products that can be directly applied to scenarios, and its practicality and functionality are at the forefront of the industry. Taking Weimeng's “WAI Assistant” as an example, it greatly simplifies the interaction of merchants in the Weimeng SaaS back office. When merchants need to count membership data, they only need to wake WAI to say a simple phrase “how many members do I have” to obtain accurate results and page links. Data queries are more efficient and convenient.

Despite not being released for a long time, AI's boost to SaaS and marketing businesses in 2023 has already been reflected.

According to financial data, in 2023, Weimeng's subscription solution revenue was RMB 1,349 million, up 4.5% year on year; gross profit of 893 million yuan increased 16% year over year, and gross margin reached 66.1%; the number of paying merchants was 96,339, and the average revenue per user was RMB 1,4007, up 8% year on year. Meanwhile, merchant solution revenue was RMB 888 million, up 60.5% year over year. The number of paying merchants was 66,905, and the average revenue per user was RMB 13,127.

The increase in the gross profit of subscription solutions and the strong growth in the number of merchants paying for merchant solutions have been actively helped by the implementation of AI in multiple SaaS and marketing scenarios. After all, the improvement in efficiency and user experience brought by Weimeng WAI has the effect of “open source savings” for merchants, and natural payment intentions and usage rates have also greatly increased. These results have also been confirmed in stages over the past year.

In terms of SaaS services, Weimeng WAI has improved the efficiency of smart operations for over 42,000 merchants, helping merchants improve the efficiency of private domain operations by 30-60%. Taking private domain operations as an example, Hongdou Home Operators have generated hundreds of marketing documents around scenarios such as new product promotion, member registration guidance, and community/circle of friends marketing activities through shared copywriting and rhetoric generated by WAI, with a copy availability rate of 70%. In terms of Weimeng marketing, during the Double Eleven period last year, the usage rate of Weimeng WAI merchants increased by more than 200%, and the usage retention rate reached 100%; during the Double 12 period, the usage rate of Weimeng WAI Wenshengtu function merchants increased by more than 470% month-on-month.

As Weimeng Wai continues to expand its two major businesses, SaaS and marketing, this year, its AI commercialization will also bring more certainty of growth. Weimeng began opening the basic version of WAI to SaaS merchants in March 2024, and launched active AI services in the first half of the year. These initiatives will bring more value to the popularization of AI services and digital intelligence operations. At the same time, Weimeng WAI will also work hard on the model matrix, which means that with the continuous addition of many large AI models and optimization of graphic generation capabilities, Weimeng WAI will still have room to drastically reduce costs and improve efficiency in the marketing business.

Innovative Applications of AI: WAI Enterprise Edition and the Imagination of Skits

As can be seen from the 2023 financial report, the development logic of AI to help Weimeng's SaaS and marketing business has been verified. Weimeng has been exploring new AI commercialization prospects, and the 2024 AI Enterprise Edition and AI+ skits are likely to become Weimeng's new growth curve.

For the AI+SaaS industry, the business logic of To-B is greater than technical logic, and only a customer-centered product system can go long term. Weimeng's construction of the product system took into account the needs characteristics of different merchants, and designed WAI SaaS and enterprise products separately:

1) WAI SaaS version: AI+ upgrade on the original SaaS product, mainly for SaaS customers such as small to medium retail, fast selling products, and local lifestyle;

2) WAI Enterprise Edition: Mainly aimed at group marketing businesses and brand companies with customization needs.

Understandably, the WAI SaaS version targets existing small and medium-sized merchants to help them build shopping malls, content marketing, private domain promotion, etc., and has already begun to be commercialized. Of course, the WAI Enterprise Edition has the ability to serve large customers and brand customers. Of course, the pricing will also be much higher. Considering the individual needs of brand customers, Weimeng is expected to provide “AI consulting+customization” services to obtain considerable returns with “one customer, one price” commercial pricing.

Although commercialization of the WAI Enterprise Edition has not started, its commercialization potential is no less than that of the WAI SaaS version. Take the private domain operation team as an example. Assuming that 10w short videos (cost 600 yuan/piece) and 100w images (20 yuan/sheet) are produced in a year, corresponding to the 8,000w cost. Currently, the AI efficiency improvement is 10-15%, corresponding to the reduction in 1000-2000w costs, and it is expected to increase to 50% in the future. Looking at Weimeng's customisation strategy, the total number of smart retailers in 2023 was 6,826, of which the number of brand merchants reached 1306, covering industries such as footwear fashion, home building materials, and FMCG. Brands have extensive content marketing needs, and are expected to be seamlessly transformed into paying users for Weimeng's WAI Enterprise Edition, with huge room for performance imagination. Up to now, the company has helped merchants such as Hongdou Home, Metz Bonway, and Tep to reduce costs and increase efficiency in intelligent marketing scenarios, and find a viable path for the launch and commercialization prospects of the WAI Enterprise Edition. More AI commercialization will continue to be implemented in the future.

Furthermore, it is worth noting that Weimeng continues to explore new AI-enabled business scenarios, and its AI short videos and AIGC+ skits are already beginning to show. Facing the popularity of Sora's big model and plans released this year, Weimeng will focus on AI+ short videos this year to explore its application space in marketing scenarios. As early as the beginning of 2023, Weimeng's WAI R&D team completed technical research and implementation of the entire short video material generation process. As short videos are currently the most popular content carriers, they are expected to achieve rapid growth in “AI+ short video marketing” in the favor of advertisers.

Also, Weimeng Group recently issued an announcement announcing a strategic investment in bibimbap technology to lay out a skit track. After the transfer and capital increase is completed, Weimeng Group will hold about 53.5% of Bibimbap Technology's shares, and the two sides will build a full-link skit business through complementary capabilities. This also provides Weimeng with new possibilities to explore the commercialization of AI. Bibimbap Technology focuses on discovering and producing high-quality content. Weimeng provides professional distribution teams, short video production experience, Shanghai Changsha short video base resources, WAI models, and R&D technical support. The collaboration between the two sides will help Weimeng reap dividends in the next “systemic industry opportunity”.

In recent years, the skit market has become more and more popular. In 2023, the short drama market size is 37.4 billion yuan, with an average daily turnover of about 8,000 watts. The market size is expected to exceed 100 billion dollars in 2027. The high growth rate is driven by strong demand and high monetization efficiency: large user base & high penetration rate, short investment cycle, and high commercial monetization efficiency. In the future, Weimeng can make full use of AI technology to improve creative efficiency. Not only can it commercialize domestically, but it can also go overseas to create content that suits overseas market preferences and explore more innovative business models. The future of Weimeng's AI+ skit business is worth looking forward to.

epilogue

Weimeng's SaaS and marketing business grew steadily in 2023, making a good start. Through its accumulated industry experience, Weimeng is combining AI technology with scenarios to continuously optimize and upgrade various product capabilities to make its AI products more competitive, and strive to become the most powerful service provider for the AI development of enterprises.

Looking forward to the future, the domestic AI+SaaS circuit has only just begun. Everyone needs to cross the river with stones, but the path and direction are very clear. After all, Salesforce, the leader in the global SaaS industry, is benefiting from AI, and the increase in business is becoming more and more obvious. After Salesforce embedded AI into CRM applications, pricing increased by an average of 9%, leading to a 28% increase in revenue every year. It is worth looking forward to how much revenue growth the 2024 AI business matrix of Weimeng AI+SaaS, marketing and WAI enterprise editions, and AI+ skits will bring to Weimeng.

Weimeng's AI commercialization space has just opened up. The road ahead is not smooth, but looking up at the starry sky is wide enough. On this track, various businesses and scenarios have undergone profound changes, which will bring huge room for commercial growth. If Weimeng can seize this opportunity, the capital market will re-understand its future performance growth and valuation logic, and its path of revaluation has only just begun.