Yatsen Holding Limited, the most valuable cosmetics company in China, is marching into the global market.
On March 11 (EST), Yatsen Holding Limited ("Yatsen" or the "Company") (NYSE: YSG), the first Chinese cosmetics company listed on the New York Stock Exchange, released its financial statements for the fourth quarter of 2020 which is the first report delivered by Yatsen after its IPO.According to the financial statements Yatsen's total revenue reached RMB 5.23 billion in 2020 in the face of the severe pandemic and the lower-than-expected growth of the industry.In this regard, Huang Jinfeng, Yatsen's founder, chairman and CEO, said: "Yatsen's achievements should be attributed to our constant brand expansion and the great synergy among sales channels. In 2021 Yatsen will bring more high-quality makeup and skin care brands and products to consumers with an aim to 'create a new journey to explore beauty for consumers'."Yang Donghao, Yatsen's CFO and director, said "From Yatsen's performance in Q4 we can see the excellent driving force of our brand matrix, the high recognition of our products by the market, and the effectiveness of our growth strategy. Our great investment in product R&D and innovation has proved to be worthwhile. In 2021 Yatsen will continue to extend our brand matrix and strive for sustained growth in user volume, thus laying a solid foundation for the long-term development."
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Total revenue of RMB 1.96 billion in Q4, up 72.6% year over year
Affected by COVID-19 China's cosmetics market saw a slowdown in the growth of sales in 2020. According to iiMedia, the retail sales of China's makeup industry rose by 35.13%, 40.21% and 26.59% year over year in September, October and Novemberof 2020, respectively.In this environment Yatsen achieved high growth in revenue, gross profit and user volume, and made new breakthroughs in brand and channel building and scientific research investment in 2020.As reported, Yatsen's total net revenue reached RMB 5.23 billion in 2020, an increase of 72.6% over 2019.In Q4 of 2020 Yatsen had operating income of RMB 1.96 billion, a year over year increase of 71.7%, and gross profit of RMB 1.3 billion, up 81.6% year over year, both higher figures than the industry average.According to the financial statements Yatsen's total operatingexpenses in Q4 of 2020 was RMB 2.83 billion, accounting for 144.5% of the total net revenue in the same period. By contrast, its total operating expense in Q4 of 2019 was only RMB 644.8 million, accounting for 56.5% of the total net revenue in the same period.Yatsen's sales and marketing expense in Q4 of 2020 reached RMB 1.38 billion, accounting for 70.4% of the total revenue in the same period, while this figure for the same period in 2019 was only RMB 446.3 million. The increase in sales and marketing expense last year is mainly attributed to the increase in advertising, marketing and brand promotion costs, the increase in expenses incurred by development of experience stores, and the share-based compensation expenses recognized at the time of IPO, according to US GAAP.
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Great achievements in both brand marketing andchannel building
DTC consumers reached 14.4million
In terms of single-brand performance, Yatsen's brands also had eye-catching performance: in the Double 11 ShoppingFestival Perfect Diary had cumulative sales of over RMB 700 million, ranking first again in Tmall makeup sector. LittleOndine flagship store had cumulative sales of over RMB 100 million, 30 times that ofthe same period last year. Abby's Choice turnover in the first 33 minutes exceeded RMB 10 million and full-day turnover exceeded RMB 30 million in its debut on Tmall Double 11.Currently Yatsen is no longer satisfied with the simple strategy of "hot sellers andtraffic driven". On the contrary, it raises its brand style by taking advantage of group brand upgrading, thereby further conveying the beauty of fashion in China. For example, Yatsen chooses Zhou Xun, the best actress winner of China's top three film awards, as one of its spokespeople to manifest brand quality, and appoints Troye Sivan, who is globally influential, as another spokesperson to convey the brand's international concept.In addition to the upgrading of brand marketing, Yatsen's empowering DTC (Direct To Consumer) model has also made great contributions to brand building. It is reported that Perfect Diary has set up hundreds of communities and customer service teams named "Xiaowanzi", and LittleOndine has also won a place in the domestic makeup market through targeted advertising by famous middle-level Key Opinion Leaders (KOLs) and cooperation with popular Intellectual Property.Yatsen has established a powerful online KOL marketing system on one hand, and gradually improved the layout of Perfect Diary offline flagship stores on the other hand. The "black-tech" in these Perfect Diary offline stores, such as AI, has improved customers' experience and loyalty to a certain extent, though it has also increased relevant operating costs.Because of the DTC model Yatsen's marketing costs have always had the public's attention. According to the financial statements Yatsen's DTC consumer volume reached 14.4 million in Q4, up 30.9% year over year.Industry analysts believe that in the context of a down market in 2020 the eye-catching performance of Yatsen's brands has proved the feasibility of replicating growth brands. It has also verified the excellent customer acquisition ability of the omni-channel DTC model andits good ability to cope with and control market risks to a certain extent.
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To become the 'L’Oreal' of China
Perfecting 6 brand matrix with Science and Technology
It is an open goal of Yatsen to "become the L’Oreal of China".Huang Jinfeng publicly stated that Yatsen would acquire more brands in the future because a single brand or a single product category may suffer from great restrictions in market competition. Focusing on the strategic goal of "future-oriented incubation platform for new cosmetics brands", Yatsen is speeding up its multi-brand strategy and gradually increasing its investment in R&D.Following the acquisition of Galenic in October 2020, skin care brand from Pierre Fabre, which is the parent company of Avene, Yatsen has made several "big moves" in brand building. In March of this year Yatsen acquired Eve Lom, a high-end skin care brand, and then launched Pink Bear, a new makeup brand.So far Yatsen has owned such self-incubated brands as Perfect Diary, LittleOndine, Abby's Choice and PinkBear, and two imported brands Galenic and EveLom, forming a six-brand matrix that covers high, medium, and low end imported and domestic products.Meanwhile, Yatsen is also increasing its investment in R&D. According to the financial statements, Yatsen's investment in R&D in Q4 of 2020 was RMB 25.6 million, an increase of 91% compared with that in Q4 of 2019, and even higher than the R&D investment of RMB 23.2 million in the fully year of 2019. According to Yatsen's prospectus it is expected that Yatsen will invest 20% of IPO funds in product R&D.In March of 2020 Yatsen announced that it will build a makeup R&D and production base in cooperation with Cosmax, which is expected to be put into production in 2022 with an expected output value of RMB 2 billion.In December 2020 Yatsen announced its cooperation with Sensient Technologies Corporation, the world's largest supplier of colors for food, cosmetics and medicine. The two sides plan to build a joint laboratory for innovative colors, which is expected to be listed in Shanghai, Guangzhou and Singapore. In addition, Yatsen has established multi-directional cooperation iningredient innovation and application with more than five international leading cosmetic ingredient partners, and clinical research cooperation with many well-known medical institutions at home and abroad.In addition, Yatsen announced a strategic partnership with Manzanita Capital, the original owner of Eve Lom. Manzanita Capital is a professional venture capital institution headquartered in London, and it has invested in many beauty brands such as Diptyque, Byredo and Kevyn Aucoin. Relying on its investment, Diptyque and Byredo have rapidly grown into well-known high-end brands.Some analysts believe that a number of excellent bids won by Yatsen in overseas markets represent, to a certain extent, that Yatsen has gained a high reputation and voice in the global beauty market. Additionally, the strategic partnership with Pierre Fabre, Manzanita Capital and other international beauty groups will further improve the R&D, production and brand operation capacity of Yatsen and provide an important impetus for Yatsen to create andoperate global high-end brands.
