Business

Know the Business — Yatsen Holding

Figures converted from CNY at historical FX rates — see data/company.json.fx_rates. Ratios, margins, and multiples are unitless and unchanged.

Yatsen is an 11-brand Chinese beauty house spending two-thirds of its revenue on customer acquisition to capture the masstige skincare-and-color category online. The math only works when scientific skincare keeps mixing up: 78% gross margin gets rented back to Tmall, Douyin and the top livestreamers. The bottom line is improving sharply (net loss margin from -20.9% in 2024 to -2.2% in 2025 — [1]) but the equity story is not "compounder" — it is "is the FY22-FY24 reset done, and does the skincare pivot have a second leg?"

The market currently disagrees with management's answer. At $267M market cap and roughly $161M enterprise value after netting out cash, YSG trades at 0.4x EV/Sales for a business with a 78% gross margin that just printed its first non-GAAP profit and added Hillhouse as a convertible-note holder. That gap is the entire investment debate.

Bottom line. Real gross margin, real skincare pivot, real Hillhouse vote. But the cost line that matters — selling and marketing — is still 66% of revenue. Until it goes below 60%, this stays a turnaround multiple, not a brand-equity multiple.

How This Business Actually Works

FY25 Revenue ($M)

614

YoY Growth

27.0

Gross Margin

78.2

Operating Margin

-4.3

Skincare Share

53.0

S&M as % Revenue

66.3%

DTC Channel Mix

84.9

Cash + ST Invest ($M)

150

Yatsen designs and markets beauty brands. It does not manufacture: ODM/OEM partners — Cosmax (also a minority JV partner), Intercos, Kolmar, Shanghai Zhenchen — produce the inventory [2]. Yatsen owns the brand IP, the formulation patents, the consumer-data layer, the e-commerce storefronts, and the omni-channel marketing engine. The bulk of revenue is direct-to-consumer through Tmall, JD, Douyin, RedNote, Bilibili and Weixin, supplemented by offline experience stores and distribution through Sephora and The Colorist [3]. Cosmax also anchors a manufacturing-hub joint venture inside China [4].

The revenue engine is straightforward but the cost line tells the story.

No Results

Three points worth holding. First, the gross margin is real and rising — 73.6% → 77.1% → 78.2% over three years [5], driven by skincare mix and stricter discount discipline. ODM economics keep COGS at roughly one fifth of revenue. Second, the gross profit is rented from the platforms and the influencers. Selling and marketing absorbed 66.3% of revenue in 2025, after 66.9% in 2024 and 65.3% in 2023. That line includes performance-based platform fees on Tmall and Douyin, KOL commissions to top livestreamers (the company runs a large direct-to-KOL marketing network — see [6]), in-store payroll, and share-based comp for sales staff. It does not meaningfully come down without scale per brand. Third, the FY25 turn happened in G&A, not in the marketing line — payroll and SBC discipline cut G&A from 13.1% to 7.1% of revenue, the single largest contributor to the operating-margin improvement. The marketing engine was barely more efficient than 2024.

Bargaining power sits with platforms and consumers. Tmall and Douyin set the cost of traffic; consumers face zero switching friction. Yatsen earns back power only in three places: hero SKUs that drive repurchase (Perfect Diary Biolip Essence Lipstick using proprietary Biotec™; DR.WU Mandelic Acid Serum; Galénic No.1 Brightening Radiance Serum); proprietary actives and patents that gate the "special cosmetics" NMPA-regulated categories (sunscreen, whitening, anti-aging) [7]; and the Cosmax JV, which gives Yatsen physically-anchored manufacturing R&D inside China.

The Playing Field

No Results

Three things the table teaches. Yatsen has the cheapest revenue in the listed Chinese cohort by a wide margin — at 0.43x EV/Sales it trades at roughly one-sixth the multiple of Proya, Chicmax or Botanee, even though FY25 growth (+27%) tied or beat all three. The discount is partly profitability and partly governance — Proya, Chicmax and Botanee earn 10-20% operating margins on similar gross-margin profiles, while YSG is still operating-loss; layered on top is the NYSE-ADR / VIE / HFCAA structural discount that Chinese A-share and HK-listed peers do not carry. e.l.f. is the right global mirror, not L'Oréal or Estée Lauder — a profitable masstige DTC operator with 70.7% gross margin and 4.5% operating margin trading at 2.2x revenue. The number to underwrite is whether YSG can land within ELF's margin band; the rest is just multiple expansion.

The competitive dynamic that matters: Proya is the scale leader (~2.4x YSG's revenue, growing 21%) running a skincare-first multi-brand playbook with ~95% online mix. Chicmax is YSG's mirror — multi-brand digital-native, but profitable. Botanee owns the dermocosmetic niche (Winona, sensitive skin) that YSG is trying to attack through Galénic and DR.WU. Jahwa is the cautionary tale: a legacy multi-brand house failing to digitize and shrinking. None of these peers individually holds more than mid-single-digit share of the China beauty market. That fragmentation is what gives a sub-scale turnaround like YSG room to grow — but it also means there is no structural moat protecting any of them, including the leader.

Is This Business Cyclical?

Yes — moderately to highly. Cyclicality bites in three places at once: discretionary spending on color cosmetics, platform traffic costs (CPM and KOL commissions move with advertiser demand), and the working-capital cycle inside e-commerce festivals (618, Double 11) that concentrate Q2 and Q4 demand.

The historical record is concrete: revenue compounded from $92M in 2018 to $919M in 2021 (a 10x lift in three years — [8], [9]) on the back of Perfect Diary, the Tmall/Douyin platform shift, and the November 2020 NYSE IPO that funded the marketing engine. Then revenue contracted 49% peak-to-trough into FY24 as Chinese consumer confidence weakened and the cost-per-acquisition on platforms re-rated higher. (USD optics overstate the contraction modestly because the CNY also weakened over the same window — in local currency the trough-to-peak drop was 42%.) Color cosmetics took the brunt: it lost share, while skincare's share of revenue rose from 33.5% in FY22 to 53.0% in FY25 not just from skincare growth but from color's absolute decline [10].

What makes this cycle different from a soft-drink cycle is that the supply side also moves against the brand owner: when consumer demand weakens, platform ad pricing tends to stay sticky on the way down while top-tier KOL commissions stay high, so gross-margin uplift cannot fully offset volume loss. That is why the FY22-FY24 operating losses persisted even as gross margin steadily rose from 67% to 77%.

The cycle is asymmetric. On the upside, hero SKUs and Douyin tailwinds compound revenue 3-5x in three years. On the downside, the marketing line is sticky and a 25-40% revenue contraction is plausible. Underwriting FY25 as a structural recovery requires evidence the skincare mix is durable — not just a residual of color's decline.

The Metrics That Actually Matter

No Results

The chart above is the whole equity debate in two lines. Gross margin has climbed 10 points in three years — that is the skincare pivot working. But S&M intensity has not budged in three years. Until that second line bends down, gross-margin gains keep getting reinvested into the marketing line rather than dropping to profit. The non-GAAP profitability turn in FY25 came mostly from G&A discipline (payroll, SBC), not from marketing leverage. That is why bulls and bears disagree: bulls argue G&A discipline plus skincare mix is enough to compound into structural profit by FY27; bears argue that without a marketing-leverage step-down, this is just a less-bad turnaround and the cost of customer acquisition keeps the model below the line.

The metric that wins the argument over the next four quarters: skincare brand growth rate. FY25's +63.5% skincare growth was the catalyst. Holding that above 25% in FY26 — even as the comp gets harder — would do more for the equity story than any other single number, because it both lifts mix (gross margin proxy) and creates the operating scale that lets the marketing line de-lever as a percentage.

What Is This Business Worth?

This is best valued as one consolidated brand-house at an EV/Sales multiple anchored to peer profitability, not a sum-of-the-parts. The brands are not separately disclosed at the operating-profit level, share a common marketing engine and a common ODM/JV manufacturing base, and the consumer overlap across Perfect Diary / Galénic / DR.WU / Eve Lom is too high to credibly underwrite each brand at a standalone multiple. The right lens is what multiple deserves a 78%-gross-margin Chinese DTC house that just printed its first non-GAAP profit?

No Results

No Results

The valuation table reads as a series of conditional statements. The current 0.43x EV/Sales prices in a sub-Jahwa outcome — a declining, capital-impaired incumbent. Closing to Jahwa's multiple (~1.1x) requires nothing more than confirmation that FY25's revenue recovery is real (i.e., FY26 holds and modestly grows). Closing to Proya's multiple (~2.5x) requires Yatsen to do what Proya already did — durably hit 8-15% operating margin at scale. Closing to e.l.f.'s multiple (~2.2x) is the same trade in a different currency: it requires ELF-grade marketing discipline. The Hillhouse convertible at this market cap is the strongest single piece of evidence in the bull case — Hillhouse joined the ~$120M RMB-denominated convertible-note vehicle alongside Trustar Capital and CEO Jinfeng Huang in May 2026, with the notes carrying a 1.5% coupon and an initial 364-day maturity that extends to five years upon foreign-debt registration ([11], [12], [13]). But the convertible structure also caps the upside from any re-rating that comes.

Note what is not in the value-driver table: SOTP across brands, terminal P/E on FY27 EPS estimates, and any discrete asset-value claim. None of those work for this business. SOTP fails because brand-level profitability is not disclosed and the operating expense base is shared. Forward P/E fails because the company is just crossing into non-GAAP profitability with two-period visibility. Asset value matters only as a margin of safety — net cash + Galénic / DR.WU / Eve Lom acquired-asset book $77M of intangibles plus $22M goodwill is roughly half of current enterprise value, so downside is reasonably anchored, but no one buys this stock for the book value.

What I'd Tell a Young Analyst

Three pieces of advice and one warning.

One. Watch the skincare line and the marketing line together, not separately. Every quarterly release should be evaluated on two ratios: skincare revenue share (where is the durable franchise being built?) and selling-and-marketing as a percentage of revenue (is the engine actually scaling, or just running faster?). If skincare share moves above 55-60% and S&M drops below 60% in the same two-quarter window, the equity story tightens fast. If skincare grows but S&M stays sticky, you are watching a less-bad turnaround, not a compounder.

Two. Treat Galénic and DR.WU as the real franchise. Perfect Diary is the heritage and still 40%+ of revenue, but it is a defendable color brand in a category whose category economics are structurally worse than skincare. Galénic's No.1 brightening serum and DR.WU's mandelic acid lines are where pricing power, R&D credibility (Biotec™, ActiveAnchor™), and the China-dermocosmetic tailwind all converge. Track these two specifically — management calls out their growth rates in every release.

Three. Take the Hillhouse signal seriously but not religiously. Hillhouse joining the ~$120M convertible alongside the company's own buyback program [14] is the single most credible external vote on the turnaround. But Hillhouse has been an HHLR / Hillhouse Investment Management beneficial owner of Class A shares for years ([15], [16]) — this is incremental conviction, not new money discovering an unknown. The convertible structure also creates dilution that will be felt if and when the stock re-rates.

The warning. This is a Chinese VIE-structured Cayman holding company listed on the NYSE — the Cayman parent has no equity ownership in the China-operating VIE and relies on contractual arrangements [17]. The HFCAA / PCAOB / CSRC overhang [18] lives in the multiple permanently, not just at moments of stress. The 11-brand portfolio also has integration risk: management has already strategically phased out EANTiM [19], recorded significant Eve Lom goodwill impairments in 2023 and 2024 [20], and is mid-pivot on Perfect Diary's product positioning ("makeup skintification"). The bull case requires the marketing line to bend down at the same time the portfolio is being restructured — those two priorities frequently conflict at sub-scale beauty houses, which is the failure mode to monitor for.

References

Generated Jun 9, 2026 15:44 UTC