Eve Lom, Pink Bear… Is Perfect Diary Parent Company Yatsen Holding Expanding Too Quickly?

Yatsen Holding, parent company of Chinese beauty unicorn Perfect Diary, is frequently mentioned on our site. This is for a couple of reasons. First, it is very rare for a young company to achieve such great success within a short time. Its growth strategies have become the blueprint that many other brands follow. Second, the company is constantly creating buzz, from a stream of new campaigns and products, to launching and acquiring new brands and filing for an IPO. 

But is the company expanding too quickly? Figures from its recent financial report give us cause for concern. 

Yatsen Holding Q4 2020 Financial Report

On March 11, Yatsen Holding published its fourth quarter financial report for 2020, which was the first report after it filed for an IPO in the US. The report shows that the company’s revenue in 2020 reached 5.23 billion RMB, demonstrating 72.6% growth YoY. However, it also shows a 2.69 billion RMB deficit. This is a huge shift from the previous year when the company’s retained profits were 75.4 million RMB. 

In a LinkedIn post, Michael Norris, Head of Research at Agency China, shared some key figures: 

Yatsen Full Year Net Income (USD):

2018: -$6M [Loss]

2019: $11M [Profit]

2020: -$412M [Loss]

Yatsen’s sales & marketing expenses as percentage of revenue over the last year:

Q4 2019: 39.1%

Q1 2020: 55.0%

Q2 2020: 62.7%

Q3 2020: 67.5%

Q4 2020: 70.3%

Causes for Increased Spending 

Yatsen Holding has been extremely busy the past year, going from one flagship brand, Perfect Diary, to 6 brands plus an IPO. Its somewhat difficult to keep track of all the company’s activities. Here’s a timeline: 

June 2020 – Launched Abby’s Choice brand

In June 2020, Yatsen Holding launched its second brand called Abby’s Choice. While Perfect Diary focuses more on makeup products, Abby’s Choice focuses more on personal care. Perfect Diary is a more sophisticated brand and is making moves to become slightly higher end. Abby’s Choice has pink, girly branding. 

Acquired Little Ondine

Somewhere throughout the course of 2020, Yatsen Holding quietly acquired Chinese beauty brand Little Ondine. We had surmised that this might happen back in late June 2020 when we saw Little Ondine’s products promoted in Perfect Diary WeChat groups. We also noticed that the brand suddenly began to ramp up promotion and became a lot more popular than before. 

Check out our review video to learn about Little Ondine’s “cheese blush” that went viral last year. 

November 2020 – Filed for IPO on New York Stock Exchange (NYSE:YSG)

On November 19, Yatsen Holding began trading on the New York Stock Exchange through an IPO that raised $616.9 million USD. The IPO gave Yatsen an initial valuation of $4.46 billion USD. 

January 2021 – Acquisition of Galénic

Stepping into 2021, in January, the company purchased a French skincare brand Galénic. This was its first step into global markets. 

March 2021 – Acquisition of Eve Lom

Then in March, Yatsen Holding announced it was purchasing British brand Eve Lom, whose iconic makeup remover is believed to be the Hermès in the category. If a Chinese girl follows beauty news, she must know the cleanser from Eve Lom. With two acquisitions, Yatsen is really showing its intent to expand globally as well as build up these global brands within China. 

March 2021 – Launches Pink Bear

Only weeks after the Eve Lom announcement, Yatsen launched a new cosmetics brand, Pink Bear, targeting young consumers. 

Acquisitions and Launches Equal Increased Spending on Promotion

In less than a year, Yatsen Holding launched 2 new brands and acquired 3. While the launches and acquisitions alone required huge amounts of spending, so does promoting these brands. It is expected that any new brand will need significant investment in the beginning to get off the ground. But when you are trying to promote 5 brands at once, that leads to massive spending. 

And according to the transcript from the recent earnings call, it’s likely there will be more launches and acquisitions this year. Founder, Chairman, and Chief Executive Officer Jinfeng Huang stated, “On the back of the success of our existing brands, we plan on introducing some more brands to self-incubation and acquisitions in target market segments where we see considerable room for growth. Our ideal portfolio will consist of diversified brands with varying market positioning from mass market to high end as we seek to attract a wide spectrum of consumers. We are also proactively pursuing strategic investments acquisitions and collaboration both domestically and overseas.”

Other Areas of Spending

Celebrity Collaborations

In 2020, Perfect Diary hired top Chinese celebrity Zhou Xun (周迅) and one of Chinese female consumers’ favorite foreign celebrities Troye Sivan as its ambassadors. The downside of these collaborations is that the average price of Perfect Diary’s products are between 90-150 RMB. This is quite low, yet the brand is spending a huge budget on these partnerships. 

Little Ondine has also been working with celebrities, and in 2020 popular singer Huang Zitao became the brand’s ambassador. 

Rapid Expansion of Offline Store Footprint

At the beginning of 2019, Perfect Diary opened the first store in Guangzhou, and as of September 2020, it had 200 offline stores. On average the brand opens 10 stores a month, and currently covers nearly 90 cities in China. In a 2020 interview, Yatsen Holding co-founder VIncent Chen shared that Perfect Diary plans to open 600 stores throughout China over the next three years, covering all the 1st tier cities as well as many 2nd, 3rd, 4th, and 5th tier cities.

Yatsen is also opening offline stores for sister brand Abby’s Choice. 

Will Yatsen Manage to Get Out of The Red?

Yatsen is still a force to be reckoned with and we are optimistic about the company’s future. However, it is expanding at an extremely rapid pace and we hope the company takes some time to stabilize its new brands before acquiring or launching more. 

We’re also keeping an eye on a couple things: 

• Perfect Diary’s development. It has been very hyped up over the past few years. Will it be able to keep performing or will consumers grow weary?
• Yatsen’s marketing strategies. Early on, the company was a leader in developing new, innovative, low-cost marketing tactics. It essentially created the trend of KOC marketing on Xiaohongshu and private traffic groups on WeChat that we see today. But now everyone has adopted these strategies and Yatsen has been turning towards more expensive promotion methods such as celebrity endorsements and offline stores. As the company expands, can it maintain its creative marketing spirit?

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