Yatsen Needs To Reignite Revenue Growth From Cosmetics Segment Turnaround

Jian Fan

A Quick Take On Yatsen

Yatsen (NYSE:YSG) went nationalist successful November 2020, raising astir $617 cardinal successful gross proceeds successful an IPO that was priced astatine $10.50 per ADS.

The patient sells cosmetics and skincare products straight to consumers successful China.

While nan company's increasing skincare business is simply a agleam spot, its colour cosmetics business continues to beryllium a resistance connected its results.

Until guidance is capable to move astir its colour cosmetics segment, I'm connected Hold for YSG.

Yatsen Overview

Guangzhou, China-based Yatsen was founded to create user beauty brands and marketplace them straight to Chinese consumers via awesome online platforms.

Management is headed by founder, Chairman and CEO Mr. Jinfeng Huang, who was antecedently vice president and Hunan Yujiahui Cosmetics, truthful he has important acquisition successful nan manufacture anterior to founding Yatsen.

The company's superior offerings include:

• Perfect Diary

• Little Ondie

• Abby's Choice

• Galenic

Yatsen's Market & Competition

According to a 2019 marketplace research report by ResearchAndMarkets, nan Chinese marketplace for cosmetics was an estimated RMB362 cardinal ($53 billion) successful 2017.

The marketplace is expected to turn astatine an AAGR (Average Annual Growth Rate) of 8.16% from 2019 to 2025.

The main drivers for this expected maturation are an summation successful online income channels and increasing user discretionary income and a attraction connected individual appearance.

Also, imported cosmetics proceed to grow, albeit astatine an uneven rate. The Chinese marketplace is ample capable for some homegrown and imported brands to execute scale.

Major competitory aliases different manufacture participants include:

• L'Oreal (OTCPK:LRLCF)

• Estee Lauder (EL)

• Procter & Gamble (PG)

• Shiseido (OTCPK:SSDOY)

• Shanghai CHICMAX

• Shanghai Pechoin

• JALA Corporation

Yatsen's Recent Financial Performance

• Total gross by 4th has fallen per nan pursuing chart:

Total Revenue (Seeking Alpha)

• Gross profit separator by 4th has varied per nan floor plan below:

Gross Profit Margin (Seeking Alpha)

• Selling, G&A expenses arsenic a percent of full gross by 4th person trended higher successful immoderate caller quarters:

Selling, G&A % Of Revenue (Seeking Alpha)

• Operating losses by 4th person lessened somewhat much recently:

Operating Income (Seeking Alpha)

• Earnings per stock (Diluted) person trended somewhat toward breakeven recently:

Earnings Per Share (Seeking Alpha)

(All information successful nan supra charts is GAAP)

In nan past 12 months, YSG's banal value has fallen 4.6% vs. that of nan Nasdaq 100 Index's driblet of 14.6%, arsenic nan floor plan indicates below:

52-Week Stock Price Comparison (Seeking Alpha)

Valuation And Other Metrics For Yatsen

Below is simply a array of applicable capitalization and valuation figures for nan company:

(Source - Seeking Alpha)

Commentary On Yatsen

In its past net telephone (Source - Seeking Alpha), covering Q3 2022's results, guidance highlighted dealing pinch nan copy challenges of greater 'macro headwinds' and reduced user spending.

However, connected a affirmative note, gross from its Skincare Brands conception roseate 33% year-over-year.

The institution continued to optimize its offerings while closing immoderate offline stores that were underperforming.

Management sees continuing offline shop optimization into nan 4th fourth of 2022.

As to its financial results, full gross dropped 36.1% year-over-year, chiefly owed to a ample driblet successful its colour cosmetics marque offerings.

Gross profit dropped but separator accrued by 1 percent constituent year-over-year to 68.9%.

Total operating expenses decreased importantly year-over-year, but roseate arsenic a percent of revenue, while fulfillment expenses decreased slightly.

Selling and trading expenses decreased by 2.1% owed to improved online trading efficiencies and nan consequence of offline shop closings.

For nan equilibrium sheet, nan patient vanished nan 4th pinch $359.6 cardinal successful cash, equivalents and short-term investments and nary debt.

Looking ahead, for Q4 2022, guidance guided revenues to driblet 35% year-over-year astatine nan midpoint of nan expected range.

Regarding valuation, nan marketplace is valuing YSG astatine an EV/EBITDA aggregate of 0.4x.

The superior consequence to nan company's outlook is nan ongoing shop closures and expenses related to its restructuring, which will apt proceed good into 2023.

A imaginable upside catalyst to nan banal could see a beardown 'reopening effect' of China's system arsenic a consequence of nan ending of nan Zero-COVID policies.

While nan firm's increasing skincare business is simply a agleam spot, its colour cosmetics business continues to beryllium a resistance connected its results.

Until guidance is capable to move astir its colour cosmetics segment, I'm connected Hold for YSG.

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