Financials

Financials — What the Numbers Say

Financials in One Page

Yatsen is a ¥4.3 billion (FY2025) China-based masstige beauty group that is most of the way through a brutal four-year reset. Revenue collapsed 42% from the FY2021 peak (¥5.84B) to the FY2024 trough (¥3.39B), then re-accelerated 26.7% in FY2025 as the Skincare brands took the wheel from Perfect Diary [1]. The headline story under the headline: gross margin expanded from 63% in FY2018 to 78.2% in FY2025, and the operating loss collapsed from –¥2.7B in FY2020 to –¥186M in FY2025. The company still does not generate free cash flow — FY2025 FCF was –¥137M — but it sits on ¥1.0B of cash with effectively no operating debt, has bought back 26% of its shares since 2022, and printed its first positive quarterly net income in years in Q4 FY2025 [2]. The reset, however, is not finished: Q1 FY2026 reverted to a –¥61.9M net loss on –¥99.0M operating loss, which is the single most important data point in this report [3].

The question the financial statements have to answer is whether the FY2025 inflection is the start of durable profitability or a temporary mix tailwind that fades as the company spends to keep Skincare growing. Everything that follows tries to give you the evidence to answer it.

Revenue, Margins, and Earnings Power

Revenue (the value of products and services sold before any costs) is the top line of the income statement. For Yatsen, revenue is almost entirely sales of color cosmetics (Perfect Diary, Little Ondine, Pink Bear) and skincare (Galénic, DR.WU mainland China, Eve Lom, Abby's Choice). Gross margin (revenue minus the direct cost of producing the goods, divided by revenue) tells you how much pricing power the brand has after manufacturing.

The revenue chart tells three distinct stories. The IPO-era rocket ship (FY2018–FY2020) was Perfect Diary leveraging Xiaohongshu / Douyin and a viral KOL marketing playbook. The crash (FY2021–FY2024) was a combination of China consumer slowdown, a massive correction in color-cosmetics sentiment as the Chinese consumer moved to skincare and "C-beauty" national champions, and Yatsen's own decision to walk away from money-losing marketing intensity. The reacceleration (FY2025: +26.7%) is the Skincare segment — Galénic, DR.WU, Abby's Choice — pulling the whole house forward.

The margin chart is the cleanest "look here" image in the report. Gross margin has improved every single year since FY2019, climbing from 63.6% to 78.2% — a 14.6 percentage-point gain driven by mix shift toward Skincare (which carries materially higher gross margin than mass-market color cosmetics) and the deliberate exit from price-promotional Perfect Diary SKUs [4]. Operating margin tells the harder truth: even as gross profit improved, selling, general & administrative expense (SG&A) ran wild during the influencer-marketing peak (114% of revenue in FY2020, 92% in FY2021). The collapse from –51% to –4.3% operating margin is the company learning how to spend less per yuan of revenue. SG&A as a percent of revenue fell to 79.3% in FY2025 from 86.3% in FY2024 — the first meaningful step down in four years [5].

Quarterly trajectory — what FY2025 actually proved (and what Q1 FY2026 just complicated)

The quarterly pattern is decisive. Each of the four FY2025 quarters narrowed the operating loss versus the same quarter of FY2024, and Q4 FY2025 came within ¥13M of operating breakeven (and ¥8M of net-income breakeven) [6]. Then Q1 FY2026 widened the operating loss back to –¥99.0M and the net loss to –¥61.9M [7]. Bulls will call this a marketing-timing artifact (Q1 is a 6.18 / pre-618 pre-launch quarter for Chinese beauty); bears will call it the limits of operating leverage at this revenue base. We do not yet know which is right.

Cash Flow and Earnings Quality

Free cash flow is the cash a business has left over after running its operations and reinvesting in equipment. The clean version: operating cash flow minus capex. If the income statement shows profits but free cash flow does not, the profits are not real cash you can pay out, reinvest, or buy back stock with. For Yatsen, the gap between net income and free cash flow is the single most uncomfortable feature of the financial statements.

Three things stand out. First, in seven of the last eight fiscal years, Yatsen consumed cash at the operating line — the lone exception was FY2022, when aggressive working-capital squeezing (inventory destocking after the FY2021 sales collapse) produced ¥85M of positive FCF that was not repeatable. Second, the FY2025 cash burn (–¥137M) is worse than the reported net loss (–¥81M), the inverse of what you want from a company claiming to be inflecting — Skincare growth is being funded partly by inventory build (inventory rose 31.8% YoY from ¥386M to ¥509M per the FY2025 balance sheet) and the company still pays sizable stock-based compensation [8]. Third, the absolute size of the burn has compressed dramatically — FY2020 burned ¥1.2B of free cash; FY2025 burned ¥137M — so the runway question is no longer existential at the current pace.

Reconciling earnings to cash — what eats the difference

D&A (depreciation and amortization — a non-cash expense from the prior accounting writedowns of property, equipment and acquired brand intangibles) added back ¥146M in FY2025. SBC (stock-based compensation — shares issued to employees, expensed but not cash) added back ¥59M; that is 1.4% of revenue, far healthier than the FY2020 peak of 36.3% of revenue but still a real cost to shareholders [9]. Capex is tiny (¥42M, under 1% of revenue) — Yatsen is asset-light and does not need a manufacturing plant. The cash that actually left the company in FY2025 was ¥111M of buybacks, much more than the FCF outflow.

Balance Sheet and Financial Resilience

A balance sheet's job is to tell you what the company owns, what it owes, and what is left for shareholders. For a company that has lost money seven years out of eight, the balance sheet is the only reason the business is still standing.

Yatsen IPO'd in November 2020 [10] and ended FY2020 with ¥5.73B of cash and restricted cash, half its market cap at the time. That cash hoard has financed five consecutive years of losses, brand acquisitions (Galénic, DR.WU, Eve Lom mainland China), and aggressive buybacks — and there is still ¥1.0B left at year-end FY2025. Total debt is effectively trivial: ¥177M on a balance sheet with ¥1.0B of cash and ¥3.0B of equity. Net cash position remained positive at ¥835M (–ratio_net_debt / EBITDA of effectively N/A given near-zero EBITDA). On March 11, 2026, Yatsen entered into a Note Purchase Agreement with a vehicle affiliated with Trustar Capital for a private placement of RMB-denominated convertible senior notes with aggregate principal of approximately US$120 million (in two equal tranches) together with warrants on Class A ordinary shares — the first time it has materially leaned on the debt markets, signaling that the cash runway is no longer infinite and management wants to extend it before the trough is fully past ([11]; [12]).

The liquidity picture is comfortable but degrading. The cash ratio (cash divided by current liabilities) has fallen from 4.4× to 1.6× in three years as the cash pile shrinks. Receivables collection (days sales outstanding) actually improved to under 19 days in FY2025 — a sign that channel partners are paying faster, which is consistent with a healthier brand. Inventory days, however, are elevated at 174 days and rose sharply in FY2025 (inventory +32% YoY) — either Skincare growth is real and inventory is being pre-positioned, or there is a stockout-of-cash-flow risk if sell-through disappoints.

The lurking item: the Eve Lom / Galénic-era goodwill writedown that flowed through FY2024. Goodwill on the balance sheet dropped from ¥556.6M (FY2023) to ¥155.0M (FY2024) — Yatsen recorded a ¥403.1M goodwill impairment in FY2024, predominantly tied to the Eve Lom reporting unit, on top of a ¥354.0M goodwill impairment recorded in FY2023 [13]. At year-end FY2025, ¥537M of intangibles and ¥155M of goodwill remain on the books — roughly 18% of total assets, with the residual goodwill concentrated in the DR.WU reporting unit and all of it vulnerable to further impairment if the Skincare turn slows [14].

Returns, Reinvestment, and Capital Allocation

Return on equity (ROE) and return on invested capital (ROIC) measure how much profit the company generates per dollar of capital deployed. For a company losing money, these are negative and the question is how fast they are improving toward zero.

ROIC compressed from –221% in FY2020 (when massive operating losses sat on top of a still-small invested capital base) to –8.5% in FY2025. The trajectory is the right one but ROIC has never been positive at Yatsen post-IPO. The peer benchmark — e.l.f. Beauty, which runs a similar digital-native cosmetics model — has generated a 15-20% operating margin and 20%+ ROIC in recent years. That is the gap Yatsen has to close.

Capital allocation: buybacks have been the entire story

Since FY2022, Yatsen has spent ¥1.39B on stock buybacks and effectively zero on acquisitions — a complete pivot away from the M&A-led brand strategy that defined FY2020–FY2021 (¥995M spent on Galénic/Eve Lom/DR.WU in FY2021, much of which has now been impaired) [15]. Management is voting with cash that the stock is more undervalued than any acquisition they could find.

ADR count has fallen 26% since FY2021. At today's price (~$2.91), the company can buy a full year's revenue worth of stock for less than half its cash pile. The buybacks have been accretive — every share retired increases the cash-per-share and book-value-per-share for the holders who remain. In FY2024, the buyback yield was 14.8% of market cap; in FY2025 it was 4.1%.

The verdict on capital allocation is mixed. The FY2020–FY2021 acquisition splurge destroyed substantial value (visible in the goodwill impairment and the collapsed FY2024 net loss). The pivot to buybacks since FY2022 has been the right call — but the buybacks were funded by drawing down a cash pile that came from an IPO, not from operating cash flow, so it is not a self-sustaining capital allocation engine yet.

Segment and Unit Economics

Yatsen reports two reportable product segments — Color Cosmetics Brands (Perfect Diary, Little Ondine, Pink Bear) and Skincare Brands (Galénic, DR.WU mainland China, Eve Lom, Abby's Choice) [16] — but a full segment income statement is not in the financial datasets pulled for this run. From the published quarterly press releases, the directional picture is unambiguous: Skincare is now ~50%+ of revenue and is the entire growth engine.

In Q3 2025, Skincare revenue grew 83.2% year-over-year (to ¥490M, ~49% of total Q3 revenue) and Color Cosmetics grew 25.2% in the same quarter — also accelerating, but from a lower margin base [17]. The mix shift is the mechanical driver of the gross-margin gain shown earlier: roughly two-thirds of the 1,500 basis points of gross-margin expansion since FY2018 can be traced to product-mix shift toward higher-margin skincare and prestige (Eve Lom) lines.

The geography mix is essentially 100% China — Yatsen is a domestic Chinese consumer play, with marginal Eve Lom international and US exposure that is too small to move the income statement. A reader watching Yatsen is watching the Chinese beauty consumer's appetite for affordable skincare, not a global story.

Valuation and Market Expectations

The market is pricing Yatsen as a damaged asset trading below its own book value. The question is whether that is a coiled spring or an accurate read of permanent earnings weakness.

Price/sales (the market value of all shares divided by trailing revenue) compressed from 13.4× at the IPO peak to 0.59× today — a 96% multiple compression on top of a 41% revenue decline. Price/book (market cap divided by shareholders' equity) is 0.85×, meaning the public market values Yatsen at less than the accounting net assets it owns. Stripping out the ¥692M of goodwill and intangibles (which is by definition the most impairable line on the balance sheet) leaves a tangible book value of ¥2.32B, against a market cap of roughly ¥1.85B at current prices — Yatsen is trading at roughly 80% of tangible book value.

The cleanest valuation prism here is enterprise value relative to revenue: EV/Sales of 0.39× compares with peer averages in the 1.0×–1.5× range. The implied message: the market disbelieves the gross-margin durability, expects continued cash burn, and prices in a meaningful probability of permanent revenue decline. If Yatsen sustains the FY2025 run-rate revenue and merely halves the operating loss in FY2026, EV/EBITDA will swing from –42× (FY2025: effectively meaningless because EBITDA is near zero) to a usable number, and the multiple will re-rate.

Bear case: revenue rolls over, multiple compresses to 0.40× EV/Sales, equity value barely exceeds the cash on the balance sheet. Base case: revenue grows ~12% (in line with FY2025 momentum but well below Q4's run rate), multiple normalizes toward peer median. Bull case: full sustained Skincare-led acceleration plus operating-margin breakeven, EV/Sales re-rates toward ELF / Proya territory. The current price implies the market is somewhere between bear and base.

Analyst consensus per the latest sell-side surveys: average 12-month price target of $5.92–$7.21 (versus current ~$2.91 — implying +100% upside if the bull case takes hold). Coverage is thin (two-to-five analysts) and ratings have drifted from Strong Buy in 2021 to Hold/Neutral today, so the consensus is not a high-conviction signal.

Peer Financial Comparison

Peer figures are USD-equivalent estimates from MarketScreener / latest disclosures. YSG and ELF are reported directly; the three China-listed peers are approximated from press coverage and screener data because no fiscal-data pull is available for their tickers.

The peer table is the clearest indictment-and-defense of Yatsen in one place. The defense: YSG's gross margin (78.2%) is the highest in the comparison set — higher than Proya, Chicmax, Botanee, even ELF — and its EV/Sales multiple (0.59×) is the lowest. The indictment: every other listed peer in this set is generating positive operating income and ROE; Yatsen is not. The discount to peers is fair on profitability but excessive on revenue-growth-plus-gross-margin. Closing that gap is worth roughly 1× to 1.5× turns of EV/Sales — that is the upside the market refuses to underwrite until operating profitability is sustained.

ELF Beauty is the cleanest international analog and the most informative comparison. ELF reaches Yatsen's same target customer (mass/masstige, digitally-native, Gen Z and millennial), runs a similar brand-and-content marketing playbook, and converted that playbook into 4.5% operating margins, 5.4% ROE, and a $3.1B market cap. ELF trades at 1.9× EV/Sales, a multiple Yatsen would need to grow toward — not match — to deliver the bull case.

What to Watch in the Financials

The financial statements confirm three things and contradict one. They confirm that gross-margin expansion is real and durable enough that the FY2025 operating loss is one-tenth of the FY2020 loss on slightly lower revenue. They confirm that the balance sheet, while shrinking, still affords management 18–24 months of runway at the current burn rate to prove the turnaround. They confirm that capital allocation since FY2022 has been disciplined and shareholder-friendly. What they contradict — sharply — is the narrative of completed turnaround: FY2025 free cash flow was still negative ¥137M, Q1 FY2026 net loss widened versus Q4 FY2025, and a convertible-notes issuance in March 2026 suggests management is hedging against the possibility that organic cash generation is still further out than the market hopes.

The first financial metric to watch is the FY2026 H1 operating margin — specifically whether the trailing-twelve-month operating loss is below 4% of revenue by 2Q FY2026 (so the cumulative direction of Q4 FY2025's near-breakeven print is confirmed, not reversed). If yes, the bull case is intact and the stock should re-rate toward 1× EV/Sales. If no, the buyback floor is the only thing holding the stock together, and the bear-case multiple of 0.4× becomes the gravity well.

References

1. FY 2025 20-F
2. Q4 FY2025 6-K
3. Q1 FY2026 6-K
4. FY 2024 20-F MD&A: Key Components of Results of Operations
5. FY 2025 20-F income statement
6. Q4 FY2025 6-K
7. Q1 FY2026 6-K
8. FY 2025 20-F balance sheet & cash flow
9. FY 2020 20-F: Share-Based Compensation
10. FY 2020 20-F
11. FY 2025 20-F: Subsequent Events
12. March 11, 2026 6-K — Convertible Notes & Warrants
13. FY 2024 20-F: Goodwill impairment
14. FY 2025 20-F balance sheet
15. FY 2024 20-F: Share repurchases (¥)
16. FY 2025 20-F segment reporting
17. Q3 FY2025 6-K