History

The Narrative Arc

Yatsen's story has three chapters, and management is currently writing the third. Chapter one (2016–2020) was hypergrowth on the back of one brand, Perfect Diary, sold through China's KOL-and-Tmall machine, ending at a [1] at the peak of the China DTC bull market. Chapter two (2020–2022) was an acquisition splurge ([2]; DR.WU mainland China, Eve Lom, EANTiM added in 2021) and a humbling reality check: COVID, zero-COVID, the collapse of brand-building economics, and a ¥2.7B post-IPO loss. Chapter three began in early 2022 with a self-declared "five-year strategic transformation plan" that has, four years in, delivered on almost every quantifiable promise — skincare mix from 33.5% to [3] — at the cost of one badly stranded acquisition (Eve Lom, impaired twice for a combined ¥757M — [4] and [5]). The current CEO and Chairman, founder Jinfeng Huang, has held the seat since [6]. Same person founded the business, IPO'd it, broke it, and rebuilt it.

Two anchor dates for every other tab. Current CEO took the seat in 2016 (founder-led, never replaced). The current strategic chapter began in early 2022 with the "five-year transformation plan." Anything before that — the M&A spree, the marketing burn, the SBC blowup — is legacy. Anything after is the team being judged today.

No Results

The financial signature of each chapter

Two facts dominate the chart. First, revenue topped out in 2021, fell by a third in 2022, stayed flat for two years, then re-accelerated in 2025. Second, the net loss margin has improved every single year since 2020 — from 51.3% to 26.5% to 22.2% to 22.0% to 20.9% to 2.2%. The 2025 print is the closest Yatsen has been to breakeven since 2019. The headline that "Yatsen lost money for the sixth straight year" is technically true and analytically misleading; the slope is the story.

What Management Emphasized — and Then Stopped Emphasizing

The vocabulary of the annual reports tells you the strategy more honestly than any press release. Here is what they kept talking about, and what they quietly stopped.

The shape on the heatmap is the entire pivot.

Loud-then-quiet: Experience stores went from a five-bell drum in 2020–2021 (the network ballooned to 294 stores) to a footnote in 2023–2025 (down to 77). Acquisitions went from headline content in 2020–2021 to silence in 2025 — there have been zero M&A transactions disclosed since 2021. EANTiM, the 2021 microbiome brand trumpeted as "an emerging field," is now matter-of-factly described in the [7]. The brand never appears in the new portfolio map. (Separately, Abby's Choice was [8].)

Quiet-then-loud: "R&D" was a sub-percent line item in 2018–2020 (¥2.6M in 2018, 0.4% of revenue). By 2022 it was 3.4% and headline content. By 2025, the filing devotes pages to a "1-3-4-6-20 global technology framework," a [9], plus IFSCC presentations and the peer-reviewed publication of the Galénic Vitamin C study. The reframe from China DTC brand to scientific beauty group is the most strategically meaningful vocabulary shift in Yatsen's history.

The phrase "strategic transformation" appears zero times in 2020 and 2021 filings. It is the organizing concept of every filing from 2022 onward. When a company invents a phrase and then repeats it across four reports, it is signaling that this is the story it wants to be measured against.

Risk Evolution

The risk-factors sections are where management has to enumerate what could go wrong. The mix has shifted as much as the business model.

Three patterns stand out.

COVID has gone to zero. In 2020 it was the dominant business risk; by 2025 it is gone from the disclosure entirely. The supply-chain and store-closure language that COVID forced into the filing has been quietly replaced by language about scientific authority, R&D scaling and Shanghai labs. That is appropriate — but it is also worth noting that some of what management once called "COVID effects" (collapsing color cosmetics demand, channel productivity drops) are turning out to be more structural than transitory.

M&A risk now reads as M&A regret. The [10] and [11] devote new and substantially longer language to goodwill impairment, fair-value testing and reporting-unit performance — directly mirroring the consecutive Eve Lom write-downs. In 2025 that language softens but does not disappear, suggesting management still considers further impairment a live possibility.

The VIE / HFCAA paragraphs got dramatically longer in 2022–2023 as the PCAOB-Chinese auditor standoff peaked, then began to recede. They have not been removed (see the [12] where the SEC staff required Yatsen to substantially expand HFCAA and VIE disclosure). A reader who skipped the 2022 filing and went straight to 2025 would underweight how close the listing came to political risk.

How They Handled Bad News

There were three real bad-news moments in Yatsen's public life. The pattern is more disciplined than the timing of the impairments suggests.

The 2020 net loss of ¥2.69 billion (51.3% of revenue). Management explained this in three buckets in the [13]: COVID-driven demand softness, marketing burn on new brands (Little Ondine, Abby's Choice), and ¥1.84 billion of share-based compensation tied to the November 2020 IPO — most of which was a one-time GAAP recognition event. The filing was unusually clear about which bucket was which, and the SBC line did substantially shrink in subsequent years. This was honest disclosure. The reader could separate the durable problem (marketing burn) from the cosmetic one (IPO accounting).

The 2021–2022 revenue collapse. Revenue did not collapse in one period — it slid from a 2021 peak of ¥5.84B to [14]. The 2022 filing attributed this primarily to "zero-COVID policy continued to negatively impact consumer sentiment and demand for social gatherings, [where] the color cosmetics market faced prolonged headwinds." That is part of the truth. The harder truth — that the Perfect Diary KOL-DTC model had simply matured and that customer acquisition economics had broken — was implied but not stated directly. Management's response was the right one (the strategic transformation plan) even if the diagnosis was softer than the reality.

The Eve Lom impairments. [15], then [16] — a cumulative ¥757M write-down on a single 2021 acquisition. The 2024 disclosure language is plain: "Revenue of Eve Lom units did not meet our expectations and therefore our short and long term forecasts for Eve Lom were revised downwards with an adverse impact on future expected cash flows." No deflection, no special-charge framing, no segregation as "non-recurring." Two consecutive impairments are a real-world admission that the original deal thesis was wrong. The [17] — meaning either the brand has stabilized at its now-marked-down carrying value or further write-downs may still come.

The pattern: Yatsen tends to under-diagnose causes (preferring "macro" explanations) but accurately reports outcomes and does not delay write-downs once the test forces them. Management is honest about results, slightly softer on root causes. A reader should trust the numbers more than the narrative around them.

Guidance Track Record

Yatsen does not issue numerical guidance the way a US large-cap does. What it issues is something more interesting — and more falsifiable — a multi-year strategic plan with named targets. The five-year transformation plan announced in early 2022 has effectively been the company's only enforceable promise to public shareholders [18]. Here is how it has scored.

No Results

Credibility score (1–10)

Reasoning

6 of 6 plan commitments delivered; one acquisition (Eve Lom) impaired ¥757M

The credibility score is 8 out of 10. Of the six concrete commitments in the 2022 plan, all six have been delivered — with the gross margin and net loss margin outcomes substantially better than what the plan's language implied. The single haircut is Eve Lom: a 2021 acquisition that was promoted as a prestige skincare anchor and ended up generating ¥757M in cumulative goodwill write-downs across 2023–2024. Some readers will dock more for this; the case for not docking more is that management did not hide it, took both impairments as soon as the tests required, and the rest of the M&A vintage (Galénic, DR.WU) is now demonstrably working — Galénic and DR.WU are the engines of the 63.5% skincare revenue surge in 2025.

What the Story Is Now

FY2025 revenue (¥ bn)

4.30

FY2025 revenue growth

26.7%

FY2025 gross margin

78.2%

FY2025 net loss margin

-2.2%

The current story is the cleanest Yatsen has ever had, and it is also the narrowest one the company has ever told [19].

What has been de-risked. The 2022 plan has been executed. Margin structure is no longer the problem — 78.2% gross and a 2.2% net loss margin are an entirely different business from the one that lost ¥2.69B in 2020. The skincare mix shift is real, not a slide — it is reflected in segment revenue [20]. The marketing burn is more disciplined; S&M as a percent of revenue has stabilized at ~66% versus 68.6% in 2021. The R&D positioning is no longer a slide either — Shanghai lab, Cosmax manufacturing hub, peer-reviewed publication of brand technologies, IFSCC presentations. Eve Lom is impaired but not yet written off entirely.

What still looks stretched. Revenue, even after a strong 2025, is below the 2021 peak (¥4.30B versus ¥5.84B). Color cosmetics — once 94% of revenue, now 46.7% — has been roughly flat for three years; the Perfect Diary repositioning around "skintification" is real product work but the brand is not yet visibly reaccelerating outside the Biolip line. The S&M ratio of ~66% would be considered uneconomic in any Western beauty group; either it compresses materially or operating profitability remains structurally hard to reach. And the entire business still depends on the Chinese consumer, the Tmall-Douyin-RedNote stack, and a VIE structure on a US exchange.

What the reader should believe vs. discount. Believe: the financial transformation is real and verifiable in the segment data. The margin progression is not an accounting story. The R&D commitment is reflected in capex and lab footprint, not just words. Galénic and DR.WU are working. Discount: the framing that 2022's revenue collapse was primarily a COVID story (it was partly that, partly the maturing of the Perfect Diary playbook), and the residual confidence in Eve Lom (two impairments in two years is a brand that has not yet found its footing under Yatsen ownership). The 2026 question is no longer "can they fix the margin." It is "can they grow revenue without breaking the margin." Stan's verdict tab is where that bet gets sized.

References

Generated Jun 9, 2026 15:43 UTC