Taking advantage of the traffic of "new domestic products + e-commerce operation", the beauty brand Perfect Diary has sprung up, and it has completed the journey from creation to summit in just five years.
After the glory, there is the low tide. In recent years, Yatsen E-commerce (NYSE:YSG), the "trader" with the brand name of Perfect Diary through marketing, has not performed well. The financial results for the fourth quarter and full year of 2023 show that it is still in the predicament of consecutive losses, and its total revenue has also declined.
The continued weakness of performance has undoubtedly shaken investor confidence. Yatsen's share price fell one after another after the results were announced, once falling to $0.5 per share, and even received a notice of non-compliance in the transaction price issued by the New York Stock Exchange.
The once hot "first stock of new consumption" is now facing many catastrophes under the transformation and survival.
First, the marketing hand, the stamina is insufficient
Yatsen e-commerce was born from the hands of Huang Jinfeng, who has work experience in Procter & Gamble and Yu Nifang. At the beginning of its establishment, this marketing "veteran" anchored the online traffic outlet, targeting the Gen Z consumer group with greater purchase demand and stronger willingness to try new things, and launched the beauty brand - Perfect Diary in March 2017.
In order to achieve accurate customer acquisition, Yatsen E-commerce has found a new way on Xiaohongshu to build a resonance field with the communication marketing of KOL "content planting", and then continuously expand its popularity and traffic pool among the target group. By emphasizing the characteristics of "extreme cost performance" and "replacement of big names", Perfect Diary quickly became popular.
In the 2019 e-commerce platform promotion, Perfect Diary caught up with big brands at home and abroad, becoming the first domestic brand to top the Tmall makeup list during the "Double 11" period. In the following two years, the brand won the top spot in makeup sales on multiple e-commerce shopping platforms in one fell swoop.
Supporting this logic is the high cost of marketing. From 2018 to 2021, Yatsen's e-commerce investment in marketing was 309 million yuan, 1.251 billion yuan, 3.412 billion yuan and 4.006 billion yuan respectively, which more than tenfold in just four years, and the sales expense ratio also increased from 48.2% in 2018 to 68.6% in 2021.
However, there will always be a saturation day when explicit traffic dividends are served. Consumers pay more and more attention to the experience of "quality innovation" and "value for money", which makes the single way of marketing to promote brand development gradually fail, and the user's consumption outlook and life outlook are gradually improving, all of which torture the cost-effectiveness and practicability of perfect diary products.
In September 2023, Perfect Diary upgraded its brand, emptied the content of multiple platforms, and also disclosed a new brand LOGO, positioning itself as a beauty brand that "integrates makeup and maintenance". Subsequently, the brand launched the "bionic film" essence lipstick, and the price of 150 yuan per piece far exceeded the average price of its products of about 80 yuan.
In order to build momentum for brand upgrading, Yatsen's sales expenses increased by 34.0% to RMB717 million in the fourth quarter of 2023, and the sales expense ratio increased from 53.2% to 66.9%. In addition, the company's total selling expenses in 2023 will be $2,231 million, a slight decrease of 4.3% from the same period in 2022.
Even so, Perfect Diary, which fell out of the top 20 ranks of the "Double 11" makeup brand pre-sale list in 2022, has not yet returned to the list. According to brokerage analysts in East China, Perfect Diary's sales on Tmall, Douyin and other platforms in January and February 2024 are not ideal, with a year-on-year decline.
Second, transformation and upgrading, weak research and development
When Perfect Diary announced its transformation and upgrading, some industry insiders revealed that the trademark renewal is an important signal for the brand to make strategic adjustments, and Perfect Diary may use this logo change event to change from a makeup brand to a comprehensive brand of all categories.
In fact, Yatsen e-commerce has long seen the development trend of the slowdown in the growth rate of the cosmetics industry and the decline of dividends, and Huang Jinfeng once said frankly in an interview that "there is no category growth ability, no traffic dividend, and there is no transformation at this time, so what are you waiting for". Based on this, the company began to expand through mergers and acquisitions to broaden its product offerings.
In October 2020, Yatsen E-commerce reached an agreement with Pierre Fabre to acquire the French cosmeceutical brand Galenic. In the following year, it successively acquired the mainland business of DR.WU, a Taiwanese medical beauty and skin care brand, Eve Lom, a British high-end skin care brand, and launched the makeup brand Pink Bear.
With the expansion of Yatsen e-commerce in multiple segments of the skin care track, the company's revenue from the skin care business has also increased year by year, achieving revenue of 1.38 billion yuan in 2023, an increase of 11.4% from 1.24 billion yuan in the same period of 2022, and the proportion of total revenue has further increased from 33.5% in 2022 to 40.5% in 2023.
However, from the perspective of overall performance, Yatsen's total revenue in 2023 will be 3.415 billion yuan, down 7.9% from 3.706 billion yuan in 2022, and the company attributed the narrowing of revenue scale to the decline in makeup brand revenue. It is not difficult to see that the growth of the skincare business is still unable to compensate for the weakness of the company's makeup business.
In addition, the long-term "replacement + marketing" method has also made Yatsen's e-commerce in a state of loss for a long time. The company recorded a net loss of $750 million in 2023, which was 8.7% narrower than the net loss of $821 million in 2022, but still not profitable, and the company's non-GAAP adjusted net loss reached $296 million.
Bedo Finance noticed that in the new brand image that Yatsen E-commerce wants to create for Perfect Diary, the word "professional" is covered. According to the promotional content, Perfect Diary and the ODM company COSMAX jointly established the first self-owned factory, with a total investment of about 600 million yuan, and the annual output value is expected to exceed 1.5 billion yuan, taking the first step in self-developed manufacturing.
In addition, Perfect Diary also cooperated with CCTV to release a video related to "CCTV Enters a Domestic Beauty Factory". In this 10-minute video, Perfect Diary highlights the technical content of the new "Biomimetic Membrane" essence lipstick, with proper terms such as "patented pomegranate peptide complex" and "biotechnology" repeatedly mentioned.
In contrast, Yatsen's R&D expenses in 2023 will decrease instead of increasing, from RMB127 million in 2022 to RMB112 million, which is comparable to a drop in the bucket compared to sales expenses, and the R&D expense ratio will also decrease from 3.4% to 3.3%.
Third, the capital has left and the stock price has been bleak
In 2020, when new consumption investment and financing are all the rage, Yatsen E-commerce is the most representative new consumer company in the "Gold Rush". Tianyancha data shows that the company ushered in an angel round of financing from Zhen Fund and Hony Capital shortly after its establishment, with an amount of about $1 million.
From 2018 to 2020, Yatsen E-commerce has won the favor of many domestic and foreign investment institutions such as Gaorong Capital, Hillhouse Capital, CMC Capital, Tiger Global Fund, and Boyu Capital, and has received a total of 4 rounds of financing, with a total amount of more than 857 million yuan, and its valuation has soared like a rocket.
At that time, Han Rui, a partner of Gaorong Capital, once talked about the beginning and end of Yatsen's e-commerce investment, and did not hesitate to praise the latter, saying that as Yatsen E-commerce continues to consolidate its team, infrastructure construction and verified brand incubation capabilities, the company will continue to lead on the road of building a brand group in the new era.
With the support of all parties, Yatsen E-commerce landed on the New York Stock Exchange in November 2020 with an issue price of US$10.5 per share, and plans to raise more than US$600 million. On the day of listing, the company's closing price was $18.4 per share, up 75.2% from the issue price, and the market capitalization at that time was about $12.245 billion.
Before the IPO, Hillhouse Capital, Zhen Fund and Gaorong Capital held 13.8%, 10.5% and 9.2% of Yatsen's shares, respectively. According to the 2022 financial report two years later, the number of shares held by the above three investment institutions has decreased, and the shareholding ratio has also decreased to 11.1%, 8.3% and 6.9% respectively.
As of the end of 2023, Gaorong Capital held about 162 million shares of Yatsen E-commerce, which was narrower than 185 million shares in 2022, and reduced its holdings by about 23.9472 million shares in just one year. At the same time, Yang Donghao, director and CFO of the company, increased his holdings by about 16,807,500 shares, and the corresponding shareholding ratio increased to 2.4%.
Behind the "flight" of the capital side is the gloomy stock price of Yatsen E-commerce. Previously, its stock price had climbed to a peak of $25.47 per share in February 2021, with a market capitalization of nearly $16.1 billion. As of the close of trading on April 26, 2024, Yatsen E-commerce closed at $4.84 per share, with a total market capitalization of only $521 million.
The superficial phenomenon of Yatsen's e-commerce performance and capital reduction reflects the deep-seated difficulties faced by its brand Perfect Diary in the process of transformation. After large-scale marketing, the foundry production model of Perfect Diary's "big brand homologous" has been deeply rooted in the hearts of the people, and "Pingti" has long become a label and synonym that is difficult for the brand to tear off.
In the case that the stereotype of "emphasizing marketing over R&D" has not been reversed, choosing to change the high-end technology track without warning is not only contrary to the tonality that Perfect Diary has always exported to the outside world, it is difficult to resonate with consumers in the short term, and it is difficult to persuade consumers to continue to pay for the sudden increase in product prices.
In the final analysis, Yatsen's e-commerce advertising over the years has failed to help Perfect Diary build its own core competitiveness, and transform the Internet celebrity traffic under the cyclical prosperity into a long-term red reputation that escorts it through the ebb and flow period of industry dividends.
IV. Conclusion
In the eyes of Huang Jinfeng, CEO of Yatsen E-commerce, in the past five years, the company has been building a highway, which is essentially a set of middle office systems including marketing, supply chain management, product research and development, etc., and Perfect Diary is the first car to run on this highway.
Huang Jinfeng believes that "when the road is repaired, when other brands run again, they can run along the line." However, it is not yet known whether the "highway" of Yatsen e-commerce has been perfected, and the temporary "turning and changing lanes" will also add a lot of uncertainties to its future "opening to traffic".
High-end and diversified transformation is a fertile soil with unlimited potential, or a swamp full of thorns, and Yatsen e-commerce needs to carry out more exploration. In the foreseeable future, independent and irreplaceable brand power will still be the fundamental driving force for the steady and long-term development of cosmetics companies.
If you want to move from "Internet celebrity" to "everlasting popularity", Yatsen e-commerce still needs to start from building the cornerstone of long-term brand value.