Yatsen – Quick Cal.

Comments on data in F-1:

Yatsen has been growing very fast and the revenue contribution is getting more balanced or diversified in terms of channel, brand and product as the company launches and acquires more brands. It seems the company is quite aggressive on acquisition so the future growth will be relatively difficult to project.

While the company boasts itself as a DTC company, the level of data transparency makes us analyze it like a traditional consumer product company. One of the primary advantage that DTC company enjoys is that it owns customer relationship. The company understands customer behavior thanks to data collected in each scene along the transaction journey.

With those data, I believe Yatsen can properly conduct unit economics analysis and cohort analysis on its customer base. However, since Yatsen only releases limited information, outsiders need to do some detective works to figure that out. I expect Yatsen to experience hypergrowth going forward for several quarters so doing that analysis adds little value at the moment.

Just some comments on the disclosed data:

Average net revenue per DTC customer increases over time indicating overall improvement in customer behavior. Average net revenue per shipment is relatively stable indicating average order value doesn’t change much while repeat purchase rate and purchasing frequency might increase ( because average net revenue per customer is increasing).

The way Yatsen shows its cohort data makes me feel it’s reluctant to discuss churn and some unit economics metrics such as customer lifetime value and customer acquisition cost. I’m not familiar with customer behavior in beauty product so I can’t tell whether a roughly three quarters repeat purchase rate between 30% and 40% is good or not. I can check comps but the expected growth will make metrics less comparable.

I would expect the company to spend aggressively to acquire/retain customers, to acquire new brands, to build capacity (net working capital and PP&E) and maybe to do more R&D. Growth consumes capital but generates optionality if executed well.

Some historical financials and my guesses below. You can tell from the calculation I only care about topline growth. It will be free cash flow negative and loss making for a while. If there’s fierce competition or poor execution, it will show up in the inventory turnover days, gross margin and obviously uncontrollable S&M expenses.

I use FY21 EV/Sales and FY21 P/Sales. One of 2021 sales forecasts from broker is RMB10,700M.

Yatsen – IPO Note

I just skimmed the F1 of Yatsen Holding Limited (YSG.US). The stock is expected to list on NYSE on November 19th, 2020. I used to summarize S1/F1 but now I notice there are many participants doing similar stuff and even large part of broker’s PDIE deck is just a summary of F1 in PPT. Thus, I would just skip the duplicate work and only focus on what still stay in my mind. For underlying stories depicting what’s actually happening, check local news outlets or blogs.

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[November 11th, 2020 ]


Yatsen is a player with four brands (including a French brand acquired last month) in China beauty market currently focusing on color cosmetics and skincare category and Gen-Z & Millennium demographics.

Yatsen utilizes direct-to-consumer (DTC) business model supported by well developed e-commerce platforms, social & content platforms and ODM/OEM & packaging supply chain infrastructure in China. Yatsen is a pioneer in key opinion leader (KOL) marketing and maintains a KOL network which the company refers to as direct-to-KOL. DTC business model makes Yatsen know more about its customers’ behavior and preference thanks to data collection and analysis. Data can help the company from product development to supply chain management.

The company adopts an omni-channel strategy to acquire and retain consumers. While the majority sales come from DTC channels (online and offline), Yatsen still sells to e-commerce distributors such as JD.com and VIP.com (that’s it’s omni-channel). Not surprisingly, there’s “margin” difference between channels on the face value but I’m not sure exact contribution margin and ROIC between each channel.

Thesis – Growth Runway

Yatsen looks like a typical consumer company that successfully leverages internet trend to disrupt the industry. This is evidenced by Yatsen’s impressive growth since its inception in 2016. The company ranked No. 5 beauty company in China in terms of color cosmetics retail sales value in 2019.

Since Yatsen is a consumer product company in China, the first thing is to check macro drivers to make sure it has enough runway. Some “typical” macro drivers for China’s beauty market listed below:

  • Consumption upgrade will make per capital spending go up
  • Increased demand from lower-tier cities
  • Large Gen-Z and Millennials population
  • Domestic brands taking share from international brands

Growth strategies for a typical consumer product company:

  • Expansion on
    • Category
    • Demographic
    • Brand
    • Price point

Growth strategies for a more ambitious consumer product company:

  • Overseas expansion
  • Acquisition and then incubation

Only companies that have brand value can talk about pricing power. I believe it will take sometime for some of Yatsen’s brands to acquire that market position.

The rests such as DTC, omni-channel strategy, KOL, supply chain ecosystem, data analysis… are just means to stay relevant in this high growth market. I view these more like sources of weaknesses and threats rather than strengths and opportunities, let alone competitive advantage.

Here’s how I think about this bet: huge growth opportunity and everything depends on whether management’s execution can capture the opportunity, engage consumer, fend off competition, maintain bargaining power over suppliers in particular those KOLs… China consumption bet is relatively robust but hyper growth, fast IPO bet is riskier. Last hyper growth consumer product company comes in my mind is Luckin Coffee so this might depress the sentiment. However, I believe there are still many participants happy to bet on macro story and high growth.

Yatsen’s Quarterly Revenues

Investors that have indicated interest in subscription: Hillhouse, Tiger Global, and Tencent.

Yatsen’s disclosure isn’t enough for me to build a meaningful model but still need one to have a sense where it trades.

Game Engine as a Competitive Advantage for Game Developer?

I joined a Hong Kong listed Chinese game developer conference call last Friday.

I don’t remember most of the stuff discussed but the call gave me an impression that the company believes having technical capability in game engine is kind of competitive advantage.

The management mentioned that some of their high quality game are developed in UE4 and they boast some kind of industry leading position (for example, the first Chinese XXX mobile massively multiplayer online role-playing-game, MMORPG, developed in UE4). Of course, the company also has other games developed in Unity3D and it might just want to showcase their research and development capability because Unreal Engine is known for its deep learning curve.

However, the management’s focus on game engine in the presentation indicates they might not be so innovative on gameplay, game genre or exploring new game business model. The capability of game engine and investment in customized engine might make future game development less flexible (from outsider’s perspective). The organization has tendency to keep iterating what they are good at or familiar with especially when the path is justified by previous large investment (suck costs). We can expect the company’s future game portfolio in terms genre will look quite similar today. The company currently focuses on MMORPG and simulation game (SLG) and it plans to release several games in those two genre but only 1 game in new genre.

There’s nothing wrong with the sustaining technology approach mentioned above. It’s understandable a company’s core competency is only in certain genre which links to gameplay, art style, story setting (IP type) and business model (monetization). The problem of this specialization is that it limits the optionality from other genre. If the game developer cannot explore more gameplay or monetization from genre they are good at, the business is just a pipeline while sometimes the revenue stream might be boosted by a hit. As this developer has established portfolio, it’s better than hit-driven, boom-bust business but there’s less growth potential from the business. Market tends to value this type of company by normal level P/E multiple and maybe with some premium if it’s a leading player.

Natural Food – Initial Thoughts

Natural Food (1837.HK)

[August 30, 2019]

Interim Results Announcement @ Conrad


I was simply attracted by the brand name and guided by my preliminary China theme – consumption upgrade. Before attending the meeting, I thought Natural Food was doing something like what General Mill does…

Initial Thoughts

I didn’t find anything that got me excited about the company during the meeting. While the strategic investment from Pepsi is interesting but it still takes time for both parties to generate synergy, if any. Apparently, the company is navigating through the O2O space and experimenting with omni-channel.

  • Online Channel

Natural Food cited some promising numbers in their online channels and boasted it is one of key reasons in addition to natural food concept why Pepsi was interested in investing them. However, without further disclosing on customer behavior or unit economics in online channels, it’s difficult to evaluate the performance.

  • Revenue Contribution & Growth

The growth of revenue contribution from online channel looks okay. It has around 20% of total revenue coming from online channels and growing at 24% year over year (primarily from e-commerce platforms).

  • Profitability across Channels

The company said the gross margin of offline channel and online channel were in mid seventies and in mid sixties, respectively. Without offline overheads, online channel has higher contribution margin (not sure what kind of margin it is). With online channel growing at a faster rate, the trend of blended gross margin is downward while the operating margin should go up in the long term, a rosy assumption. What I expect to see is rising customer acquisition cost if the company could not figure out this D2C (direct-to-customer) business. Online presence / traffic can be easily competed away. If the company does not manage online customer base well,  that asset will turn sour quickly and it will see “similar” “differentiated products in differentiate packaging” spring up like mushroom.

  • Side note

Will the subscription model work on certain type of products?

The primary risk to the thesis that Natural Food captures the opportunity of O2O, consumption upgrade, and health awareness, is execution. The company still has time but I don’t think the window is wide. I’m not sure whether founders/management team are aware of this.