Deck
A Chinese multi-brand beauty group that sells color cosmetics under Perfect Diary, Little Ondine and Pink Bear and premium skincare under Galénic, DR.WU and Eve Lom, almost entirely online to mainland-China consumers.
Cheap on the balance sheet, fragile at the operating line — the next print is the test of which signal is durable.
- Cheap math. Enterprise value sits at roughly $144M against $615M of FY2025 revenue (0.24× EV/Sales). The company holds $151M of cash and short-term investments, carries zero financial debt, and book value per ADS sits near $4.60 — well above today's $3.17.
- The turn happened — once. FY2025 revenue grew 26.7%, gross margin reached a record 78.2%, and Yatsen booked its first non-GAAP profit since the 2021 IPO. Skincare crossed 53% of the mix for the first time.
- Q1 FY2026 took it back. Even with a fresh-record 80.2% gross margin and skincare growth of 58.5%, operating-loss margin widened from -4.1% to -9.7% as selling and marketing spending jumped to 72.2% of revenue on higher Douyin traffic-acquisition costs.
A color-cosmetics house deliberately rebuilt as a skincare house.
Before (FY2020–21). Perfect Diary was the engine. Color cosmetics generated ¥4.9B at the 2021 peak on an early, aggressive Tmall and Weibo influencer playbook. Skincare was barely 15% of the mix, and the company had never earned a GAAP profit even at peak revenue.
Pivot (FY2022–24). Zero-COVID destroyed color-cosmetics occasions, Douyin broke the Tmall ROI math, and revenue fell 42% across three years. Management leaned into four prestige skincare brands acquired between 2019 and 2021 — Galénic from Pierre Fabre, DR.WU's mainland-China business, Eve Lom, Little Ondine — and shut roughly 130 underperforming experience stores. The Eve Lom reporting unit absorbed ¥757M of goodwill impairments across FY2023 and FY2024.
Today. Skincare reached 53% of revenue in FY2025 and 61% in Q4. Gross margin climbed from 64% to 78% across the cycle. Yet both reportable segments still lost money in FY2025 — Color cosmetics -¥59M, Skincare -¥31M — so the consolidated turn is mix arithmetic and the absence of a third impairment, not yet brands earning their own keep.
A founder who controls 91% of the votes just lent the company $120M.
- Dual-class super-voting. Founder-CEO Jinfeng Huang holds 34.3% of the economics and 90.7% of the votes through Class B shares carrying 20 votes apiece. That wedge has widened from 64% of the votes at the November 2020 IPO as repurchases shrank the Class A float and two co-founders exited the cap table.
- Related-party convertible. On March 11, 2026, Yatsen signed a $120M convertible-note and warrant agreement with a vehicle affiliated with Trustar Capital and the founder himself — $4.63 conversion price (46% above today's $3.17), 1.5% coupon, plus a 4% IRR put floor that protects the founder vehicle if the equity does not recover.
- The largest outside holder pushed back. Hillhouse, then 13.8% of the economics, formally objected to the structure in the FY2025 20-F. The first tranche closed May 21, 2026 with Hillhouse joining on equal terms — read as smart-money endorsement by the bulls, as a forced inclusion by the bears.
Half the equity is cash and short-term investments — but the operating engine still burns it.
FY2025's GAAP operating loss narrowed from -24.3% to -4.3% of revenue, but roughly half of that swing was the simple absence of the prior-year Eve Lom impairment, and ¥14.6M of Q4 adjustments related to prior periods were swept into the headline number. Cash and short-term investments have fallen from ¥2.6B at end-FY2022 to ¥1.05B at end-FY2025 — the $120M convertible roughly restores that runway, but only after handing the founder a 4% IRR floor.
Cheap, fragile, founder-controlled — and waiting on two prints for confirmation.
- For. 0.24× EV/Sales, half the equity in cash, no financial debt, and three institutional cohorts — the founder, Trustar and Hillhouse — underwriting at a $4.63 anchor 46% above spot. Skincare scaled +63% in FY2025 against a Chinese beauty-retail market that grew 5%.
- Against. Q1 FY2026 directly contradicted the operating-leverage thesis; both reportable segments still printed losses in FY2025; operating cash flow has been negative three years running; founder voting control at 91% means minority holders cannot redirect capital allocation.
- Peer gap. Direct China-listed peer Proya converts a 73% gross margin into an 18% operating margin on a similar digital model. Yatsen converts 78% into -4%. That 22-point gap is the entire bull-versus-bear debate, expressed as one number.
- The next prints. Q2 FY2026 (August 20) is the proximate test of the Douyin-cost mechanic. After that: the second-tranche convertible close, and whether the ¥134M of residual DR.WU goodwill avoids becoming the next Q4 impairment.
Watchlist to re-rate: Q2 FY2026 print on August 20: operating-loss margin narrowing back inside -5% with S&M intensity below 70%. Tranche 2 convertible close on terms equivalent to the first. Any DR.WU goodwill impairment in the next 20-F.