Financials

Financials — What the Numbers Say

1. Financials in One Page

Yatsen reports in Chinese yuan (¥, CNY). The investment story is a classic broken-IPO recovery: revenue tripled from FY2019 (¥3.0B) to a FY2021 peak of ¥5.8B as Perfect Diary's mass-color-cosmetics franchise rode China's DTC beauty wave, then collapsed 42% to ¥3.4B by FY2024 when traffic costs and competition gutted the unit economics. FY2025 is the inflection year — revenue grew 26.7% to ¥4.3B (the first growth year since 2021), gross margin reached an all-time high of 78.2%, and the operating loss narrowed from ¥-825M to ¥-186M (4.3% of sales). Skincare is now ~61% of the mix and gross-margin accretive. The balance sheet is the floor under the equity: ¥1.01B cash, ¥177M total debt, ¥835M net cash — equivalent to roughly 45% of the equity market cap. Cash conversion, however, remains the central problem: operating cash flow stayed negative at ¥-95M in FY2025 even as the P&L approached breakeven. The single financial metric that decides this stock is whether operating cash flow turns positive in FY2026.

2. Revenue, Margins, and Earnings Power

The story in one chart. Revenue went from inflate-by-marketing (FY2020-FY2021) → withdraw and retrench (FY2022-FY2024) → rebuild on skincare (FY2025). Gross margin tells the same story in reverse: as Yatsen shed low-margin Perfect Diary color-cosmetics SKUs and shifted toward DR.WU, Galenic, and Eve Lom skincare, gross margin marched from 63% (FY2018) to 78% (FY2025) — a 15-point structural lift.

The peak operating loss of ¥-2,683M in FY2020 reflects the IPO-year cost surge: pre-listing marketing burn, ¥1.9B of stock-based compensation (SBC was 36% of revenue that year alone), and a ¥4.4B accumulated-deficit shock as VC-era preferred-share charges hit the income statement. Setting aside FY2020 noise, the underlying operating loss has improved from ¥-1,624M (FY2021) → ¥-186M (FY2025) — an 88% reduction in absolute operating loss over four years.

Gross margin is the cleanest fact in this P&L: it has expanded for seven consecutive years and held above 73% since the skincare mix shift began in FY2023. The 15-percentage-point gross-margin gain is worth ~¥640M of gross profit on FY2025's revenue base — more than enough to absorb the ¥186M operating loss if marketing intensity normalizes.

Quarterly trajectory makes the inflection visible. The bottom-left of the operating-margin chart belongs to Q4 2023 / Q4 2024 (heavy year-end marketing pushes producing -34% to -50% operating margins). Q4 2025 broke that pattern: revenue grew 20.1% year-over-year, operating margin recovered to -0.9%, and net income turned positive (¥8M) for the first quarter in three years.

Verdict on earnings power. Earnings power is improving but not yet positive. The structural margin floor (78% gross margin) is set; the variable cost the company still has to control is the sales-and-marketing line, which ran at 79.3% of revenue in FY2025 — down from 92% in FY2022 but still extreme for any consumer brand at scale. Comparable beauty operators (e.l.f., Estée Lauder, Coty) run marketing-plus-SGA at 50-65% of revenue. The gap is the unfinished homework.

3. Cash Flow and Earnings Quality

Free cash flow is cash generated from running the business after capital expenditures (capex). For a brand-led, low-capex business like Yatsen — capex is only ~1% of revenue — FCF should sit very close to operating cash flow. Here the better diagnostic is net income vs. operating cash flow: if reported losses are real cash losses, the two should track. They do, broadly.

Two distortions explain why net income and OCF do not match cleanly in any given year:

1. Stock-based compensation (SBC). SBC is a non-cash P&L charge. It ran at ¥1,901M in FY2020 (the IPO year, 36% of revenue), normalized to ¥77-91M in FY2023-FY2024, and fell to ¥59M (1.4% of revenue) in FY2025. As SBC has shrunk, the gap between reported net loss and operating cash drain has narrowed.
2. Working capital and acquisitions. FY2022 OCF of +¥136M was the one positive cash year — driven by a one-time working-capital release as the company shrank inventory and receivables during the contraction. FY2023-FY2024 reversed some of that as inventory rebuilt for the skincare push (inventory days rose from 110 in FY2020 to 174 days in FY2025).

Verdict on earnings quality. The earnings are real. There is no growing receivables build, no aggressive capitalization of soft costs, no obvious cookie-jar reserves — net loss tracks operating cash drain within a reasonable band, and FY2022's positive cash year was clearly a working-capital event rather than a profitability event. The unflattering truth: even at the FY2025 inflection, the business is consuming about ¥95M of operating cash per year and another ¥42M of capex on top. Yatsen has not yet earned the right to be called a cash-compounder.

4. Balance Sheet and Financial Resilience

The balance sheet is the reason this equity has not been zero-priced. Total debt of ¥177M is trivial — about 0.5 months of revenue. Cash of ¥1,011M is roughly five months of operating expenses and meaningfully larger than the company's entire market capitalization measured in pure asset terms. With no material long-term debt, no interest coverage problem, and no maturity wall, the financial-distress probability sits near zero.

The harder question is cash burn rate. Cash has fallen from ¥5.7B at end-FY2020 to ¥1.0B at end-FY2025 — a ¥4.7B drawdown in five years. Most of that went to (a) ¥2.3B of post-IPO cumulative buybacks (a deliberate capital return), (b) ¥1.1B of acquisitions in FY2020-FY2021 (Galenic, DR.WU, Eve Lom), and (c) the operating cash drain. The remaining ¥1B cash buffer, at the current ¥-95M OCF rate plus ~¥110M of annual buyback, gives roughly 4-5 years of runway before the company would need to issue equity or stop buying back stock.

Two yellow flags inside an otherwise green balance sheet:

• Inventory has bulked up to ¥509M (¥122M increase year-over-year) and inventory days are at an 8-year high of 174. Management would describe this as building for the skincare growth push; a more cautious reading is that demand-side visibility is still imperfect.
• Goodwill and intangibles together are ¥693M — 23% of book equity. The intangibles relate to the 2020-2021 acquisitions of Galenic, DR.WU, and Eve Lom. There has been goodwill impairment already: goodwill fell from ¥857M (FY2022) → ¥557M (FY2023) → ¥155M (FY2024-2025). Tangible book value is ¥2.3B (¥24.6 / ADS) — still well above the ¥19.6 share price.

Verdict on resilience. The balance sheet is a clear positive. There is no leverage problem, no maturity wall, and net cash equivalent to ~45% of market cap. The constraint is not solvency — it is that the cash cushion is finite at the current burn rate.

5. Returns, Reinvestment, and Capital Allocation

Returns on capital are still negative, by definition, because the company is still loss-making. What matters more is the trajectory and the discipline of capital allocation.

ROIC moved from -36.5% (FY2024) to -8.5% (FY2025) as the operating loss collapsed by a factor of four. If the FY2026 trajectory continues, ROIC reaches breakeven around the same time the P&L does — that is the first plausible date for this stock to re-rate.

Capital allocation is where management deserves credit. Yatsen has been a serial buyer of its own stock at deeply depressed prices: roughly ¥2.3B cumulative buybacks across FY2020-FY2025 against a current market cap of ¥1.8B. The share count is down 26% from the FY2021 peak.

The share count fell from a FY2021 peak of 126.3M ADS to 93.1M in FY2025 — a 26% reduction, retiring roughly one out of every four shares. Importantly, the buybacks have happened below tangible book value for the past four years, so each share retired has been net-accretive to per-share equity even while the company has been losing money. SBC dilution at 1.4% of revenue (¥59M) in FY2025 is now well-covered by the ¥111M of buybacks.

Verdict on capital allocation. Management is doing the right thing with a bad hand: buying back deeply mispriced equity, no dividend (correct — there is no excess cash), and no fresh M&A since 2021 (correct — focus on integrating skincare, not bolting on more). The risk is that the cash that funds these buybacks runs out before the operations turn cash-positive.

6. Segment and Unit Economics

Yatsen does not currently publish a clean externally-reconciled segment file in this dataset, but management commentary at the FY2025 results is explicit:

• Skincare brands (DR.WU, Galenic, Eve Lom, Abby's Choice) accounted for 61.1% of total net revenues in Q4 2025, up from ~50% in mid-2024.
• Color cosmetics (Perfect Diary, Little Ondine, Pink Bear) is now the smaller half of the business and has been the structural drag — heavy KOL marketing intensity, lower repeat-purchase rates, and steady share erosion to domestic competitors like Florasis, Mao Geping, and Carslan.

The mix shift to skincare is what drives the 15-point gross-margin lift over the past seven years: prestige skincare carries 75-82% gross margins (typical for the category — see e.l.f. at 71%, Estée Lauder at 74%, Mao Geping >80%) versus 50-65% on mass color cosmetics.

Geography is single-country. Greater than 95% of revenue is China-domestic, primarily through Tmall, JD.com, Douyin and RED — the major Chinese e-commerce and social-commerce platforms — plus a small offline retail presence. International revenue contribution is immaterial. This single-country dependence is itself a financial fact: a sustained slowdown in Chinese consumer spending hits 100% of Yatsen's top line at once.

Verdict on segment economics. Skincare is doing the heavy lifting. The Galenic / DR.WU / Eve Lom acquisitions, while expensive (¥1.1B paid in FY2020-FY2021, much of it written off through goodwill impairment), have done their strategic job — they handed Yatsen a higher-margin franchise just as the color-cosmetics business was eroding. The next step the company has to prove is that skincare can be grown to ¥3-4B of revenue without re-igniting the marketing-burn cycle.

7. Valuation and Market Expectations

Yatsen is not "cheap or expensive" on earnings — there are no earnings. The relevant valuation lenses here are EV/Sales, Price/Book, and the cash-net-of-debt versus market cap. On all three, the equity trades at distressed multiples that imply persistent skepticism about the operating recovery.

Why each multiple matters here:

• EV/Sales of 0.25× is extreme. Beauty peers trade at 1× to 5× sales depending on growth, margin, and brand strength. Even at the low end of the peer range (Coty 0.93×, Shiseido 1.61×, Ulta 1.97×), Yatsen would re-rate 4-8× higher. The discount captures the market's view that revenue is not a clean proxy for future profit.
• Price/Book of 0.61× and Price/Tangible Book of 0.80× mean the equity trades below the liquidation value of the balance sheet. That is the "downside floor" — but only in the sense that the cash, inventory, and receivables would be worth roughly the current market cap in an orderly wind-down.
• Net cash equal to 45% of market cap is the cleanest single fact. The market is paying ¥1,009M of enterprise value for a business generating ¥4.3B of revenue with 78% gross margins.

The five-year valuation derating speaks for itself. YSG IPO'd at $10.50 ADS in November 2020, peaked near $25 (¥170+ CNY equivalent) in early 2021, and now sits at ¥19.6 ($2.89). The share has lost ~96% of its peak value. The valuation discount is the most important thing the market is telling you about this business, and the simplest way to underwrite Yatsen is to ask whether OCF turns positive — because if it does, the EV/Sales multiple is unsustainable at 0.25×.

Simple bear / base / bull frame on FY2026 revenue and EV/Sales:

The scenario spread is the point. In the bear case (revenue grows 2-3%, EV/Sales stays at 0.25×), the implied value is roughly flat — book value and balance-sheet cash provide a floor. In a base case where OCF turns positive and Yatsen earns even a Coty-level 0.45× EV/Sales multiple, the implied equity sits ~65% above today. In a bull case (skincare scales to >50% revenue, OCF reaches ¥150M+, multiple re-rates to ELF/Botanee territory at 0.8-1×), the implied value roughly triples. This is not an earnings story — it is a re-rating setup contingent on cash-flow inflection.

8. Peer Financial Comparison

Peers are presented in their reporting currencies. EL / COTY / ELF / ULTA report in USD; Shiseido (4911) in JPY; Yatsen and the Chinese A-share peers in CNY. Market caps and EVs are not FX-converted in this native view — the USD sibling file does that translation.

The peer table tells a clean story. On the operating metrics, Yatsen ranks well on gross margin (78.2% — second only to Mao Geping in the comp set, well above ELF and Coty), poorly on operating margin (-4.3% vs. ELF's +12.0% and Ulta's +12.4%), and worst on the bottom-line — though notably better than Estée Lauder's loss-making FY2025. On valuation, Yatsen trades at 0.25× EV/Sales — a fraction of every other beauty stock in the world. The peer-set median EV/Sales is ~2.1×.

Two ways to read the gap:

• Discount deserved: Yatsen is a smaller, single-country, single-currency, structurally-loss-making business. The China beauty consumer is uncertain, and Perfect Diary continues to lose share. EL's loss in FY2025 is cyclical (China travel-retail destock); Yatsen's losses are five years old.
• Discount excessive: The gross margin says this is a beauty-brand business, not a private-label commodity. Cash net of debt is 45% of the market cap. Even partial convergence to the peer median EV/Sales — say to 0.7× — would more than double the equity value. The market is pricing terminal decline; FY2025 numbers do not support terminal decline.

The most relevant single-peer comparison is e.l.f. Beauty (ELF): a similarly-positioned mass-affordable, digitally-native cosmetics company. ELF trades at 3.29× EV/Sales with 12% operating margins and 16% ROE. Yatsen at 0.25× is priced as if its margin trajectory will never approach ELF's. If it does, the multiple gap should compress mechanically.

9. What to Watch in the Financials

Closing read. The financials confirm that Yatsen has executed a real strategic pivot: the gross-margin lift from 63% to 78%, the skincare-mix transition past 60%, the buybacks below tangible book, and the operating-loss collapse from ¥-825M to ¥-186M are not accounting artifacts. They are real and they have happened over multiple quarters. The financials contradict the implicit market view that the business is terminal — Q4 2025 turned net-income positive, the balance sheet still has ~¥1B of cash, and capital allocation has been disciplined throughout. What the financials do not yet confirm is sustainable cash generation: OCF was still negative ¥95M in FY2025 and FCF was -¥137M. Until that flips, the 0.25× EV/Sales multiple is defensible.

The first financial metric to watch is full-year operating cash flow for FY2026. A positive OCF print, even at ¥50-100M, would be the single piece of evidence that re-rates the multiple — because it would confirm the FY2025 P&L recovery converts to cash and that the runway is no longer finite.