Yatsen Holding Limited is distancing itself further from the label of "parent company of Perfect Diary." On May 26th, Yatsen disclosed its first-quarter 2026 results: total net revenue for the quarter was RMB 1.02 billion, a year-on-year increase of 22.5%. The gross margin improved to 80.2%, remaining at a high level. Revenue from skincare brands reached RMB 574 million, surging 58.5% year-on-year, and its contribution to total revenue rose to 56.2%. The combined net revenue of its three major skincare brands—Galénic, DR.WU, and EVE LOM—grew 61.4% year-on-year, becoming the primary drivers of skincare business growth. For a long time, the market's understanding of Yatsen was almost inseparable from Perfect Diary. Founded in 2016, this domestic beauty company once leveraged Perfect Diary to achieve rapid scale through online channels and content platforms. It capitalized on the rise of Xiaohongshu, live-streaming e-commerce, KOL marketing, and the domestic beauty trend, completing a swift transition from a new brand to a publicly listed company. However, the high growth of Perfect Diary also firmly tied Yatsen to the narrative of a "traffic-driven color cosmetics brand." As online growth红利 waned, customer acquisition costs rose, and Perfect Diary entered an adjustment period after its peak growth, Yatsen began to face sustained external scrutiny regarding its growth quality and profitability. The current growth drivers—Galénic, DR.WU, and EVE LOM—are almost entirely brand assets acquired through mergers and acquisitions around the time of the company's IPO, corresponding to segments such as high-end skincare,功效性护肤, and premium cleansing, respectively. Following the acquisitions, Yatsen systematically localized the operations of these three brands. On one hand, the company maintained Galénic's dermatological formulations, DR.WU's positioning in medical-grade功效性护肤, and EVE LOM's premium cleansing brand identity, restructuring the product portfolios accordingly. On the other hand, it leveraged local channels and content platforms like Tmall, Douyin, and Xiaohongshu to enhance consumer education. Utilizing its in-house R&D capabilities and insights into the Chinese market, Yatsen helped these overseas brands better align with domestic demand for功效性护肤. For the full year 2025, Yatsen's skincare business revenue grew 63.5% to RMB 2.28 billion, surpassing color cosmetics to become the company's largest revenue source. However, the growth in the skincare business has not yet fully translated into profits. In 2025, Yatsen achieved its first annual Non-GAAP profitability since going public, with a full-year Non-GAAP net profit of RMB 8.4 million. However, in the first quarter of 2026, influenced by increased expense investments, the company recorded a Non-GAAP net loss of RMB 57.3 million. In Q1, Yatsen's selling and marketing expenses were RMB 737 million, a year-on-year increase of 33.1%, accounting for 72.2% of total revenue. The company explained that the expense increase was primarily due to greater investment in building consumer awareness for core brands and long-term brand equity, coupled with rising traffic acquisition costs on the Douyin platform. Past experience with Perfect Diary has proven that traffic can rapidly build a brand but can also amplify cost pressures once the traffic红利 diminishes. Compared to color cosmetics, the skincare business offers a greater opportunity to cultivate customer loyalty and brand trust. In the first quarter, Yatsen's R&D investment increased by 74% year-on-year, with its share of total revenue rising to 3.9%. Judging from recent convertible bond arrangements, Yatsen's next phase of development will likely continue to focus on R&D, supply chain, overseas expansion, and strategic acquisitions. Recently, the initial issuance of Yatsen's $120 million convertible bonds was completed, with subscribers including Huang Jinfeng, Trustar Capital, and Hillhouse Capital. According to the company's disclosure, the net proceeds are intended for product research and development, global supply chain integration, overseas market expansion, strategic mergers and acquisitions, and general corporate purposes. For Yatsen, the story of structural transformation has begun to take shape. However, how to translate growth from the revenue side to the profit side remains the next question it needs to answer.
Comments