Rising Asian Incomes And Digital Retail Will Transform Premium Beauty

Key Takeaways

• Premium skincare momentum, innovation, and celebrity endorsements position Yatsen for sustained revenue growth well above market expectations.
  
• Cost structure reset, international expansion, and AI-driven consumer insights support durable margin improvement and long-term top-line diversification.
  
• Regulatory challenges, demographic shifts, evolving consumer preferences, high marketing dependence, and brand concentration threaten future growth, margins, and market stability for Yatsen.

Catalysts

Engages in the development and sale of beauty products in the People’s Republic of China.

• Analyst consensus already recognizes the strong growth of premium skincare, but this may understate the scale and endurance of Yatsen's momentum-recent results show skincare growth nearly seven times market averages, and with the product innovation pipeline and rising celebrity endorsement, this segment could see compounding revenue growth well above expectations for multiple years.
  
• While analysts broadly agree that disciplined cost management and higher-margin product mix will support improved margins, Yatsen's swift operating expense reductions (a drop of over 10 percentage points in G&A expense ratio and 15 percentage points in net loss margin) signal a fundamental reset in cost structure, suggesting a path to sustainably higher net margins and potential for rapid operating leverage as sales accelerate.
  
• Yatsen's international expansion, especially through digital channels and targeted product launches, remains underappreciated; leveraging global e-commerce platforms alongside strategic overseas partnerships could drive a step-change in top-line growth and meaningfully diversify the company's revenue footprint.
  
• The company's embrace of AI-driven consumer insights and advanced data analytics is likely to unlock superior product-market fit, accelerate successful innovation cycles, enhance inventory control, and improve conversion rates, supporting EBITDA expansion and improved asset efficiency.
  
• As Chinese and broader Asian middle classes continue to grow, and with societal focus shifting to self-care and wellness, Yatsen is positioned to benefit from multi-year increases in both beauty category penetration and average spending per consumer-providing significant long-term tailwinds for revenue, recurring cash flow, and brand equity.

Yatsen Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Yatsen Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Yatsen Holding's revenue will grow by 21.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -17.1% today to 10.3% in 3 years time.
• The bullish analysts expect earnings to reach CN¥635.1 million (and earnings per share of CN¥5.37) by about August 2028, up from CN¥-588.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from -10.6x today. This future PE is lower than the current PE for the US Personal Products industry at 20.7x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Yatsen Holding Future Earnings Per Share Growth

Risks

• Intensifying regulatory scrutiny on data privacy and international e-commerce in China could constrain Yatsen's digital marketing and cross-border initiatives, creating barriers to global growth and limiting future revenue opportunities.
  
• Demographic headwinds such as China's aging and shrinking population threaten to reduce the addressable domestic consumer base for beauty products, which could stagnate or even contract Yatsen's core revenues over the long term.
  
• A growing consumer focus on sustainability and anti-excess sentiment may draw demand away from Yatsen's traditionally mass-market and fast beauty offerings, potentially eroding both brand appeal and pricing power, hurting gross margins in future periods.
  
• Despite recent cost controls, Yatsen's business model continues to rely on high marketing spend-selling and marketing expenses are still over 66 percent of revenue-with only a marginal move to operational profitability this quarter, raising the risk that margin improvements may not be sustainable if competitive pressures intensify, threatening net margins and earnings over time.
  
• The persistent decline in color cosmetics revenue, heavy reliance on a few key brands such as Perfect Diary and Galénic, and slower product differentiation efforts could leave Yatsen vulnerable to brand fatigue and rapid loss of market share, creating long-term volatility and constraining revenue growth.

Valuation

• The assumed bullish price target for Yatsen Holding is $12.99, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Yatsen Holding's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.99, and the most bearish reporting a price target of just $3.44.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥6.2 billion, earnings will come to CN¥635.1 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 8.3%.
• Given the current share price of $9.43, the bullish analyst price target of $12.99 is 27.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.