Losses to Makeup

Open letter to Melvin Capital: don’t even think about teaming up with your buddies for a naked-shorts-off against Yatsen Holding Limited (YSG). Yes, they’re down 11%. Yes, they posted an almost quarter-billion-dollar loss in Q4 2020. Yes, we will raise the rabble on r/WallStreetBets.

So consider those losses against the almost 75% YoY revenue jump of their budget cosmetics brand, Perfect Diary. That revenue came at the expense of a big jump in both marketing and R&D spending. And that’s the kind of sacrifice Chinese companies must make in their quest to build truly robust domestic brands.

“China’s drive for tech self-sufficiency is getting all the press these days,” says Jimmie Jeremejev 向荣. “Meanwhile, key to the new “dual cycle economy” mandate is the growth of domestic brands in key consumer segments such as cosmetics, apparel, & FMCG. More and more Chinese companies will be willing to exchange short term gains for long-term growth, as a result. The opportunity for foreign organizations is in acquisitions.”

To that point, Yatsen has recently acquired foreign brands Eve Lom and Galenic.