On the evening of March 6th, Yatsen's parent company Yatsen (YSG.NYSE) disclosed its 2023 earnings report. The annual revenue reached 3.41 billion yuan, a year-on-year decrease of 7.9%. Yatsen attributed the revenue decline to the decrease in cosmetics business revenue. The net loss for the year was 750 million yuan, a year-on-year decrease of 870 million yuan, but the growth in net skincare business partially offset this decline.After the performance announcement, Yatsen fell by 7.95% to $0.55 per share, with a market value of less than 300 million US dollars. At the end of 2020, its market value had reached as high as 7 billion US dollars.Since October 17, 2023, Yatsen's stock price has been hovering below $1 for a long time. Yatsen received a warning from the NYSE in November last year that if it cannot rebound to above $1 within six months, it will face the risk of delisting.The good news is that although Yatsen's annual revenue has not stopped declining, in the fourth quarter of last year, it achieved a quarterly revenue of 1.07 billion yuan, a year-on-year growth of 7.9%. This is the first revenue growth for Yatsen since the fourth quarter of 2021.However, it is still difficult to say whether the once high-flying &#34;new consumer first stock&#34; has reached a turning point in its plight.Facing Yatsen are the continuous contraction and adjustment of the cosmetics business on one side, and the pressure of significant goodwill impairment due to the underperformance of the skincare brand.According to the financial report, Yatsen expects to achieve a revenue of 765 million to 804 million yuan in the first quarter of 2024, with a year-on-year growth of about 0% to 5%.Clearly, Yatsen is not out of the woods yet.<h2>The Lost Fundamental Base</h2>Before Yatsen's third anniversary celebration in April 2020, Yatsen had just completed a strategic investment of $100 million from Tiger Global Management, Boyu Capital, and Sequoia Capital China.Since then, its post-investment valuation reached 2 billion US dollars, doubling compared to the post-investment valuation of 1 billion US dollars in September 2019, with an interval of less than a year between the two rounds of financing.It was a year when US dollar funds surged, and with ample ammunition, Yatsen was able to use nearly half of its annual revenue to advertise, burning money to expand its scale.From 2018 to 2020, Yatsen's revenue increased from 635 million yuan to 5.233 billion yuan, more than eight times, but also accumulated a net loss of 2.652 billion yuan.However, starting from 2021, due to the impact of the epidemic, the frequency of consumer makeup has decreased, and the cosmetics consumption market has been sluggish. According to Euromonitor, the size of the Chinese cosmetics market decreased by 14.5% year-on-year in 2022.As a representative of new consumer beauty brands, Yatsen's Yatsen brand has shown signs of slowing down as online traffic gradually declines.From 2020 to 2022, Yatsen's revenue decreased from 5.233 billion yuan to 3.706 billion yuan.According to Euromonitor International, during the same period, the market share of Yatsen's core brand Yatsen dropped from its peak of 4.4% to 2.2%.Offline, the performance of the flagship brand Yatsen in opening stores is also not ideal, with a continuous trend of closures and contraction.Data from JiHai shows that Yatsen, which shrank to 152 stores in March last year, now only has 104 stores left, a decrease of nearly one-third from the peak of 280 stores in December 2022.In the fourth quarter of last year, the revenue of Yatsen's beauty business, which serves as the performance foundation of Yatsen, decreased by 1.8% year-on-year, failing to halt the decline.Currently, one of the solutions Yatsen has found for its beauty business is to focus on high-end products, a transformation direction repeatedly emphasized by Yatsen's management since 2021.In September last year, Yatsen's official accounts cleared the content it had posted on platforms such as Xiaohongshu and Weibo, then officially announced a new brand logo, carried out a brand upgrade, and in the same month, Yatsen launched the &#34;Biomimetic Membrane&#34; essence lipstick priced at 150 yuan, exceeding the brand's average product price.The financial report also shows that Yatsen spent more on sales expenses in the fourth quarter of last year, with a year-on-year increase of 34% to 717 million yuan, and the sales expense ratio increased from 53.2% to 66.9%.Yatsen attributed this increase in sales expenses in the financial report to the brand upgrade of Yatsen and the investment in the launch of new products for various brands.As we enter 2024, the progress of Yatsen's beauty business is not smooth. Securities analysts in the East China region expressed that in January and February this year, the sales of Yatsen brands on Tmall and Douyin were not ideal, showing a slight decline compared to the same period last year.In comparison, domestic brand Maoge Ping saw a total sales increase of 99% on these two channels.<h2>The Second Curve of Skincare Products</h2>Perhaps foreseeing that the path of burning money for market share is unsustainable, Yatsen began a difficult transformation in 2020. It entered the broader skincare market through its own brand &#34;Wanzi's Selection&#34; and external acquisitions.According to Euromonitor International, in 2022, the size of China's skincare market reached a staggering 276.3 billion yuan, while the size of the makeup market was only 87.6 billion yuan, less than half of the former.The reason is simple - compared to skincare products with different functionalities, the repurchase rate of makeup products is almost negligible. A woman's makeup bag will always lack a lipstick, but not the same lipstick.Yatsen's founder Huang Jinfeng bluntly stated in an interview that the growth potential of categories and traffic dividends are gone, &#34;If not now, then when to transform?&#34;In 2020, with substantial funds in hand, Yatsen began to follow international beauty conglomerates like L'Oreal and aggressively expand through acquisitions.In October, Yatsen acquired the French high-end pharmacy brand Klorane;In January 2021, it acquired the mainland business of Taiwan's effective skincare brand Dalfu; in March, it acquired the UK SPA-grade high-end skincare brand Eve Lom, also known as the &#34;Hermes of makeup removal&#34;.With the sluggish growth of the beauty business, the importance of Yatsen's skincare business is gradually becoming more prominent.In 2023, the revenue of its skincare business increased by 11.4% year-on-year to 1.38 billion yuan, accounting for 40.5% of the total revenue. In the fourth quarter of last year, the revenue contribution of the skincare business had already reached 51.7%.According to sources from Yatsen, the skincare business is now seen as the &#34;second growth curve&#34;, but there is currently no clear emphasis between the beauty and skincare businesses.However, there are still hidden concerns in the skincare business.In the fourth quarter of last year, due to the underperformance of Eve Lom, Yatsen made a provision of 354 million yuan for impairment, resulting in a net loss of 495 million yuan for the reporting period, compared to a net loss of 55 million yuan in the same period last year.When asked about the cost of acquiring Eve Lom in 2021, Yatsen representatives only mentioned that the price of the transaction had not been disclosed publicly.As of the end of 2023, Yatsen still has goodwill net value of 557 million yuan, which means that if the performance of brands acquired in the future falls short of expectations, the corresponding impairment of goodwill will still put considerable pressure on Yatsen's profit and loss statement.Over the past three years, Yatsen has accumulated net losses exceeding 3 billion yuan. The decreasing ratio of cash and cash equivalents to current liabilities year by year seems to indicate that Yatsen, once considered to have abundant funds, is facing increasing pressure.As of the end of 2023, the ratio of cash and cash equivalents to current liabilities for Yatsen is 1.37:1, compared to 5.07:1 at the end of 2020.With the primary market no longer surging with hot money and limited financing options in the secondary market, Yatsen, which continues to &#34;bleed&#34;, is still exploring ways to achieve profitability.

Quarterly revenue has returned to growth, is Yatsen turning the tide of adversity?