Yatsen (YSG) Q4 2025 earnings review
GAAP Profitability Achieved, But Growth Decelerates and Core Margins Suffer
Yatsen reached a significant milestone by posting positive GAAP Net Income in Q4, but a deeper dive reveals a mixed quarter. Total revenue grew 20.1% YoY to RMB 1.38B, demonstrating a sharp deceleration from Q3's 47.5% growth. While management touts the success of its strategic transformation, Non-GAAP Net Income actually plunged 61% YoY (RMB 41.2M vs RMB 107.0M a year ago) due to intense competition and spiking traffic acquisition costs during the Double 11 festival. Furthermore, the legacy Color Cosmetics segment abruptly reversed back into contraction, leaving the company heavily reliant on its booming Skincare brands to carry the load.
🐂 Bull Case
Skincare brands (Galénic, DR.WU, Eve Lom) now constitute a dominant 61.1% of total revenue. The segment grew 51.9% YoY in Q4, protecting the company's gross margin profile (stable at 77.7%) and providing a durable growth engine.
Management executed effectively on overhead costs. General and administrative expenses plummeted to just 5.4% of revenue in Q4 (down from 8.7% a year ago), driven by lower payroll and the leveraging effect of higher top-line sales.
🐻 Bear Case
Selling and marketing expenses spiked to 64.8% of revenue in Q4 (up from 60.1% YoY). Management explicitly blamed 'higher traffic acquisition costs amid intensified competition' during Double 11. If the cost of customer acquisition remains this high, long-term margin targets are at risk.
After finally returning to growth in Q2 (+8.8%) and Q3 (+25.2%), the Color Cosmetics segment abruptly contracted by 9.1% YoY in Q4. The turnaround of flagship brand Perfect Diary appears to be stalling.
⚖️ Verdict: ⚪
Neutral. The GAAP profitability milestone and massive skincare growth are highly commendable, but the 61% YoY collapse in Non-GAAP Net Income and the sudden reversal in Color Cosmetics offset the excitement. The cost of growth is becoming alarmingly expensive.
Key Themes
Skincare Brands Dominate the Portfolio
Accelerating. The strategic shift to skincare is yielding immense dividends. Skincare revenue grew 51.9% YoY in Q4 to RMB 842.8M, continuing a multi-quarter streak of hyper-growth (Q1: 47.7%, Q2: 78.7%, Q3: 83.2%). For the full year, skincare represented 53.0% of total sales, and in Q4 it peaked at 61.1%. This mix shift is the primary driver keeping gross margins elevated at 77.7%.
Marketing Expense Inflation Crushes Core Earnings
Reversing. A specific data point contradicts management's narrative of an 'improved overall profitability' trend. While GAAP net income turned positive, Non-GAAP Net Income fell from RMB 107.0M in 24Q4 to just RMB 41.2M in 25Q4. This was directly caused by Selling and Marketing expenses surging to 64.8% of sales (up 470 bps YoY). The company cited intensified competition during Double 11, echoing warnings from prior quarters about aggressive discounting by foreign high-end brands.
Color Cosmetics Recovery Stalls
Reversing. The Color Cosmetics division (which includes Perfect Diary) fell 9.1% YoY in Q4. This is a highly disappointing break in trend following strong growth of 25.2% in Q3 and 8.8% in Q2. It suggests that previous product innovations (like the Biophased Essence Foundation) may not have enough staying power to combat a soft macro environment and fierce domestic competition.
R&D Investment Fueling Product Pipeline
Stable. The company continues to lean into its 'R&D-led' strategy to differentiate itself from price-cutting competitors. R&D expenses increased to 2.8% of revenue in Q4 (up from 2.3% YoY). This ongoing investment supports hero product launches like Galénic's No.3 VB Serum and DR.WU's PDRN Serum, which are critical for justifying premium pricing in the skincare category.
Operating Cash Flow Remains Negative
Stable. Despite achieving GAAP net income in Q4, the company burned cash. Net cash used in operating activities was RMB 69.4M in Q4, a stark contrast to the RMB 202.2M generated in 24Q4. For the full year, operating cash flow was negative RMB 94.7M. Working capital management—particularly around inventory builds for shopping festivals—remains an area requiring strict monitoring.
Other KPIs
A major bright spot for operating leverage. G&A expenses dropped 25.6% YoY in absolute terms, and plummeted as a percentage of revenue to 5.4% (down from 8.7% in 24Q4). Management attributed this to lower payroll and reduced share-based compensation expenses.
Total cash, restricted cash, and short-term investments declined by roughly RMB 310 million year-over-year (from RMB 1.36B at the end of 2024). While the balance sheet remains adequately capitalized, the ongoing cash burn limits future capital allocation flexibility.
Accelerating. Up from 77.1% in 2024 and 73.6% in 2023. The relentless expansion of gross margins validates the premiumization strategy and the mix shift toward the higher-margin skincare portfolio.
Guidance
Accelerating. The midpoint of RMB 1.019B implies a YoY growth rate of 22.3% against 25Q1's RMB 833.5M. This represents a slight acceleration from the 20.1% growth delivered in 25Q4, indicating management expects the top-line momentum, likely driven by Skincare, to carry into the new year despite lingering macro softness.
Key Questions
Color Cosmetics Reversal
The Color Cosmetics segment abruptly declined 9.1% YoY after growing 25.2% in Q3. Was this driven by specific underperformance at Perfect Diary, broader macro weakness, or a deliberate pullback in marketing spend to protect margins?
Double 11 ROI and Competition
Selling and marketing expenses jumped to 64.8% of revenue, leading to a 61% YoY drop in Non-GAAP Net Income. With foreign premium brands aggressively discounting, is the ROI of major shopping festivals structurally declining for Yatsen?
Path to Positive Cash Flow
Despite achieving GAAP profitability in Q4, operating cash flow remained negative for both the quarter and the full year. What are the specific working capital levers you plan to pull to ensure net income translates into actual cash generation in 2026?