Innovation breakthrough: Yatsen R&D investments ‘most important driver’ for future growth – CFO

Speaking during the firm’s second-quarter earnings conference, chief financial officer and director Yang Donghao emphasised the importance of doubling down on research and development.

“We are making very big investments in our R&D capabilities. We want to improve the efficacy of our products and to make it one of our biggest competitive advantages going forward,” ​he said.

This means the company will be less focused on marketing spend moving forward.

“For the second half of this year, I believe our selling and marketing expenses, as a percentage of revenue, will most likely stay at a relatively stable level. Meaning, you won't be seeing a sharp increase in our selling and marketing expenses to drive sales growth,” ​said Yang.

“For the long term, we do believe that product efficacy and our investment into R&D will be the most important drivers of our future business growth.”​

The strategy to focus on R&D comes as Yatsen’s skin care business, which consists of brands such as DR. WU, Eve Lom, Galenic and collectively achieved year-over-year growth of 112%.

This was partly driven by new launches like DR. WU Triple Action Repair Serum and Galenic Secret D'Excellence Snow Algae anti-ageing serum.

“Our open lab system and our R&D teams are also building the capability to develop a strong pipeline of new products to support the growth of our clinical and skin care brands,”​ said Huang Jinfeng, Yatsen’s founder, chairman and CEO.

“Notable R&D breakthroughs during the quarter included the successful launch of the Triple-Action Serum for DR. WU and the Anti-Aging Snow Algae Serum for Galenic, which featured active ingredients and the formulations developed with significant contribution from our R&D lab.”​

He highlighted that the DR. WU Triple Action Repair Serum was developed in partnership with the Huazhong University of Science and Technology.

During the 6.18 shopping festival, the Triple Action Repair Serum became the top-selling skin repair serum on Douyin. With the brand’s signature mandelic acid anti-acne series, DR. WU became Yatsen’s largest and most profitable skin care brand.

Huang added that Galenic’s Secret D'Excellence Snow Algae anti-ageing serum also featured the firm’s research on botanicals.

“The successful launch and commercialisation of these products show that our R&D teams can develop a new product that suits the need of our growing brand portfolio in an effective manner,”​ said Huang.

On the other hand, its colour cosmetic brands portfolio, which includes Perfect Diary, Little Ondine, and Pink Bear, saw net sales decrease by 50.5%.

This was attributed to the resurgence of COVID-19 in China, which resulted in severe lockdowns for almost two months in the first half. At the same time, there was stiff competition online, further impacting make-up sales.

Despite the stellar performance of its skin care brands, Yatsen’s total net revenues for the second quarter of 2022 decreased by 37.6% to RMB951.8m (USD142.1m).