So-Young Reports Q2 2019 Revenue Up 87.3% Year-over-Year, First-Half Net Profit Exceeds Full-Year 2018

On August 29, Beijing time, So-Young Inc. (NASDAQ: SY) released its financial report for the second quarter of 2019. VCBeat (WeChat ID: vcbeat) provides an analysis of the report.

The second-quarter report shows that as of June 30, 2019, So-Young Technology achieved revenue of RMB 285 million, a year-on-year increase of 87.3%, exceeding the high end of the Q2 revenue guidance issued in its Q1 financial report; it realized a net profit of RMB 29.3 million, representing a 230% increase compared to the same period last year; non-GAAP net profit grew significantly to RMB 102.2 million, up from RMB 12.7 million in the same period last year, a year-on-year increase of 805%. This marks the tenth consecutive quarter of sustained quarter-on-quarter and year-on-year revenue growth for So-Young Technology since it turned profitable in 2017.

In the second quarter of 2019, the total transaction value of medical aesthetic services facilitated by the So-Young platform reached RMB 892.9 million, representing an 81.9% year-on-year increase. The number of paying medical institutions stood at 3,157, a 39.4% increase from 2,265 in the same period last year.

In the first half of 2019, So-Young Inc. reported total revenue of RMB 491 million, representing an 84.7% year-on-year increase. The company achieved a net profit of RMB 75.2 million, surpassing the full-year net profit of RMB 55.08 million recorded in the previous year.

In terms of corporate operations, in the second quarter of 2019, SoYoung’s mobile average monthly active users (MAU) reached 2.47 million, representing a year-on-year increase of 72.5%. Among these, the number of paying users was 201,500, up 118.8% from the same period last year. The growth rate of paying users exceeded that of MAUs, indicating that the platform has a healthy ecosystem capable of converting traffic into actual consumption.

Mr. Jin Xing, Chairman and Chief Executive Officer of So-Young, stated, “The Company delivered strong performance this quarter, with business operations maintaining their growth momentum. As platform content continues to enrich and user experience improves, the user base of the So-Young community has continued to expand. This quarter, average monthly active users (MAUs) on mobile and paying users both saw significant sustained growth, increasing by 72.5% and 118.8% year-over-year, respectively. Our core focus remains on deepening our penetration into the medical aesthetics industry, while expanding our user base and enhancing user stickiness. Meanwhile, medical institutions are increasingly recognizing the unique value we bring through efficient customer acquisition, differentiated brand building, and improved operational efficiency. Looking ahead, we are fully confident that the industry will continue to present sustainable growth opportunities, and that the Company is well-positioned to seize these opportunities and create long-term value for our shareholders.”

Mr. Yu Min, Chief Financial Officer of So-Young, added, “Total revenue for the quarter reached RMB 285.0 million, representing an 87.3% year-over-year increase and exceeding the high end of the Company’s guidance. User experience is key to user growth, and we have prudently balanced the monetization of services with enhancing user experience. I am highly satisfied with the current progress. Our commercialization initiatives have not adversely affected user numbers or user stickiness to the platform, indicating that our platform is delivering increasing value to both users and medical institutions. As we continue to expand the scale of our platform and diversify our revenue streams, the Company’s profitability has improved, with non-GAAP net income for the quarter rising significantly to RMB 102.2 million.”

According to Frost & Sullivan data, the proportion of customer acquisition expenditures by medical aesthetics service providers through online medical aesthetics service platforms, relative to total customer acquisition spending across all online channels, increased from 0.9% in 2014 to 7.0% in 2018, and is projected to reach 25.6% in 2023. Furthermore, total customer acquisition spending on medical aesthetics service platforms is expected to grow from RMB 1.3 billion in 2018 to RMB 12.6 billion in 2023, representing a compound annual growth rate (CAGR) of 58.2%.

Online medical aesthetics service platforms attract providers by leveraging professional content to draw targeted traffic, which is then distributed. In particular, as substantial content accumulates on these platforms, it serves as a key reference for assessing the quality of physicians and institutions.

SoYoung’s Q2 financial report shows that the average monthly active users (MAU) on its mobile platform reached 2.47 million, a year-on-year increase of 72.5%; the number of paying users was 201,500, up 118.8% year on year. The growth rate of paying users exceeded that of MAUs, indicating that the platform has strong content ecosystem capabilities, effectively distributing traffic and converting it into consumption.

“By adopting a content-marketing-driven strategy, So-Young can help medical institutions and physicians build their own ‘self-media’ channels, attract followers, and provide tools for follower management, thereby positioning So-Young as a platform for operating private-domain traffic and serving as the ‘convergence point’ for online traffic across the entire internet,” said Jin Xing.

China’s internet sector exhibits a strong Matthew effect. Following its IPO, So-Young has greater financial reserves to capture user mindshare, such as by increasing advertising spend. It is also intensifying market education to drive the online migration of medical aesthetics consumption. For instance, So-Young has launched a series of e-commerce shopping festivals, collaborating with institutions on its platform to attract users through subsidies and incentives.

In 2015, China’s online medical aesthetics industry experienced intense competition, with more than a dozen platforms emerging. By 2018, the market size of China’s medical aesthetics industry exceeded RMB 100 billion, and SoYoung accounted for 84.1% of the total daily time spent by online medical aesthetics users, highlighting the increasingly pronounced Matthew effect as traffic consolidated toward leading platforms.

Medical aesthetics falls within the healthcare sector. Due to the exceptionally high professional barriers to entry, industry giants had previously hesitated to make significant inroads. However, this landscape began to change in 2019.

Meituan’s Q2 2019 financial report showed a net profit of RMB 1.49 billion, marking its first return to profitability after a net loss of RMB 1.03 billion in the previous quarter. The contribution of its medical aesthetics business was highlighted. Additionally, internet companies such as Alibaba Health, Baidu, and JD.com have begun to enter the medical aesthetics sector.

The entry of tech giants may usher in the second half of competition in China’s internet-based medical aesthetics industry. According to the SoYoung 2019 White Paper on the Medical Aesthetics Industry, China’s consumption volume of medical aesthetic procedures in 2019 is projected to surpass that of major consumer markets such as the United States, Brazil, Japan, and South Korea, ranking first globally.

“Internet giants entering the medical aesthetics sector is a positive development, indicating that society is increasingly viewing the industry with greater objectivity. Over SoYoung’s six years in this space, the public has often regarded medical aesthetics through a biased lens. The entry of major corporations precisely underscores that medical aesthetics is a highly promising sunrise industry with significant future potential,” said Jin Xing. In specialized fields such as healthcare, the advantages of vertical platforms are even more pronounced.

Unlike sectors such as clothing, food, housing, and transportation, the medical industry requires stringent measures to ensure consumer safety. To this end, So-Young has implemented a series of initiatives, including verifying that 100% of the institutions and physicians on its platform are fully licensed and accredited, while also adopting multiple strategies to combat black-market activities and safeguard the authenticity of information.

Since its inception, So-Young has intercepted harmful content through a combination of technological measures and manual review. Currently, 1.29 million suspicious posts have been flagged by automated systems, and the manual review team comprises over 100 members. In August 2019, So-Young launched a facial recognition verification system, becoming the first medical aesthetics platform in China to employ live-person-to-photo comparison technology for content moderation.

“Internet healthcare is a slow-moving industry. We will prioritize the rigor of content moderation, even if it affects the company’s growth rate,” Jin Xing previously stated in public. SoYoung’s upcoming strategy is “one vertical, one horizontal.” The “vertical” refers to continuing deep cultivation in the medical aesthetics industry by building an industrial internet. This involves empowering various production factors within the industry through internet technologies to enhance industrial efficiency.

“One Horizontal” signifies So-Young’s expansion into a broader range of consumer healthcare categories. Notably, So-Young has achieved commendable results in the dental sector after six months of operations. The characteristics of medical aesthetic procedures—such as high average transaction values and high decision-making thresholds—align almost perfectly with dental services like orthodontics, dental implants, and veneers. For dental institutions, these high-value services represent the most challenging business “fortresses” to conquer.

Jin Xing revealed that the average transaction value per customer at SoYoung Dental exceeds RMB 3,000, surpassing even the average for medical aesthetics services. Currently, SoYoung Dental has onboarded more than 1,400 specialized dental institutions, attracted approximately 2,500 dentists, and accumulated nearly 100,000 verified cases of orthodontic treatment.

By 2022, China’s consumer healthcare market is projected to reach a scale of RMB 1 trillion. “This sector is sufficiently large and broad. Over the past six years, So-Young’s successful practices in the medical aesthetics field have proven replicable in other segments of consumer healthcare characterized by high average transaction values and high decision-making thresholds,” stated Jin Xing.