Can So-Young find new youth in bricks and mortar?

The cosmetic surgery specialist’s top line is growing as it opens new ‘light medical aesthetic’ clinics, but its bottom line is sagging as its older platform business evaporates

Key Takeaways:

• Nearly half of So-Young’s revenue came from its growing chain of “light medical aesthetic centers” in the third quarter, just two years after it opened its first such clinic
• But as its clinic revenue quadrupled in the quarter, the other half of its business declined sharply, leading to a net loss for the period

By Edith Terry

A few years can sometimes seem like a lifetime, especially in China’s fast-moving beauty scene. That’s certainly the case lately for So-Young International Inc. (SY.US), which has pivoted from social media and e-commerce in China’s beauty market to become the operator of the nation’s largest chain of “light” medical aesthetic clinics. But the company’s latest quarterly report, released last week, shows the transformation has left it bleeding red ink, raising questions about the viability of its new dual-track business model.

So-Young opened its first self-operated clinic at its headquarters in Beijing in August 2023, and has rapidly expanded the concept since then. As of this month, it had 42 such centers, one of those franchised, according to Jin Xing, So-Young’s founder and chairman.

That makes the company China’s largest light medical aesthetic clinic chain, putting it on track to meeting its target of 50 new centers by year end, said Jin, who earlier this year gave a long-term goal of establishing 1,000 centers across China in the next eight to 10 years.

“Going forward, we will continue to expand our aesthetic center network in a disciplined manner and drive healthy, sustainable growth through a higher standard system and deeper brand equity,” Jin said. He added that So-Young’s new chain of clinics had logged 600,000 cumulative service visits through the end of September.

The transformation is clearly moving ahead at a rapid clip, but not without a cost. As So-Young builds revenue from its new brick-and-mortar clinics, it is losing ground in what was once its core business operating an online community for people interested in cosmetic procedures and products.

Investors seem to like the overall story of transformation, but aren’t completely convinced. Despite more than tripling since the beginning of the year, So-Young’s shares fell 23% in the four days after its latest earnings announcement, and have lost about half of their value from a multiyear high in mid-July.

Which way the company goes will be pivotal to how investors view it. Out of total third-quarter revenues, aesthetic services associated with its clinics provided 183.6 million yuan, up 305% year-over-year. But revenue from information and reservation services associated with its older online community were down by 34.5% to 117.2 million yuan. Sales of medical products and maintenance service also dropped 25% to 67 million yuan.

Those various segments gave So-Young total revenue of 386.7 million yuan for the quarter, up 4% from 371.8 million yuan a year earlier.

As its new clinic openings moved into high gear, the company swung to a net loss of 64.3 million yuan in the latest quarter from a profit of 20.3 million yuan a year earlier. Its cash fell by about a quarter, from 1.25 billion yuan at the end of 2024 to 943 million yuan at the end of the third quarter. But that’s to be expected when you consider the pace of its chain expansion.

Online roots

To understand So-Young’s evolving picture, a look back at its history may be in order. At the time of its IPO in 2019, So-Young was an e-commerce platform where users could search for and book medical aesthetic services, linking some 6,000 medical service providers in 300 cities with more than 1 million active users.

Originally an online community for cosmetic surgery when it was founded in 2013, the company branched into e-commerce in 2014 by connecting with medical aesthetic hospitals and clinics. Its medical service providers were a main source of revenue, using the site as an advertising and booking platform. It also earned commissions from bookings made on its site.

It began selling cosmetic ‘injectables’ like Botox and hyaluronic acid early on. Chairman Jin’s mother was a plastic surgeon, and Jin shared his own experiences with face-slimming shots, hair transplants and injectable hyaluronic acid on the So-Young app.

Jin started So-Young to make it easier for people to find information about cosmetic surgery and related products, as Chinese consumers discovered and embraced such services when the economy was booming. In 2021, So-Young acquired Wuhan Miracle, a producer of medical products for hospitals. Revenue from both its third-party injectables and Wuhan Miracle products have become a separate, significant revenue stream since 2023.

Its latest business structure is a bit contradictory, since the independent practitioners who pay So-Young for referrals in its original online community now find themselves competing with So-Young’s self-operated clinics. This is an obvious long-term negative, since such independent practitioners may hesitate to work with someone offering a rival service.

But operating its own clinics also has clear advantages over working with third parties, since So-Young can control quality at a higher level. The proliferation of small-scale clinics in the cosmetology industry, many offering service of questionable quality, has been a major target of regulatory clampdowns in recent years.

“As we increase store density and bring prices closer to those in Korea, I believe more and more consumers will choose to receive these treatments domestically,” Jin told Bloomberg recently. He said that So-Young’s strategy of mass procurement and its ability to keep marketing expenses down due to high consumer familiarity with the company’s products were helping it to keep its prices low.

China’s medical aesthetics market is huge and growing fast, with penetration metrics lower than South Korea, the U.S., Brazil and Japan. A recent report on the industry by KPMG estimates the market will quadruple by 2030, from 311.5 billion yuan in 2023 to 1.3 trillion yuan. Around 38% of the market is in non-surgical cosmetology, which is So-Young’s niche. Among people new to such treatments last year, 56.9% were young, between the ages of 21 and 30, and another 22% were between 25 and 31.

Its pivot from online services means So-Young will no longer need to compete with China’s internet giants offering similar booking services. But it will face new rivals from companies like Lancy Co. (002612.SZ), which recently acquired the prominent Beijing LiDu hospital, and is partnering with Pumen, a medical aesthetics company to develop new products. Even after its big gains this year, So-Young’s price to sales (P/S) ratio of 1.45 is still slightly behind the 1.59 for Lancy.

It may not be a bad thing that So-Young is saying ‘so long’ to its legacy business, and investors seem to be giving the move a thumbs-up with the big gains in the company’s shares this year. Still, the transition is likely to have some hiccups along the way, as the company shifts from the online to the more capital-intensive brick-and-mortar realm.

To subscribe to Bamboo Works weekly free newsletter, click here