So-Young International Inc.
Q4 2020 Earnings Call Transcript

Published: 22 Mar 2021

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by for So-Young's Fourth Quarter and Full-Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I'd now like to turn the meeting over to your host for today's call, Ms. Vivian Xu. Please proceed.

[Vivian Xu:]

Thank you, operator, and thank you for joining So-Young's fourth quarter and full-year 2020 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995.

[Xing Jin:]

Thank you, everyone, for joining us for our fourth quarter and full-year 2020 earnings call. We ended 2020 with a solid quarter as total revenues reached RMB 421 million, , an increase of 19% year-on-year, in line with our previous guidance. Although, there were small outbreaks of COVID-19 across some province in China during the quarter, the medical aesthetics industry as a whole and our business remained on track. In particular, our user base kept a strong growth momentum, with average mobile MAUs reaching 8.9 million in the fourth quarter, an increase of 142% from a year ago. The growth was mainly attributable to our efforts to continuously expand our content library that caters to users’ demands, as well as the launch of innovative service based on advanced technologies, such as the VR Store and Live Diagnosis. Our progress was well recognized among medical service providers, leading to new cooperation with many of them. In the fourth quarter, the number of paying medical service provider on So-Young's platform reached 4,746, up 40% from the prior year. Due to the impact of the COVID-19 pandemic, 2020 was a challenging year for the medical aesthetics industry, especially for surgical treatments, as costs are generally much higher and people tend to take more time to consider different factors before making final decisions. As of date, the surgical category is on track to recover at a relatively slow pace. But in deepening their cooperation with So-Young, medical service providers with stronger operational capabilities and offered comprehensive services, were able to outperform tough market conditions, thereby greater -- sorry, thereby greatly improving their customer acquisition performance. Looking ahead, along with the tightening regulatory environment and the development of various parties throughout the value chain, we believe the industry will progress in a better and more orderly manner. With more trust and transparency among all service providers, demand from end users will eventually ensure the sustainable and healthy growth of the medical aesthetics industry.

[Min Yu:]

Thanks, . Please be reminded that all amounts quoted here will be in RMB term. Please also refer to our earnings release for detailed information of our comparative financial performance on a year-over-year basis. For the fourth quarter 2020, total revenues were RMB 424.6 million, up 18.6% year-over-year and in line with our guidance. The increase was primarily due to an increase in the number of paying medical gradually recovered as the impact of COVID-19 continue to ease in China. Within total revenues, information services revenue was RMB 335.9 million, up 27% year-over-year. Reservation services revenue was RMB 88.7 million, a decrease of 5.3% year-over-year. Cost of revenues was RMB 63.6 million, up 8.7% year-over-year. Total operating expenses were RMB 331.2 million, up 48.6% year-over-year. Sales and marketing expenses were RMB 210.4 million, up 59.2% year-over-year, primarily due to an increase in expenses associated with marketing activities and payroll costs. G&A expenses were RMB 49.9 million, up 38.4% year-over-year, primarily due to increase in payroll costs associated with the expansion of administrative employees.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Thomas Chong from Jefferies.

[Thomas Chong:]

Thanks, management, for taking my questions. My question is more about 2021 and the outlook in the next couple of years. What is our strategy on surgical and non-surgical treatments? And also what are the similarities and differences between you and your competitors in terms of advertising and operation advantage? Thank you.

[Xing Jin:]

[Vivian Xu:]

First on the non-surgical categories, the number one is to treatments with low average transaction value we want to strengthen the leading position in the quantity, pricing, as well as the coverage of the SKU. And then to those middle and high average transaction values, we're going to standardize our services and improve performance with So-Young pass to target mid to high-end user groups. Then we will still through our So-Young Ambassador program and the new media team, which can enhance our partnerships with the upstream OEMs and increase the amount of content on non-surgical treatments in our community and also drive more user engagement. And lastly, we will promote more shopping festivals, such as anti-aging and the slim festivals and other promotional activities to strengthen consumer awareness of our professional advantage in non-surgical categories. On the surgical categories, first of all, we want to -- we will expand the list of doctors by introducing a larger number of top-tier surgeons with our Emerald Doctor Lists, including doctors from public hospitals. And also, we will, through features like So-Young doctor public account, Live Diagnosis and through a -- in this way, we could help doctors to improve efficiency, while upgrading their IPs and also to highlight their differentiations. Then in some sectors like the eyelid surgeon -- eyelid surgery, rhinoplasty, breast and also some like the fat transfer, we will set up dedicated teams for each category. We will restart the overseas surgery business in Korea and Japan according to the pandemic situation overseas and the policy changes on traveling abroad. In terms of marketing, we are the only platform positioned as a vertical for professional medical aesthetics. Our competitor are positioned as comprehensive e-commerce platform, which makes it too difficult for them to be seen as a focused platform, or they are too small in size and have difficulty to invest sustainably. In terms of operation, our dedicated team allowed us to fine-tune our service spread across different categories and regions. That's all. Thanks.

[Operator:]

Thank you. Our next question comes from Brian Gong from Citigroup. Please go ahead.

[Brian Gong:]

I will translate myself. Thanks management for taking my question. My question is about the area of the plastic surgery and the medical aesthetics industry, especially after the Chinese New Year. And when does management expect to see the full recovery? And when it will translate into our revenue? Thank you.

[Xing Jin:]

The uncertainties of the pandemic have led to weakened consumer confidence overall. However, thanks to our engaged user base high-quality content and community building capabilities, we have effectively engaged repeated users and added new users on our platform. So you can see that the MAU during the fourth quarter was close to 9 million and this maintained a growth momentum of more than 140%. And with the continued increase of demand from our medical aesthetic screens, we could see that clinics and hospitals invest more in marketing spending especially in the user acquisition. So in the fourth quarter, we actually grow our paying medical service provider number to over 4,500 members. And this is the highest growth compared to the several quarters last year. And this average ad budget of each customer also grow steadily in last year. Surgical treatments were heavily hit by the pandemic due to the market high average transaction value. Overall, the industry is on the right path to recover. But we could see still some gaps in transaction scales as well as the transactions value for average customer compared with the peak period in the fourth quarter of 2019. So it is -- based on some -- the situation in the earlier 2021, consumer demands grow especially from the non-surgical sector, we think that this will automatically drive the overall market growth healthy. That's all. Thanks.

[Operator:]

Thank you. Our next question comes from Leo Chiang from Deutsche Bank. Please go ahead.

[Leo Chiang:]

Thank you for taking my question. My question is in the face of fierce competition, what strategy will you adopt to compete with others in the industry? And in the long-term, what are the entry barriers? Thank you.

[Xing Jin:]

[Vivian Xu:]

In summary, our competitive strategy is too differentiated our - from our peers, which includes three main points. The first is focus on teams on excellent services improve user experience. And secondly, combine e-commerce community and AI technology to improve user decision-making efficiency. And the third is strengthen brand awareness and increase mind share of users and continue to build on our reputation as a professional medical aesthetics service platform.

[Xing Jin:]

[Vivian Xu:]

On the first point, right now, currently most institutions do use the online platform as a group buying channel to direct traffic into their offline shops. Customer who are attracted by the low price offers are usually persuaded to upgrade their packages and pay for much higher services or treatment by sales consultant. Users often feel cheated and that the service quality is not guaranteed. We have observed that platform with this business model do achieve significant growth in orders -- in terms of orders or GMVs, but we just believe that in the long run, it also result in negative brand sentiment. We will continue to provide service quality and extend our service online to give greater security to the performance. For non-surgical category, we will continue to promote So-Young Pass to enhance the standardization of service and treatment. Through reviews from third-party investigation and the consumers we were able to work selectively with the best-performing institutions and continuously improve user experience. For medical aesthetic surgeries, we continuously researched and select top-tier plastic surgeons for our 2021 Emerald Doctor Lists. At the same time, we also provide top-tier doctors with shared facilities and opening -- and operating room in order to control overall quality on each treatment. In terms of improving users' decision-making process we are the only platform to have both e-commerce and community building capabilities. In addition our AI tools have been user -- have been used over 1.5 billion times including those for facial and skin mapping techniques. The combination of these three factors have allowed us to continuously improve the efficiency of user decision-making. Lastly, our continuous brand building and campaigns on social media have also strengthened our brand awareness among users. So this should be the most important antidairy for So-Young. That's all. Thank you.

[Operator:]

Thank you. Our next question comes from Vincent Yu from Needham & Company. Please ask the question.

[Vincent Yu:]

Thank you management for taking my question and my first question is about the user growth and the monetization. In 2020, we have a very strong growth momentum in user growth. And what do we think about the trend in 2021? And what's the monetization our expectation in '2021? And my second question is about the So-Young Pass. So how do we think -- can management share some details about our plan or strategy around the So-Young Pass which seem to be a very important step for the user experience standardization? Thank you.

[Xing Jin:]

We will maintain our 2020 user growth strategy in this year execute more forcefully and focus on the acquisition of mid to high-end and premium users. Users typically fall into a triangular distribution model in most mass consumer categories with price-sensitive users accounting for the majority. However, for medical aesthetics services user usually fall into a shape distribution structure with mid to high-end and premium users forming the majority of the mainstream market. These price-insensitive users are willing to pay for quality service and a better result for the treatments. And the transaction value of treatments are usually above RMB 1,000. We have significant advantage among this user and we'll continue to reinforce and expand our reach to them. According to the third-party market research in terms of the users' perception of So-Young, as a professional medical aesthetics platform it's by far ahead of our peers. In this year, we will continue to invest in our branding and consolidated our advantage in users' mind share. In addition, we are continuously improving the effectiveness of our user acquisition target users through short-video platforms and social media channels, which has helped us acquire more premium users. For monetization, we will insist on the principle of past user experience first, by continuing to inspect our partner institutions' operations and regularly reviewing the uncertainties of drugs and medical services used by those off-line shops, strictly prevent fake transactions and reviews to avoid misleading consumers. At present, we believe we are the most compliant medical aesthetics platform in the market and we will continue to comply and promote industry standards to strengthen our brand image. We expect – we think that this may have some short-term impact on our revenue. But in the long-term, we will still stick to the strategy because we believe this is the right one for long-term growth and it will bring more value-added service to our loyalty customers. Unlike those our – unlike the traditional service to our end customers usually those qualified institutions could register on our platform as they have the license or some follow all the restrictions. But for the So-Young Pass, it's actually rounded on behalf of ourselves. So this is actually use our branding to promote on our platform. First of all for those products shown on our So-Young Pass they are standardized and more safe and also could be in the certain price. In this way we kind of to solve our SOP process to working with those off-line institutions and hospitals and also working with those selectively – selectively working with those off-line institutions, we kind of to set up the price – and set up the price and this price is certain. In this way, we could -- to improve our user experience especially from the online part.

[Xing Jin:]

[Vivian Xu:]

We think that we actually go deeper into the cooperation with those offline institutions ranging from like the products designer and also the SOPs designer and also to control the whole quality of such services. And we think that we will firstly to test in several cities. And if it is successful and to be well received by our end users we're going to expand it to the whole regions of China. Thanks.

[Operator:]

Thank you. Our final question today comes from CICC. Please ask the question.

[Unidentified Analyst:]

So, my question is regarding the reservation service. We can see a decline in reservation service revenue in both absolute and relative ways. So, how do you boost the sales of the reservations on your platform in the future to form a complete closed-loop business model? Thank you.

[Xing Jin:]

[Vivian Xu:]

In the short-term on the consumer side, we will continue to strengthen the guarantee of the reservation performance in terms of like the advanced payment, insurance, and the disputed mediation. On the merchant side, we will use online payments as tool to strengthen our traffic distribution and conversion promoting merchants to guide users to place orders online.

[Xing Jin:]

[Vivian Xu:]

Currently, I think that all the medical aesthetics e-commerce platform including So-Young itself actually adopt a good buying model, which is a relatively outdated e-commerce model. A better medical aesthetics e-commerce model must comprise of online and offline marketing channels to form a closed-loop ecosystem which should include the following characteristics; the first is streamlined products or services. And the second is to be the online management of inventory and reservation. And thirdly, but not the least important is conduct a real-time communication between e-commerce platform and the medical service providers through technologies tools like the SaaS. So, we believe this closed-loop e-commerce model should provide consumer with a much better customer experience and help service providers and institutions improve operational since efficiency. And we think that we will gradually upgrade So-Young Pass to form a closed-loop sales model which will make it easier for users to place orders, thanks to better user experience. Meanwhile, So-Young Pass feature a one-time, purchase multiple service model, and have increased users' interest to our platform. And we believe that -- and right now the So-Young Pass actually cover more than 10 cities and 10 -- or more than 11 cities and covered 10 hot categories. The most popular categories include like the skin cleansing and some laser projects. And the hottest cities mainly include top-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen. That's all. Thanks.

[Operator:]

All right, thank you. So, ladies and gentlemen we have reached the end of the question-and-answer session. So, with that we conclude our conference for today. Thank you for participating and disconnect.