“The plastic surgery industry in China is indeed filled with sketchy practices, and there is plenty of news coverage about people ruining their lives getting surgery from unlicensed doctors. Apps like So-Young allow me to review the past cases and customer reviews on each surgeon & clinic, so I can make a wiser choice and avoid unqualified surgeons,” a user of the medical aesthetic platform told EqualOcean.  

The same individual spent over CNY 75,000 on the medical aesthetic services marketplace. He did multiple appointments for Botox, hyaluronic acid and face sculpting injections, one facial liposuction, an upper lip thinning surgery and buccal pads deletion surgery, all while tracking the hundreds of clinics exposures on the platform.

There were 172,500 purchasing users like him in the third-quarter of 2019, the medical aesthetic services marketplace revealed in its third-quarter filings. 

So-Young (SY: NASDAQ) peaked new heights in the third quarter of 2019. Total revenues were CNY 302.4 million, a YoY increase of 79.6%, and the average mobile Monthly Active Users (MAUs) were 3.42 million, a YoY increase of 143.8% – meaning now the company has entered a new stage where its aggressive growth has started to cool down due to the limited addressable market size. The company could still retain its eye-catching gross margins at around 85%.

Critical Indicators for So-Young

So-Young's business relies on the accumulation of two crucial numbers: mobile MAUs and the number of clinics shown on the app. While accumulating the revenues generated from the paying users, the firm has been trying to optimize the promotion services fees collected from the hundreds of small and mid-sized clinics around the mainland. At the same time, it has been advertising on mass media to hold its ‘most-trusted medical aesthetic information provider’ position against its competitors, including Gengmei (更美), a Sequoia-backed private medical aesthetic information services firm.

The company spent CNY 156.6 million on its sales and marketing operations in the third quarter of 2019, more than half of its total revenues in the same period. Considering the proliferation of similar apps and dynamic sector conditions, we expect that the marketing expenses will be the major obstacle for the company in the foreseeable future.

We defined Gross Bookings as "Aggregate value of medical aesthetic treatment transactions facilitated by So-Young’s platform." The firm achieved over CNY 90 million increase in its Gross Booking Values from Q3 to Q4 of 2019, although the average number of purchasing users decreased in absolute terms from 201,500 to 172,500 in the same period.

Purchasing users are defined as people who made verified transactions with the service providers; the average transaction by each purchasing user increased from CNY 4433 to CNY 5659 from the third quarter of 2019 to the fourth. Most of those purchasing users use the app at most once or so, due to the nature of having cosmetic surgery. 

Yet, the revenues are mainly comprised of information services, which are the fees collected by placing information about medical aesthetic service providers' on So-Young's platform: advertisement. And ads’ contribution to the firm's total revenues has been increasing, dangerously so. So-Young generated 40.5% of its revenues from information services in 2016, 67.4% in 2018, and around 71% far in 2019.

“Medical service providers who use our information services are obliged to comply with relevant laws and regulations and ensure the credibility and reliability of all information provided to us and distributed on our platform,” says the firm in its prospectus. Yet, considering that the majority of these medical service providers are small and mid-sized clinics, it is less likely for all of them to deliver exactly what they’ve promised, and one case may hurt the entire brand image of the company, ultimately resulting in user loss.

The company is not likely to keep increasing its revenue more from adds to service providers, and at the same time achieving its mission to become "the most-trusted tech company in the consumer healthcare industry" This business model will probably prove cancerous for the firm in the long term.

Although it has been decreasing since the third quarter of 2018, the cost of acquiring new users is still high for So-Young. New players are entering the industry aggressively, and the technical barriers to entry are not so high. There is a little possibility for So-Young to successfully keep decreasing its user acquisition costs in the near term.

What's Next for the Beauty Priest

"I personally have a very specific 'beauty goal' and sometimes I don’t know if surgery can achieve my very particular goal, but the app helps me to see what surgeries I am able or unable to pursue... I can refer to other people's cases, before-vs-afters, and predict what I actually need and what I don’t, without getting persuaded to do surgeries or treatments that I personally don’t desperately need, only because the salesperson at a clinic recommend them to me," said the user to EqualOcean. 

He and thousands of others are assuming that the platform is not in itself a manipulator of users. And the app is increasing its bet on advertising revenues, risking its brand recognition and new user acquisition. Thus, revenue composition will be one of the fundamental factors deciding the company's integrity over time.

Besides all the above, the company is still in its expanding stage, serving the growing crop of upper-middle-income citizens. It is the most recognized-platform by far, in a business field where the winner takes the most – but not necessarily all.