So-Young posts a 50% jump in Q1 net income, but where is the firm really heading?
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On the evening of May 30, So-Young (新氧) announced the financial results for the first quarter of 2019 since the company went public on Nasdaq in May under "SY."

Financial reports show a year of rapid expansion for one of China’s largest medial aesthetic players. Its profits jumped more than 50% from USD 4.3 million to USD 6.8 million, and operational expenses almost doubled, totalling USD 19.6 million. 

So-Young is one of China's online marketplaces where consumers can discover, review, discuss and book medical aesthetic services. The company’s platform has logged 1.9 million MAU. (Find more about So-Young in this in-depth coverage)

MAU and the number of partnership hospitals are the most significant indicators of a medical aesthetic platform's business prospects. So-Young has performed convincingly in this regard.

For instance, So-Young has reported an increase of 78.7% in MAUs on mobile devices. With its nearly 2 million MAU, the company has surpassed its competitors in the number of users by a considerable margin.

What's more, the Q1 report revealed that the total number of paying customers on So-Young reached 127,300 in the first quarter of this year, a year-on-year increase of 84.9%.

Moreover, medical service providers subscribing to information services on So-Young’s platform numbered 1,853 in the first quarter of 2019.

So-Young’s overall expansion in its operational capacity is a remarkable success for the company. This is because, as an intermediary between, medical aesthetic providers and consumers, the efficiency of the platform is tied to its overall penetration. Higher penetration creates a unique value proposition for the company.

As of the fourth quarter of 2018, three platforms dominated the Chinese medical aesthetic market; they were So-Young, Gengmei (更美) and Yuemei (悦美). Amongst them, So-Young is the only one that has pulled off a US float, thanks to its number of orders, user traffic and penetration rate. 

Despite a bright prospect, So-Young needs to be concerned about a few things.

First, Gengmei, Yuemei and several others may be catching up, albeit slowly, and this is something that should have put So-Young’s management and investors on alert. Gengmei, Yuemei and several others may slowly be catching up, and it is the first thing to be closely followed by the So-Young investor.

Second, one of So-Young's avenues of monetization is for medical service providers to pay “service fees” in return for getting better placements and thus visibility on the platform. This raises the possibility of creating a conflict of interest. 

So-Young's business looks secure and stable as of the first quarter of 2019. However, it is important to remember that its business model is still not characterized by a high barrier to entry, and may contain risks from a regulatory and branding perspective.

So while So-Young’s strong financial performance might have given its investors a cause for celebration, they’d better not take this temporary success story at its face value. The industry, let alone the company itself, is risky and merits closer scrutiny and due diligence investigation.

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