New consumption is a gorgeous robe, but in the annual reports one year after listing, it reveals a thin lining. A year ago, new consumption companies saw a wave of listings; now, with the disclosure of annual reports, it's time to see who is truly capable. Recently, five 'first stocks' of new consumption have released their 2021 results: Yixian E-commerce (Perfect Diary) in beauty, Pop Mart in trendy toys, Betaini (Winona) in functional skincare, Naixue's Tea in new tea drinks, and Helens in pubs. These five 'first stocks' from different tracks were listed between the second half of 2020 and the first half of 2021, which is not a coincidence. An investment manager told Kaiboluo Finance, 'They all went public during the hottest market and highest valuation period.' The timing was well chosen, and the listing speed was fast; the youngest, Helens, took less than three years from establishment to listing on the Hong Kong Stock Exchange. However, fast listing does not mean stable performance. Among the five 'first stocks', Betaini, the most stable, has seen its stock price decline all the way, while the other four have fallen below their issue prices. Yixian E-commerce, as a star company in the beauty track, saw its stock price surge 75% on the first day of listing, but later fell below $1 due to the collective sell-off of Chinese concept stocks. It is actually difficult to summarize the commonalities of the five new consumption first stocks in one sentence. Zhuang Shuai, an expert in retail e-commerce and founder of Bailian Consulting, said that except for Helens, the other four are brand retailers developed through product innovation. Specifically, Yixian E-commerce and Betaini are single-category product companies, Pop Mart is an IP industry chain, Naixue is fresh-made product retail, and Helens is agency brand retail and OEM product production and retail. Despite different businesses, we can still see some insights from the financial reports. Combining the views of multiple interviewees, the halo of the 'first stock' has faded, and the capital market's standard for evaluating new consumption companies has shifted from growth to profitability. Kaiboluo Finance attempts to answer the following questions by analyzing these five companies:

  1. Who is the most beautiful? Who can earn money to support the family? 2. Has the online traffic dividend really disappeared? 3. For offline business, scale or profitability? 4. Is the capital dividend of new consumption gone forever? Who is the most beautiful, and who can earn money to support the family? The title of 'first stock' to some extent represents market position. Under the high investment sentiment at that time, the capital market was willing to pay for the growth of the 'first stock'. How should the 'first stocks' after listing demonstrate their growth? Bao Yuezhong, a new retail expert, said that it is mainly reflected in financial indicators, specifically the growth of revenue and profit. First, look at revenue. For new consumer products, reaching a certain sales scale is a condition for profitability. Chen Xin, an investor focusing on the consumer sector, told Kaiboluo Finance that it is not difficult for a brand to achieve sales of 100 million yuan through more avant-garde marketing or newer channels, but breaking through 10 billion is rarely achieved. Among the five companies, except for Helens, which was established the latest, the others have revenues around the 5 billion mark. The first to break through this level was Yixian E-commerce. In 2020, it achieved revenue of 5.2 billion yuan, but as the scale base increased, its year-on-year growth slowed to 11.6%, and its 2021 revenue did not meet the market expectation of 6 billion. To complete the 'KPI' of 6 billion in 2022, Yixian E-commerce must at least maintain its current growth rate. The second tier, Pop Mart, Naixue's Tea, and Betaini, are collectively looking up at the 5 billion mark. After surviving the difficult 2020, their revenue growth rates recovered in 2021, but to varying degrees. Nearly 4.5 billion in annual revenue is the highest in Pop Mart's history. Although the growth rate of 78.7% is not slow, it has significantly declined compared to the growth rates of over 200% in the previous two years (2018 and 2019). Naixue is similar, with overall revenue reaching a new level, exceeding 4 billion, but the growth rate is only one-third of that in 2019. Betaini, the oldest, is relatively stable. The outside world may not be familiar with this company, but its most well-known brand is Winona, which focuses on functional skincare. Except for 2020, it has maintained an annual growth rate of over 50% in the years it disclosed results, and it is the only company among the five that has shaken off the shadow of the pandemic and restored growth to pre-2020 levels. In terms of growth rate, the youngest, Helens, ranks first with 124.4%. Although it has the strongest explosive power, due to its small base, even if it continues to grow over 100% next year, it will still be the smallest in revenue scale. Looking only at revenue is clearly not enough. Combining the views of multiple interviewees, the capital market's standard for evaluating new consumption companies has shifted from 'growth' to 'real profitability' due to changes in the macro environment. (Note: Betaini's net profit is attributable to the parent company) By profitability, these five companies can be divided into two camps. The loss-making representatives are two. Yixian E-commerce loses the most, but compared to itself, the loss is narrowing. Naixue returned to losses after a brief period of profitability. Because the revenue growth of these two companies has limited recovery, turning losses into profits will undoubtedly become more difficult. The remaining three are profitable, and it is not easy to maintain both revenue and profit growth under the pandemic, but their situations differ. Helens and Pop Mart have seen their profit efficiency decline all the way. Helens, a low-price and direct-operated pub, has always had low profit margins, and its adjusted net profit margin has been decreasing year by year, falling to 5.4% in 2021. Pop Mart, originally a high-profit enterprise, is no longer 'making money like water' as before, with its adjusted net profit margin dropping from 27.9% in 2019 to 22.3% in 2021. Betaini is relatively stable, with a net profit margin consistently above 20% and a high gross margin. However, in a vertical comparison, its gross margin has been slowly declining over the past five years, from over 80% to 76%. Chen Xin said that if both gross and net profit margins are high, it indicates that the company has good cost control and high management level. Among these, the gross margin indicator can better explain a company's product competitiveness in the cosmetics business. Overall, he believes that whether it is continuing to lose money or making money more slowly, it reflects a certain dilemma of 'new consumption'. The five 'first stocks' are very representative, representing two types of new consumption brands: those focusing on online channels and those focusing on offline stores. Zhuang Shuai summarized that 'new consumption brands' focusing on online channels inevitably exchange marketing investment for rapid scale growth; 'new consumption brands' focusing on offline stores inevitably exchange scale expansion for growth, while combining online channels and marketing for simultaneous growth. This is reflected in the financial reports of the five companies. Has the online traffic dividend really disappeared? First, look at the 'online business' represented by Yixian E-commerce and Betaini. The first wave of new consumption brands rose with traffic, mostly seizing the traffic dividend of a certain online channel. For example, Yixian E-commerce's main brand Perfect Diary hit Xiaohongshu, and Huaxizi bet on Li Jiaqi's live streaming room, leading to the 'universal' formula of '20,000 Xiaohongshu posts + 8,000 Douyin posts + 3,000 Bilibili posts + 150 Zhihu answers + live streaming sales = a new brand', as if throwing money at traffic is the simplest means. Traffic is limited, and there are only a few main platforms. When more and more new consumption players learn this trick and flock to throw money at certain platforms, it naturally leads to a red ocean in the traffic pool, with ROI (return on investment) getting lower and lower. Even the beauty first stock and functional skincare first stock, which once enjoyed traffic dividends, are now saying 'can't afford it'. Yixian E-commerce, the younger generation, has maintained a gross margin of around 65%. Although it is not as 'profitable' as some high-premium brands in the beauty industry, it is still a very profitable business. But after a small profit in 2019 (net profit of 75 million yuan), it has been on a loss-making path in the past two years. The net losses in 2020 and 2021 totaled over 4 billion yuan. The 'culprit' is operating expenses. Let's do the math: for every yuan Yixian E-commerce spends, it could get 1.7 yuan in revenue in 2019, but only 0.86 yuan in 2020, and barely break even in 2021 with 1.05 yuan. Among the expenses, the largest is marketing expenses. Yixian E-commerce spends 60-70% of its expenses on marketing every year. Since the second quarter of 2020, its quarterly marketing expense ratio has been above 60%, and in 2021, marketing expenses reached 4 billion yuan. Don't think that Betaini, which has been established for 12 years and is an old brand in new consumption, is not subject to 'traffic fees'. The factor that undermines its high gross margin is rising costs. This includes increases in raw material and processing costs, as well as higher sales costs due to discounts and buy-one-get-one promotions. A person in charge of a beauty brand analyzed that the factor of rising sales costs may exist for a long time, affecting Betaini's profitability. (Source / Visual China) In 2021, Betaini's sales expenses were 1.68 billion yuan, up 51.8% year-on-year, of which 1.25 billion yuan was used for channel and advertising promotion expenses. The problem lies online. Because Betaini's online gross margin in 2021 was nearly 10 percentage points lower than offline, and online gross margin was declining while offline gross margin was rising. Even though traffic fees have risen, becoming the 'culprit' for Yixian E-commerce's losses and eroding Betaini's profit space, both companies find it hard to save this money for now. From their own perspective, although the two companies are at different stages, as businesses relying on online channel sales, growth still depends on marketing. Compared with traditional beauty brands, Yixian E-commerce's 'newness' is reflected in the combination of 'DTC+KOL', that is, selling directly to consumers without distributors, and conducting online social marketing through a large number of KOLs. In the view of Gao Jianfeng, founding partner of Shanghai Bogao Consulting and an expert in the daily chemical industry, as a young company, it is still in a strategic investment period. To seek incremental growth from multi-brand and offline expansion, it needs to increase marketing spending and quickly capture the market. In the financial report, Yixian E-commerce's sales and marketing expenses include advertising costs and offline store opening costs. Betaini, which is relatively mature, also needs to continue spending online because over 80% of its sales come from online, with 40% from Alibaba's ecosystem. According to its financial report, as sales scale grows rapidly, it will continue to increase brand image promotion expenses, personnel costs, and e-commerce channel expenses. From the macro environment, online traffic is becoming more expensive, which is not a dilemma for just one or two companies. As Yixian E-commerce said in its investor conference call, 'Competitors across the industry have increased marketing investment, leading to a higher level of marketing expenses.' Betaini's sales expense ratio has been relatively stable. Like its peers Proya and Shanghai Jahwa, its sales expense growth rate has exceeded its revenue growth rate. 'The increasing cost of online customer acquisition is an indisputable fact.' Gao Jianfeng said. The above-mentioned beauty brand person in charge also believes that this is enough to show that making money online is becoming increasingly difficult. Offline business: Can scale and profitability not be achieved simultaneously? When the traffic dividend weakens, capital no longer only focuses on pure online projects, but also pays attention to offline. The two latest listed among the five 'first stocks', Naixue and Helens, are typical offline businesses, exchanging scale expansion for growth. At this stage, Pop Mart wants both online and offline. First, look at Naixue and Helens. As representatives of new tea drinks and small pubs, the outside world has always believed that their performance growth is driven by store expansion. Both companies also formulated ambitious expansion plans in their listing prospectuses. In the past year, the two companies entered a high-speed store opening rhythm, with almost one to two new stores opening every day. Among them, Naixue opened 326 new stores, reaching 817 stores by the end of 2021; Helens opened 431 new stores, reaching 782 stores by the end of the year. But the cost of expansion is heavy. Because it could not bear the pressure of rising operating costs from store expansion, Naixue turned from profit to loss, from a slight profit of 16.64 million yuan in the previous year to a net loss of 145 million yuan in 2021, setting its largest loss record since 2018. Unlike Naixue, which focuses on first-tier and new first-tier cities, Helens' main battlefield is second- and third-tier cities, so the operating pressure of expansion is slightly less, and it has not yet fallen into losses. However, in 2021, when expansion accelerated, its adjusted profit margin also hit a record low. The common reason is that new tea drinks and small pubs cannot escape the profit model of the traditional catering industry. Both companies are fully direct-operated. With store expansion, the 'three mountains' weighing on them - rent, raw materials, and labor - are getting heavier. In 2021, the revenue growth of both companies did not keep up with the growth of these three costs. Among them, Naixue's revenue increased by 1.2 billion yuan year-on-year, but the three major costs (employee, raw materials, and rent, including depreciation of right-of-use assets, other rent, and related expenses) totaled 3.4 billion yuan, 1 billion yuan more than the previous year; Helens' revenue increased by 1 billion yuan, and the three major costs (including raw material costs, labor costs, depreciation of right-of-use assets, short-term leases, and other related expenses) increased by 840 million yuan in total. (Source / Visual China) Scale and profitability are like fish and bear's paw for Naixue and Helens; they cannot have both. Take Naixue's first half of 2021, when it turned losses into profits: the company's gross margin reached 68.54%, the highest level since it disclosed results. From the financial report, it is because Naixue improved on the cost side. First, it controlled raw material costs; second, it slowed down expansion, and depreciation of intangible assets decreased. However, 'when competitors in the same industry and track are racing ahead, stopping store expansion will bring a series of impacts, such as a decline in industry status, loss of consumers, and pressure from investors,' Dong Xiaoya, a consulting manager at CIC Consulting, told Kaiboluo Finance. Of course, compared with traditional businesses, the 'newness' of Naixue and Helens lies in the fact that while expanding offline stores on a large scale, they also combine online channels and marketing for simultaneous growth. From the results, these two companies focus on one channel and one on marketing online. Naixue has been laying out online digitalization to grab more online users. In 2021, over 70% of order revenue came from online. Helens' marketing methods are as young as its positioning, paying great attention to interaction with fans on social platforms. Compared with these two, Pop Mart's new consumption characteristics are more obvious. Investment manager Li Zhi summarized that Pop Mart popularized the blind box business model, characterized by limited and random acquisition, with the financial advantage of high gross margin. For trendy toys, the most important thing is to make users pay for IP. In terms of channels, Pop Mart's characteristic is the simultaneous development of online and offline. The 2021 results show that Pop Mart opened 106 new offline stores and 510 new robot stores in mainland China that year. New stores increased, but the revenue share of retail stores declined; the good news is that online channels developed rapidly, with revenue exceeding offline retail stores for the first time. In 2022, Pop Mart's plan is 'restrained' offline and 'aggressive' online. The number of offline stores will be less than in 2021, and online channels will still focus on Tmall and JD.com, while accelerating the layout of Douyin. Is the capital dividend gone forever? A year ago, industry sentiment was high, and the first stocks in their respective segments received applause and flowers in the capital market. A year later, various factors have weighed them down in the secondary market, with four 'first stocks' falling below their issue prices, and even the most stable Betaini's stock price has plummeted. There are environmental factors. Li Zhi analyzed to Kaiboluo Finance using Hong Kong stocks as an example: the Hang Seng Index has corrected about 20% since mid-last year. Among them, the catering industry has experienced relatively large fluctuations due to slowing growth and expanding losses. The leading company Haidilao is an example, with its market value evaporating by 80% during this period. There are also company-specific reasons. In Li Zhi's view, judging from the popularity of the 'first stocks' at the time of their IPOs, the market did not expect them to fall below their issue prices one day. He analyzed that the main reason is that the investment logic of the Hong Kong stock market has undergone significant changes in the past year, from embracing dreams and growth at the beginning of last year to, since mid-last year, due to the superposition of various factors, the market now only embraces certainty. No matter how beautiful the future a company describes, it will no longer be sought after. Chen Xin said, Overall, the report cards handed in by the 'first stocks' show that growth and maturity are both below expectations. As the scale base increases, a decline in revenue growth is expected, but for new consumption first stocks just one year after listing, the slowdown in revenue growth is not a good signal. (Source / Pexels) When it comes to maturity, new consumption companies are often compared with traditional companies. Taking the 'marketing' that new consumption is good at as an example, a former employee of a new consumption unicorn company told Kaiboluo Finance that traditional FMCG companies have very mature marketing methodologies internally, breaking down creativity into small goals with great attention to strategy and feasibility. However, in some new consumption FMCG companies, marketing tactics are not yet mature. A creative idea may be executed efficiently, but it is also common that 'after a project process is completed, the leader suddenly changes their mind and everything is overturned and redone.' Bao Yuezhong's conclusion is more direct: 'The biggest problem with these new consumption brands now is that the entire business model is not mature, not stable, and even flawed.' Of course, the maturity of an innovative business model takes time. Comparing a young company established for three to five years with a decades-old giant is unfair to the new consumption 'first stocks'. But Chen Xin lamented that in the current environment, the capital market will comprehensively consider the growth of the 'first stocks' and will also balance the many risks on the growth path. The 'new consumption' that the market expects is a brand that grows at double speed, with high expectations, and there will not be much time left for them. An analyst focusing on the consumer sector told Kaiboluo Finance that in 2022, whether it is cosmetics and skincare, tea drinks, pubs, or trendy toys, competition will be more intense, and the war will not be limited to a single channel. Offline businesses need to seek growth from online, and vice versa. 'Cash flow management is also a key focus for new consumption companies,' Dong Xiaoya reminded. Different business models, but in the short term, the five new consumption first stocks all need to live more cautiously and expand more restrainedly. *Cover image source: Pexels (At the request of interviewees, Chen Xin and Li Zhi in the article are pseudonyms.) Source: Kaiboluo Finance (ID: kaiboluocaijing) Author: Jin Yufan Editor: Ai Xiaojia Are you 'watching' me?