So-Young International Inc. SY $11.80-$13.80 13.0 million ADSs Underwriters:
Deutsche Bank, CICC Co-Managers:
Canaccord Genuity, Needham Proposed
trade date of 5/2 Their mission is to bring beauty and health to
everyone.
So-Young International Inc. SY
Click here
to view the prospectus.
https://www.sec.gov/Archives/edgar/data/1758530/000119312519113365/d649858df1a.htm#rom649858_3
Company
Overview
So-Young is No. 1 and the most popular
online destination for discovering, evaluating and reserving medical aesthetic
services in China.
Their
business model comprises three integrated components: (i) their original,
reliable and professional content and its distribution through major social
media networks and their targeted media platforms in China, (ii) their
highly engaged social community characterized by signature user-generated
content, and (iii) their transparent and user-friendly online reservation
services for medical aesthetic treatment. With reliable and comprehensive content, as well as a multitude of
social functions online medical aesthetic service platforms as a percentage of
total customer acquisition spending on all online channels rapidly increased
from 0.9% in 2014 to 7.0% in 2018, and is expected to reach 25.6% by 2023.
They leverage their popular and professional media
content to reach and attract a vast audience. Their vibrant and trustworthy
social community allows their users to discover the latest medical aesthetic
treatment trends and helps them make purchase decisions. The personal
experience shared by users who had undergone medical aesthetic treatment
further builds the trust that is critical for others who wish to have similar
treatment. They had a large depository of over
2 million day-by-day, case-based blogs called Beauty
Diaries, as of December 31, 2018. They believe their business model, which
connects a user’s innate desire to be more beautiful with a personal,
emotionally-attached discovery and assessment process on their platform, is
highly effective in facilitating users’ decision making and enhancing user
experience. They also encourage users to rate, review and share their
treatment experience on their platform. They believe the user-generated
content, ratings and reviews on their platform incentivize medical aesthetic
service providers to offer high-quality and diversified treatment with
transparent pricing.
IPO
Detail
This is the initial public offering of So-Young International
Inc. and no public market currently exists for its common stock. So-Young International
Inc. is offering 13,000,000 ADSs as described in the prospectus. The company
expects the initial public offering price of its ADSs to be between $11.80 and $13.80
per ADS. The company has applied to list its ADSs on the NASDAQ Global Market
under the symbol “SY.”
|
ADSs offered by
the company |
13,000,000
ADSs |
|
ADSs to be
outstanding immediately after this offering |
13,000,000 ADSs |
|
Ordinary shares
to be outstanding immediately after this offering |
77,113,419 ordinary shares, comprised of 65,113,419 Class A ordinary shares and 12,000,000 Class B ordinary shares |
13 ADSs represent 10 of their Class A ordinary
shares. Class B ordinary shares issued and outstanding immediately after the
completion of this offering will represent 15.6% of our total issued and
outstanding shares and 84.7% of the then total voting power.
Use of
Proceeds
They
estimate that they will receive net proceeds from this offering of
approximately US$150.8 million. The primary purposes of this offering are to create a public
market for their shares for the benefit of all shareholders, retain talented
employees by providing them with equity incentives, and obtain additional
capital. They plan to use the net proceeds of this offering as follows:
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• |
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approximately
30% to invest in technology and research and development; |
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• |
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approximately
20% for brand promotion and user acquisition efforts; |
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• |
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approximately
20% for horizontal and vertical business expansions; |
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• |
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approximately
10% to enhance their content offering; and |
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• |
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the
balance for general corporate purposes and working capital needs and
potential strategic investments and acquisitions, although they have not
identified any specific investments or acquisition opportunities at this
time. |
Competition
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Exchange. |
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Baidu
Inc. |
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BIDU |
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NASDAQ |
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Weibo
Corp. |
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WB |
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NASDAQ |
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. TikTok(subsidiary of ByteDance) |
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Private |
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Gengmei |
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Private |
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Yuemei.com |
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Private |
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Meilishenqi |
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Private |
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The online medical aesthetics industry in China
is highly competitive and rapidly evolving. Their primary competitors include
(i) leading search engines, (ii) other online medical aesthetic
service platforms, and (iii) general
online e-commerce platforms.
Market
Opportunity
Growth of Medical
Aesthetic Service Industry in China
Medical
aesthetic services are elective medical procedures that specialize in improving
cosmetic appearance, thereby improving people’s quality of life and
psychological well-being. The medical aesthetic service industry in China is
large and rapidly growing. According to Frost & Sullivan, the total
revenues of the medical aesthetic services industry reached RMB121.7 billion
(US$17.7 billion) in 2018, representing a CAGR of 23.6% from 2014. The total
revenues of this industry are expected to reach RMB360.1 billion (US$52.4
billion) by 2023, with an accelerated CAGR of 24.2% from 2018 to 2023. With
such growth rate, China has become one of the fastest growing medical aesthetic
service markets in the world, ranked the second in terms of market size in
2017, and is poised to become the largest market in the world by 2021.
The medical
aesthetic service industry in China is highly fragmented and competitive.
According to Frost and Sullivan, there were approximately 10,000 medical
aesthetic service providers in 2018. In addition, the medical aesthetic service
industry in China is largely driven by private institutions as they actively
create a competitive niche in their treatment and closely follow aesthetic
trends. Among private institutions, the top five players merely represented
7.4% of the total market.
Online Customer
Acquisition by Medical Aesthetic Service Industry in China
Medical aesthetic
service providers in China acquire their customers through offline channels,
such as beauty salons and outdoor advertisement, as well as online channels,
which include online medical aesthetic platforms, search engines and general
online e-commerce platforms. According to
Frost & Sullivan, medical aesthetic service providers spent
RMB31.3 billion (US$4.6 billion) on customer acquisition in 2018,
representing 25.8% of the total revenues in this industry.
In
particular, online customer acquisition spending in China’s medical
aesthetic service industry amounted to RMB18.1 billion (US$2.6 billion) in
2018, and is expected to continue to grow rapidly at a CAGR of 22.2% from 2018
to 2023, reaching RMB49.3 billion (US$7.2 billion) by 2023.
Online Medical Aesthetic
Service Platform in China
Online
medical aesthetic service platforms are where users can discover, evaluate and
reserve medical aesthetic services for treatment offline. Online medical
aesthetic service platforms emerged in recent years and quickly gained market
share from traditional online customer acquisition channels as such platforms
effectively facilitated the direct interaction between consumers and medical
aesthetic service providers. According to Frost & Sullivan, customer
acquisition spending on online medical aesthetic platforms accounted for 0.9%
of total customer acquisition spending through online channels in 2014 and 7.0%
in 2018, and is expected to reach 25.6% by 2023. Customer acquisition spending
on online medical aesthetic service platforms increased from RMB64.5 million
(US$9.4 million) in 2014 to RMB1.3 billion (US$0.2 billion) in 2018, and is
expected to grow to RMB12.6 billion (US$1.8 billion) in 2023, representing a
CAGR of 58.2% from 2018.
Consumption Healthcare
Service Industry in China
Consumption
healthcare services, such as medical aesthetic services, refer to elective
medical services that are primarily for improving people’s quality of life and
not aimed at treating serious diseases. China enjoys a large and fast-growing
consumption healthcare service industry. According to Frost & Sullivan, total
revenues from consumption healthcare services industry in China was
RMB560.7 billion (US$81.6 billion) in 2018, and is expected to grow at a
CAGR of 20.0% from 2018 to 2023, reaching RMB1,395.5 billion (US$203.0
billion) by 2023. Similar to the medical aesthetic service industry,
consumption healthcare service providers observe increasing spending on online
customer acquisition channels to gain customers as the industry is also highly
competitive and fragmented.
|
|
|
For the Year Ended
December 31, |
|
|||||||||||||
|
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|||||||
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
||||
|
|
|
(in thousands, except for share and per
share data) |
|
|||||||||||||
|
Selected Consolidated
Statements of Comprehensive (Loss)/Income Data: |
|
|
|
|
||||||||||||
|
Revenues |
|
|
||||||||||||||
|
Information services |
|
|
19,869 |
|
|
|
143,613 |
|
|
|
415,119 |
|
|
|
60,377 |
|
|
Reservation services |
|
|
29,221 |
|
|
|
115,692 |
|
|
|
202,107 |
|
|
|
29,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
49,090 |
|
|
|
259,305 |
|
|
|
617,226 |
|
|
|
89,772 |
|
|
Cost of revenues(1) |
|
|
(25,192 |
) |
|
|
(44,799 |
) |
|
|
(91,563 |
) |
|
|
(13,317 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
23,898 |
|
|
|
214,506 |
|
|
|
525,663 |
|
|
|
76,455 |
|
|
Operating expenses: |
|
|
|
|
||||||||||||
|
Sales and marketing
expenses(1) |
|
|
(62,206 |
) |
|
|
(127,462 |
) |
|
|
(306,360 |
) |
|
|
(44,558 |
) |
|
General and
administrative expenses(1) |
|
|
(18,043 |
) |
|
|
(29,725 |
) |
|
|
(75,442 |
) |
|
|
(10,973 |
) |
|
Research and development
expenses(1) |
|
|
(17,932 |
) |
|
|
(32,557 |
) |
|
|
(94,726 |
) |
|
|
(13,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
(98,181 |
) |
|
|
(189,744 |
) |
|
|
(476,528 |
) |
|
|
(69,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/Income from
operations |
|
|
(74,283 |
) |
|
|
24,762 |
|
|
|
49,135 |
|
|
|
7,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/Income before
tax |
|
|
(81,036 |
) |
|
|
13,221 |
|
|
|
58,254 |
|
|
|
8,473 |
|
|
Income tax
benefit/(expense) |
|
|
— |
|
|
|
3,981 |
|
|
|
(3,171 |
) |
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income |
|
|
(81,036 |
) |
|
|
17,202 |
|
|
|
55,083 |
|
|
|
8,012 |
|
|
Accretions of
convertible redeemable preferred shares to redemption value |
|
|
(21,487 |
) |
|
|
(28,521 |
) |
|
|
(104,211 |
) |
|
|
(15,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to ordinary shareholders of the Company |
|
|
(102,523 |
) |
|
|
(11,319 |
) |
|
|
(49,128 |
) |
|
|
(7,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income |
|
|
(81,036 |
) |
|
|
17,202 |
|
|
|
55,083 |
|
|
|
8,012 |
|
|
Other comprehensive
income/(loss): |
|
|
|
|
||||||||||||
|
Foreign currency
translation adjustment |
|
|
2,323 |
|
|
|
(2,203 |
) |
|
|
34,439 |
|
|
|
5,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
comprehensive income/(loss) |
|
|
2,323 |
|
|
|
(2,203 |
) |
|
|
34,439 |
|
|
|
5,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
(loss)/income |
|
|
(78,713 |
) |
|
|
14,999 |
|
|
|
89,522 |
|
|
|
13,021 |
|
|
Accretions of convertible
redeemable preferred shares to redemption value |
|
|
(21,487 |
) |
|
|
(28,521 |
) |
|
|
(104,211 |
) |
|
|
(15,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
attributable to ordinary shareholders of the Company |
|
|
(100,200 |
) |
|
|
(13,522 |
) |
|
|
(14,689 |
) |
|
|
(2,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary
share |
|
|
|
|
||||||||||||
|
Basic |
|
|
(3.81 |
) |
|
|
(0.42 |
) |
|
|
(2.00 |
) |
|
|
(0.29 |
) |
|
Diluted |
|
|
(3.81 |
) |
|
|
(0.42 |
) |
|
|
(2.00 |
) |
|
|
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of ordinary shares used in computing loss per share, basic |
|
|
26,882,387 |
|
|
|
26,882,387 |
|
|
|
24,555,427 |
|
|
|
24,555,427 |
|
|
Weighted average
number of ordinary shares used in computing loss per share, diluted |
|
|
26,882,387 |
|
|
|
26,882,387 |
|
|
|
24,555,427 |
|
|
|
24,555,427 |
|
|
(1) |
Share-based
compensation expenses were allocated as follows: |
|
|
|
For the Year Ended
December 31, |
|
|||||||||||||
|
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|||||||
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Cost of revenues |
|
|
(96 |
) |
|
|
(89 |
) |
|
|
(1,423 |
) |
|
|
(207 |
) |
|
Sales and marketing
expenses |
|
|
(262 |
) |
|
|
(490 |
) |
|
|
(1,018 |
) |
|
|
(148 |
) |
|
General and
administrative expenses |
|
|
(1,158 |
) |
|
|
(1,675 |
) |
|
|
(10,112 |
) |
|
|
(1,471 |
) |
|
Research and
development expenses |
|
|
(168 |
) |
|
|
(405 |
) |
|
|
(13,306 |
) |
|
|
(1,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(1,684 |
) |
|
|
(2,659 |
) |
|
|
(25,859 |
) |
|
|
(3,761 |
|
|
|
|
As of
December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2018 |
|
||||||
|
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Selected Consolidated
Balance Sheet Data: |
|
|
|
|||||||||
|
Cash and cash
equivalents |
|
|
440,859 |
|
|
|
563,383 |
|
|
|
81,941 |
|
|
Term deposits and short-term investments |
|
|
81,258 |
|
|
|
643,539 |
|
|
|
93,599 |
|
|
Total current assets |
|
|
552,438 |
|
|
|
1,278,451 |
|
|
|
185,942 |
|
|
Total assets |
|
|
568,385 |
|
|
|
1,340,536 |
|
|
|
194,970 |
|
|
Total liabilities |
|
|
140,927 |
|
|
|
302,156 |
|
|
|
43,946 |
|
|
Total mezzanine equity |
|
|
594,421 |
|
|
|
1,395,949 |
|
|
|
203,031 |
|
|
Total
shareholders’ deficit |
|
|
(166,963 |
) |
|
|
(357,569 |
) |
|
|
(52,007 |
|
Target
Markets
Drive Transparency in the Industry through
Enriched Content Offering
They aim to further transform
medical aesthetic industry in China towards greater transparency on service
quality and pricing by focusing on enriching their universe of reliable,
appealing and topical content offering. As the
No. 1 player in the industry, they will lead by example and commit to
delivering authentic, relevant and timely content to consumers to enable
informed decisions and promote positive industry growth dynamics.
Proactively Deploy Artificial Intelligence
and other Technological Innovations
Technological
innovations and competency are essential to their platform’s competitive
advantage. They will continue to implement a number of industry breakthrough
technologies, including:
Strengthen Collaboration with Medical
Aesthetic Service Providers through More Value-added Services
They offer and will
continue to enhance their SaaS module to help their service providers reduce
user maintenance cost and improve efficiency. Software products currently in their research and development pipelines
include intelligent in-app messaging system and digital patient
record database for online information service on their platform.
They intend to
strengthen professional training courses on the proper management of
sophisticated medical equipment, for medical aesthetic service providers to
improve their service quality, professional knowledge and operational
capabilities.
Continue to Raise Brand Awareness and Expand
User Acquisition Channels
They intend to
increase marketing and branding efforts to further raise the awareness of their
professional and trustworthy platform. Their branding strategy will fully
embrace the latest trends in social-based marketing activities, in a
cost-effective manner by leveraging their word-of-mouth reputation.
They plan to
establish a stronger presence on leading social media networks in China with
high user traffic volume through collaborations. They also aim to expand their audience reach by
establishing multiple channels of strategic marketing partnerships. Building on
their profound understanding of user behaviors and preferences, they intend to
launch more innovative and effective online and offline marketing events,
cross-platform membership programs with other industry participants, as well as
sponsorships of popular entertainment titles in China.
Expand into Other Consumption Healthcare
Verticals and Tap into New User Segments
They believe
a more diversified service offering will address a wider spectrum of their
users’ healthcare needs, and in turn extend and expand their consumption
lifecycle on their platform. They have started and will continue to prudently
expand into consumption healthcare verticals with similar industry pain-points,
overlapping consumer bases, or comparable decision-making processes. They
plan to gain stronger foothold in the dental, dermatology, ophthalmology,
obstetrics & gynecology, and physical examination services sectors.
They will
offer multi-tiered service categories on their platform to better serve their
increasingly diversified user base, particularly users with higher spending
power and more tailored preferences.
Company's
Unique Strengths
Market Leader with
Powerful Business Model
They are the market
leader in terms of audience reach, user engagement, transaction value
facilitated, and trustworthiness, testifying to the success of their powerful
business model.
·
audience
reach: over 240 million average
monthly views of their rich media content distributed through social media
networks and their targeted media platforms in the fourth quarter of 2018;
·
user
engagement: their So-Young mobile
app accounted for 84.1% of total daily user time spent on online medical
aesthetic service mobile apps in 2018, according to Frost & Sullivan;
·
transaction
value facilitated: they
facilitated medical aesthetic treatment transactions in the aggregate value of
RMB2.1 billion (US$306.6 million) through their platform in 2018, representing
33.1% of total amounts paid for medical aesthetic treatment booked online in
that year, according to Frost & Sullivan; and
·
trustworthiness: they ranked top in terms of both brand
awareness and customer stickiness in a survey of 1,000 respondents conducted in
October 2018.
Their industry
leading scale and fundamentally, their business model led to strong network
effects across their platform, which enhances user experience, engagement and
retention, and have proven to be highly scalable.
Strong network effect. They believe the three components of their
business model are deeply integrated with one another, creating robust barriers
to entry and enabling them to create a sustainable business model that cannot
be easily replicated by competitors. In the simplest terms, users are
attracted to their platform by content and services that they offer, while
medical aesthetic service providers gather on their platform for the direct
access to the largest online medical aesthetic user community and effective
customer acquisition that it brings. As the number of their users grows, so
does the number of medical aesthetic service providers on their platform. More
medical aesthetic service providers will then lead to more tailored and greater
variety of treatment, as well as more targeted content, which ultimately
attract more users.
High scalability. Leveraging their established brand image,
extensive audience reach, highly engaged social community and data insights,
they are well positioned to expand both vertically along the medical aesthetic
industry value chain and horizontally into other sectors in the massive
consumption healthcare service market. They have built a proven track
record by launching a host of services aimed at medical aesthetic service
providers, and by achieving early success in expanding into other consumption
healthcare services in China.
Market Trailblazer and Technology Innovator
They have, as
the most important part of their DNA, continued innovation aimed at pushing the
boundaries of what the internet and technology can do to transform the
traditional consumption healthcare service industry. They believe they have
pioneered and shaped the online medical aesthetic services market in China as
it exists today.
Their core
innovation and contribution to the medical aesthetic service industry is
building a platform that seamlessly integrates media content, social community
and online reservation function. Since their inception in 2013, they have been
leading the campaign to increase the level of acceptance and popularity of
discovering, evaluating and reserving medical aesthetic services online.
According to Frost & Sullivan:
|
·
They were the first to introduce a social
community focused on medical aesthetic services, which has become the largest
in China;
|
|
They
embrace the latest technology developments and pursue the integration of
technology into their platform. For example, they were the first in their
industry in China to utilize artificial intelligence technology in analyzing
facial features for evaluating virtual medical aesthetic needs and predicting
treatment effects online, according to Frost & Sullivan. Based on their
facial analysis technologies, their platform enables users to search for, and
they are also capable of actively channeling, relevant and suitable medical
aesthetic content and treatment information with a simple image input of the
user’s feature. They also pioneered live video broadcasting as a content
format on their platform both for users to share their aftercare experience and
for service providers to enhance their brand awareness.
Most Trusted Platform with Highly Engaged
Community of Users
According to
a survey of 1,000 respondents conducted in October 2018, they are the most
trusted online medical aesthetic service platform in China, and they ranked
No. 1 in terms of both brand awareness and customer stickiness. The
association of their brand value with trustworthiness translates into high
repeat purchase rate on their platform.
Their highly engaged
social community plays a vital role in promoting transparency in terms of the
pricing and quality of medical aesthetic services by encouraging genuine user
reviews and ratings, which in turn helps their users arrive at informed
decisions. Their iconic Beauty
Diaries invigorated their social community and allowed their users to
be emotionally connected and supported, during and after treatment.
As a
testament to the highly engaged nature of their community, as well as the trust
their users place in them, as of December 31, 2018, a total of over two million
pieces of Beauty Diaries, each with author’s emotions and personal
details, had been posted on their platform. In addition, their users frequently
seeks advice on specific medical aesthetic treatment procedures from medical
service providers on their platform through their messaging function, and the
average number of daily consultation messages between users and medical service
providers amounted to 160.6 thousand in 2017 and 288.4 thousand in 2018. A
consultation message means each message sent between a user and a medical
service provider on their platform, with each text sent counting as one
distinct message.
They also
attach the utmost importance to ensuring the quality of the medical services
that are offered on their platform and the customer services that their users
can enjoy. Transparency and fairness have been their philosophy and they have
adopted carefully crafted mechanisms to allow for authentic and timely
feedback. They subject each prospective medical aesthetic service provider
to their strict selection process to safeguard the reliability of their
platform. In addition to examining qualification documents, they conduct thorough
background and publicity review, including on-site due diligence
reviews, on prospective service providers. They also continue to monitor
the qualification of their existing medical aesthetic service providers and the
quality of their performance through their rating and review systems and other
internal mechanism that they have implemented.
Reliable Professional Content Distributed
through Social Media
They use
reliable, highly relevant, interactive and multi-media content to attract their
users and inform them of the latest medical aesthetics trends and services, and
assist in their purchase decisions. They have the most comprehensive online
content library in China with a focus on medical aesthetic services,
according to Frost & Sullivan. They have a large pool of
experienced in-house editors who incubate original ideas and present
them in visually appealing formats. They also collaborate with doctors and
medical aesthetic service providers throughout the content generating process. Their
content is interactive and largely in the form of short-form videos, live video
broadcasting, articles, and photographs, covering a full spectrum of
beauty-related topics and medical aesthetics treatment categories.
They
distribute their original content through their platform and major social media
networks in China, giving them the broadest reach of audience and dynamic ways
to attract and engage their users. In the fourth quarter of 2018, they recorded
on average over 240 million monthly views of their rich media content
distributed through social media networks.
Platform of Choice for Medical Aesthetic
Service Providers
They provide
compelling value to medical aesthetic service providers by offering targeted
consumer acquisition solutions, helping them build their online presence so as
to effectively connect and brand with users, and improving their operating
efficiency. This makes them a platform of
choice for approximately 4,000 verified medical aesthetic service providers
including hospitals, out-patient departments and clinics covering
over 300 cities in China as of December 31, 2018.
They not only
expand the medical aesthetic service providers’ audience reach, but also match
them with targeted consumers effectively, powered by their artificial intelligence
prowess and big data insights. Moreover, they provide differentiated solutions
such as SaaS, as well as providing professional training programs to medical
aesthetic service providers based on their scale and needs.
They enjoy
tremendous loyalty among their medical service providers and achieved retention
rates of 80% in 2017 and 87% in 2018, which are calculated as the percentage of
paying service providers in the previous year who made payments in the year at
issue.
Company's
Unique Risks
They have a limited operating history in the
evolving online medical aesthetic service industry, which makes it difficult to
evaluate their future prospects. They
launched their online medical aesthetic service business in November 2013 and
have a limited operating history. They have limited experience in most aspects
of their business operation, such as their service platform and the
production of medical aesthetic-related content on their platform. In addition,
they have limited experience in serving their users and medical service
providers.
They may be subject to consumer claims,
regulatory or professional investigations and litigations regarding the medical
information and services offered on their platform,
which could
materially and adversely affect their brand, reputation, and results of
operations.
If their users and medical service providers
do not continue to contribute content that is high-quality, reliable or
otherwise valuable to their users, they may experience a decline in user
traffic and user engagement.
Their business may be materially and
adversely affected by an unfavorable market perception of the overall medical
aesthetic industry.
They are subject to uncertainties, changes
and developments in the regulatory framework in China with respect to the
provision of online medical aesthetic services industry.
They have been, and may continue to be,
subject to liabilities for infringement, misappropriation or other violations
of third-party intellectual property rights or other allegations based on the content
available on their platform or services they provide.
As the market for online medical aesthetic
services is relatively new, rapidly evolving and intensely competitive, they
expect competition to continue and intensify in the future. They face
competition from leading search engines, other online medical aesthetic service
platforms and general online e-commerce platforms. They expect competition to intensify in the future as current
competitors diversify and improve their service offerings and as new
participants enter the market. They cannot assure you that they will be able to
compete effectively or efficiently with current or future competitors. They may
be acquired by, receive investment from or enter into strategic relationships
with established and well-financed companies or investors, which would help
enhance their competitiveness. Furthermore, the current competitors and new
entrants in the online medical aesthetic industry may also seek to develop new
service offerings, technologies or capabilities that could render some of the
services they offer obsolete or less competitive, and some of them may adopt
more aggressive pricing policies or devote greater resources to marketing and
promotional campaigns than they do.
Their failure to obtain and maintain
approvals, licenses or permits applicable to their business could have a
material adverse impact on their business, financial conditions and results of
operations.
Any change, disruption or discontinuity in
the features and functions of major social networks in China could
significantly limit their ability to continue growing their user base, and
their business may be materially and adversely affected.
Their expansion plans, including their plans
to expand into new business lines and geographic areas, are subject to
uncertainties and risks, and they may not be able to successfully manage their
expanded operations.
Privacy concerns relating to their services
and the use of user information could negatively impact their user base or user
engagement. If
they fail to protect the confidential information of their users, whether due
to cyberattacks, computer viruses, physical or
electronic break-ins, or other reasons, they may be subject to
liabilities imposed by relevant laws and regulations, and their reputation and
business may be materially and adversely affected.
Any failure by their consolidated affiliated
entity or its shareholders to perform their obligations under their contractual
arrangements with them would have a material and adverse effect on their
business.
The shareholders of their consolidated
affiliated entity may have potential conflicts of interest with them, which may
materially and adversely affect their business and financial condition. The shareholders of their consolidated variable
entity are Mr. Hui Shao, Mr. Xing Jin and Mr. Tao Yu.
Mr. Hui Shao is their director, Mr. Xing Jin is their co-founder and
chief executive officer, and Tao Yu is their co-founder and chief
information officer. Nevertheless, conflicts of interest may arise between the
roles of them as shareholders, directors or officers of their company and as
shareholders of their consolidated affiliated entity.
Changes in China’s economic, political or
social conditions or government policies could have a material adverse effect
on their business and operations.
Their dual-class voting structure will limit
your ability to influence corporate matters and could discourage others from
pursuing any change of control transactions that holders of their Class A
ordinary shares and ADSs may view as beneficial. Immediately
prior to the completion of this offering, they expect to amend their dual-class
share structure such that their ordinary shares will consist of Class A
ordinary shares and Class B ordinary shares. In respect of matters
requiring the votes of shareholders, holders of Class A ordinary shares
will be entitled to one vote per share, while holders of Class B ordinary
shares will be entitled to thirty votes per share based on their proposed
dual-class share structure. They will sell Class A ordinary shares
represented by their ADSs in this offering. Each Class B ordinary share is
convertible into one Class A ordinary share at any time by the holder
thereof, while Class A ordinary shares are not convertible into Class B
ordinary shares under any circumstances. Immediately prior to the completion of
this offering, Mr. Xing Jin, their
co-founder, chairman of the board of directors and chief executive officer,
will beneficially own all of their issued Class B ordinary shares. These Class
B ordinary shares will constitute approximately 15.6% of their total issued and
outstanding share capital immediately after the completion of this offering and
84.7% of the aggregate voting power of their total issued and outstanding share
capital immediately after the completion of this offering due to the
disparate voting powers associated with their dual class share structure.
Bottom Line
They generate revenues primarily through
information service fees and reservation service fees charged to medical
aesthetic service providers. Their total revenues increased rapidly by 428.2%
from RMB49.1 million in 2016 to RMB259.3 million in 2017, and further
by 138.0% to RMB617.2 million (US$89.8 million) in 2018. Their net income was
RMB55.1 million (US$8.0 million) in 2018, compared to a net loss of
RMB81.0 million in 2016 and a net income of RMB17.2 million in 2017
Their business model comprises three integrated
components: (i) their original, reliable and professional content and its
distribution through major social media networks and their targeted media
platforms in China, (ii) their highly engaged social community
characterized by signature user-generated content, and (iii) their
transparent and user-friendly online reservation services for medical aesthetic
treatment. The personal experience shared by users who had undergone medical
aesthetic treatment further builds the trust that is critical for others who
wish to have similar treatment. They also encourage users to rate, review and
share their treatment experience on their platform. They believe the
user-generated content, ratings and reviews on their platform incentivize
medical aesthetic service providers to offer high-quality and diversified
treatment with transparent pricing.
The medical aesthetic service industry
in China is large and rapidly growing. The total revenues of the medical
aesthetic services industry reached RMB121.7 billion (US$17.7 billion) in 2018,
representing a CAGR of 23.6% from 2014. The total revenues of this industry are
expected to reach RMB360.1 billion (US$52.4 billion) by 2023, with an
accelerated CAGR of 24.2% from 2018 to 2023. With such growth rate, China has
become one of the fastest growing medical aesthetic service markets in the
world, ranked the second in terms of market size in 2017, and is poised to
become the largest market in the world by 2021. Medical aesthetic service
providers in China acquire their customers through offline channels, such as
beauty salons and outdoor advertisement, as well as online channels, which
include online medical aesthetic platforms, search engines and general
online e-commerce platforms. Medical aesthetic service providers
spent RMB31.3 billion (US$4.6 billion) on customer acquisition in 2018,
representing 25.8% of the total revenues in this industry. Online customer
acquisition spending in China’s medical aesthetic service industry amounted to
RMB18.1 billion (US$2.6 billion) in 2018, and is expected to continue to
grow rapidly at a CAGR of 22.2% from 2018 to 2023, reaching RMB49.3 billion
(US$7.2 billion) by 2023. Customer acquisition spending on online medical
aesthetic platforms accounted for 0.9% of total customer acquisition spending
through online channels in 2014 and 7.0% in 2018, and is expected to reach
25.6% by 2023. Customer acquisition spending on online medical aesthetic
service platforms increased from RMB64.5 million (US$9.4 million) in 2014 to
RMB1.3 billion (US$0.2 billion) in 2018, and is expected to grow to RMB12.6
billion (US$1.8 billion) in 2023, representing a CAGR of 58.2% from 2018. Total
revenues from consumption healthcare services industry in China was
RMB560.7 billion (US$81.6 billion) in 2018, and is expected to grow at a
CAGR of 20.0% from 2018 to 2023, reaching RMB1,395.5 billion (US$203.0
billion) by 2023. Similar to the medical aesthetic service industry,
consumption healthcare service providers observe increasing spending on online
customer acquisition channels to gain customers as the industry is also highly
competitive and fragmented.
They aim to further transform medical
aesthetic industry in China towards greater transparency on service quality and
pricing by focusing on enriching their universe of reliable, appealing and
topical content offering. They will strengthen collaboration with medical
professionals and star medical aesthetic influencers to deliver more
interactive professional. They will continue to commit resources to diversify
and enrich their media formats and tools, especially video-based content.
Cutting-edge simulation services have been integrated into and continually
improved on their mobile apps to further enrich user experience and facilitate
decision-making process. They plan to further develop advanced artificial
intelligence and big data technologies to increase the precision of their
content recommendation, thereby increasing user exposure to relevant
information, which catalyzes transaction reservation volume. They are developing
advanced natural language processing algorithms and machine learning
technologies to upgrade their automated messaging system, serving to lower the
operating costs of medical aesthetic service providers on their platform, and
allow more timely responses to user inquiries for greater customer
satisfaction. They offer and will continue to enhance their SaaS module to help
their service providers reduce user maintenance cost and improve efficiency.
They intend to strengthen professional training courses on the proper
management of sophisticated medical equipment, for medical aesthetic service
providers to improve their service quality, professional knowledge and
operational capabilities. They intend to increase marketing and branding
efforts to further raise the awareness of their professional and trustworthy
platform. Their branding strategy will fully embrace the latest trends in
social-based marketing activities, in a cost-effective manner by leveraging
their word-of-mouth reputation. They plan to establish a stronger presence
on leading social media networks in China with high user traffic volume through
collaborations. They plan to gain stronger foothold in the dental, dermatology,
ophthalmology, obstetrics & gynecology, and physical examination
services sectors.
They are the market leader in terms of
audience reach, user engagement, transaction value facilitated, and
trustworthiness, testifying to the success of their powerful business model.
They believe the three components of their business model are deeply integrated
with one another, creating robust barriers to entry and enabling them to create
a sustainable business model that cannot be easily replicated by competitors.
Their So-Young mobile app accounted for 84.1% of total daily user time
spent on online medical aesthetic service mobile apps in 2018, and they
facilitated medical aesthetic treatment transactions in the aggregate value of
RMB2.1 billion (US$306.6 million) through their platform in 2018, representing
33.1% of total amounts paid for medical aesthetic treatment booked online in
that year. Leveraging their established brand image, extensive audience reach,
highly engaged social community and data insights, they are well positioned to
expand both vertically along the medical aesthetic industry value chain and
horizontally into other sectors in the massive consumption healthcare service
market. They were the first to introduce a social community focused on medical
aesthetic services, which has become the largest in China, and were the first
to launch online reservation function for medical aesthetic services in China.
Based on their facial analysis technologies, their platform enables users to
search for, and they are also capable of actively channeling, relevant and
suitable medical aesthetic content and treatment information with a simple
image input of the user’s feature. They are the most trusted online medical
aesthetic service platform in China, and they ranked No. 1 in terms of
both brand awareness and customer stickiness. Their highly engaged social
community plays a vital role in promoting transparency in terms of the pricing
and quality of medical aesthetic services by encouraging genuine user reviews
and ratings, which in turn helps their users arrive at informed decisions. They
subject each prospective medical aesthetic service provider to their strict
selection process to safeguard the reliability of their platform. In addition
to examining qualification documents, they conduct thorough background and
publicity review, including on-site due diligence reviews, on
prospective service providers. They have the most comprehensive online content
library in China with a focus on medical aesthetic services. They provide
compelling value to medical aesthetic service providers by offering targeted
consumer acquisition solutions, helping them build their online presence so as
to effectively connect and brand with users, and improving their operating
efficiency. They enjoy tremendous loyalty among their medical service providers
and achieved retention rates of 80% in 2017 and 87% in 2018, which are
calculated as the percentage of paying service providers in the previous year
who made payments in the year at issue.
They launched their online medical
aesthetic service business in November 2013 and have a limited operating
history. They have limited experience in most aspects of their business
operation. They may be subject to consumer claims, regulatory or professional
investigations and litigations regarding the medical information and services offered
on their platform. If their users and medical service providers do not continue
to contribute content that is high-quality, reliable or otherwise valuable to
their users, they may experience a decline in user traffic and user engagement.
Their business may be materially and adversely affected by an unfavorable
market perception of the overall medical aesthetic industry. They are subject
to uncertainties, changes and developments in the regulatory framework in China
with respect to the provision of online medical aesthetic services industry.
They have been, and may continue to be, subject to liabilities for
infringement, misappropriation or other violations of third-party intellectual
property rights or other allegations based on the content available on their
platform or services they provide. As the market for online medical aesthetic
services is relatively new, rapidly evolving and intensely competitive, they
expect competition to continue and intensify in the future. . They expect
competition to intensify in the future as current competitors diversify and
improve their service offerings and as new participants enter the market. They
cannot assure you that they will be able to compete effectively or efficiently
with current or future competitors. They may be acquired by, receive investment
from or enter into strategic relationships with established and well-financed
companies or investors, which would help enhance their competitiveness. Their
failure to obtain and maintain approvals, licenses or permits applicable to
their business could have a material adverse impact on their business,
financial conditions and results of operations. Any change, disruption or
discontinuity in the features and functions of major social networks in China
could significantly limit their ability to continue growing their user base,
and their business may be materially and adversely affected. Their expansion
plans, including their plans to expand into new business lines and geographic
areas, are subject to uncertainties and risks, and they may not be able to
successfully manage their expanded operations. Privacy concerns relating to
their services and the use of user information could negatively impact their
user base or user engagement. Any failure by their consolidated affiliated
entity or its shareholders to perform their obligations under their contractual
arrangements with them would have a material and adverse effect on their
business. The shareholders of their consolidated affiliated entity may have
potential conflicts of interest with them, which may materially and adversely
affect their business and financial condition. Changes in China’s economic,
political or social conditions or government policies could have a material
adverse effect on their business and operations. Their dual-class voting
structure will limit your ability to influence corporate matters and could
discourage others from pursuing any change of control transactions that holders
of their Class A ordinary shares and ADSs may view as beneficial. Mr.
Xing Jin, their co-founder, chairman of the board of directors and chief
executive officer, will beneficially own all of their issued Class B ordinary
shares. These Class B ordinary shares will constitute approximately 15.6% of their
total issued and outstanding share capital immediately after the completion of
this offering and 84.7% of the aggregate voting power of their total issued and
outstanding share capital immediately after the completion of this offering.
Rating = 2