So-Young International Inc. operates an online platform for medical aesthetics and consumption healthcare services focusing on discretionary medical treatments. Its platform enables users to discover content and share their own experience on medical aesthetics procedures and leads users to reserve treatment services from medical aesthetic service providers for offline treatment in the People’s Republic of China and internationally. The company facilitates research on medical aesthetic treatment trends; ratings and reviews on treatment experiences; and blogs under the name Beauty Diaries. It also provides reservation services in the areas of dermatology, dentistry and orthodontics, ophthalmology, physical examinations, gynecology, human papilloma virus vaccines, and postnatal care; Software as a Service; and guiding and consulting services through training programs for medical service providers. In addition, the company offers internet information and technology advisory, management consulting, and Internet culture services, as well as sells medical equipment. As of December 31, 2020, it had approximately 6,900 medical aesthetic service providers and 4,200 other consumption healthcare service providers on its platform. The company was founded in 2013 and is headquartered in Beijing, China.
The Company listed on the NASDAQ in May 2019 raising US$206.31M in its IPO.
May 6, 2021 Blue Orca Capital released a short report on So-Young International. It believed, based on its extensive diligence, that So-Young was a struggling platform replete with fake bookings. In its opinion, the evidence indicated that the Company was likely massively exaggerating the popularity of its platform, its booking and advertising revenues, and even the user generated content. The main issues that Blue Orca highlighted in its report were:
- Data scrape showed widespread booking fabrication on So-Young’s platform. Looking at the publicly available booking data on So-Young’s platform over a two-month period at the beginning of 2021, Blue Orca estimated that the Company exaggerated the bookings from clinics by at least 4-5x during the period. Blue Orca thought this indicated, persuasively, that So-Young was inflating both the popularity of its platform and its reported revenues.
- Advertising Revenue Overstatement - Based on Blue Orca's estimates, it believed It was highly implausible that half the clinics on the Company's platform would pay 12 dollars in advertising costs for 1 dollar in revenue. Blue Orca thought the evidence showed that So-Young’s advertising revenues were largely inflated.
- A history of dishonesty - Reports within the Chinese language media that US investors would be unaware of including:
- Chinese media reported that investors in a pre-IPO round of capital raising pulled out after discovering that SY was faking sales on its platform.
- A Whistleblower posted screenshots of conversations with an So-Young employee indicating that, in an effort to meet KPIs, the Company was engaging in a kickback scheme with clinics to reimburse transactions fees if the clinics made fake bookings through the platform.
- Leaked screenshots to Chinese media indicated that fake accounts were used to inflate sales across the Company’s platform. In another instance, an individual complained that his phone number was used to book procedures on the platform without his knowledge.
- Investigative reports from Chinese journalists attempting to verify hospital participation on So-Young’s platform revealed that a hospital supposedly offering procedures did not actually have a plastic surgery department, and that the two listed doctors either worked in another field or not at the hospital.
- So-Young’s famous beauty diaries, which were supposedly firsthand accounts of customers who booked cosmetic surgeries through the platform, were replete with fakery. The Company’s founder admitted that the first 7,000 diaries on the platform were just translations of posts on forums in South Korea. Chinese media had since reported that there was a cottage industry for faking beauty diaries on the platform.
In conclusion, Blue Orca valued So-Young at a 63% downside from its last traded price. It considered this valuation to be conservative, as it gave the company full credit for the cash raised in the IPO (and held offshore in short term investments). Blue Orca said that given the extensive evidence that the Company had exaggerated its financial performance for some time, it doubted the onshore cash balance was real or recoverable and that it viewed So-Young as uninvestable.
May 7, 2021 So-Young International issued a press release which refuted the allegations in the Blue Orca report. It also announced a US$70M share repurchase program to demonstrate the Company’s confidence in its long-term prospects.
Blue Orca Capital: So-Young International Report, 6 May 2021
So-Young Intl Inc: Refutes Blue Orca Capital’s Report and US$70M Share Repurchase, 7 May 2021
Capital Watch: So-Young Refutes Short Report, Says Open to Verification, 8 May 2021
So-Young Intl Inc: Annual Report, YE Dec.2020
So-Young Intl Inc: Annual Report, YE Dec.2019
So-Young Intl Inc: Prospectus, 1 May 2019