What’s cooler than beauty companies that are valued at $1B? Beauty tech companies that are worth $5.2B at IPO. We don’t hear much about the leading global beauty tech companies such as Meitu and Perfect Corp. because their founders are not celebrity influencers, they don’t have massive IG followings here in the US, and they are not celebrated in our media. Although their companies are based in Asia and they raised money mostly from Chinese investors, their companies are global successes.
Meitu IPO’d with a $5.2B valuation. Its photo-editing and sharing software accrued 1.5B unique installs with 6B photos generated from its Meitu apps per month. It is used in 39 countries with more than 1 million users in each. It has 350 million active users worldwide and 500+ million users outside China. According to App Annie, Meitu has repeatedly ranked as one of the top eight iOS non-game app developers globally.
Meanwhile, Perfect Corp., which is the developer behind a suite of beauty apps such as YouCam Makeup, has accumulated 750MM downloads globally and achieved over 10 billion virtual try-ons worldwide on its platform. Perfect Corp. is serving more than 250 brands from around the world with its Software as a Service (SaaS) of its virtual try-on technology for consumers (a virtual try-before-you-buy experience). Given that the typical license deal for AR beauty tech is priced between $250K to $500K (higher based on the level of customization, retail, online, global etc.) and it has secured 250+ licenses, I estimate that Perfect Corp. is already profitable.
Much of Perfect Corp.’s funding has been used for new product development. Last year, it launched Beauty 3.0, which marries unprecedented AI & AR innovation to create a personalized, proactive consumer journey. Perfect Corp.’s highly competitive and innovative product portfolio and global reach is extremely impressive considering it has raised only a small fraction of the money that “unicorn” DTC consumer companies in the US have raised; its Series A round in Oct 2017 was $25MM—compare that to the vast sums raised by media darlings such as Glossier ($186MM), Away ($181MM), Casper ($339MM), and AllBirds ($77MM). Just recently in September 2019, Perfect Corp. raised a Series B led by Alibaba, while also announcing a partnership to integrate Perfect Corp.’s YouCam technology into TMall and Taobao.
According to CNBC, after WeWork’s failed IPO and the current struggle of many celebrated unicorn consumer brands, now investors want start-ups to prove they’ll be profitable. “The narrative on the distance to profitability and the path to profitability becomes a bigger part of the story versus growth at all costs, and you’re seeing that return,” said Ravi Viswanathan, founder and managing partner of venture capital firm NewView Capital, in a panel at the WebTech Summit last week. In the beauty world, the path to profitability is clear with beauty tech businesses that have a SaaS offering.
Driving down Sand Hill Road in Silicon Valley, it is hard to find a venture capitalist that doesn’t invest in sector-specific Enterprise Software companies, and for good reason. Of the 9 SaaS IPOs in 2019 through the end of September, they raised $11.2B and the average return has been 54%. Why have SaaS companies been performing so well?
- The recurring business model of SaaS companies makes it easier to predict revenue and profitability.
- These can be high-gross margins products.
- According to Kathleen Smith from Renaissance Capital, as reported on CNBC, “They’re enterprise-based, so you can sell to large numbers of people within the organization, which makes sales less expensive per person. And most have positive cash flow because they collect revenue ahead of booking.”
The opportunity for US-based beauty tech SaaS companies is ripe because of shifting consumer demands within beauty and retail. The demand started with the now ubiquitous virtual try-on and most recently expanding to personalization. Virtual try-on in the US began with premium and masstige retailers such as Sephora and Ulta, but now even mass and specialty retailers such as Sally Beauty are implementing their ColorView AI Technology to the Sally Beauty App and to kiosks in 500 Sally Beauty stores across the country. The implementation is part of the brand’s revamp of the customer experience and approach to retail fundamentals. In the vitamin sector, Vitamin Shoppe just announced the launch of its personalized vitamin packs that use a detailed lifestyle questionnaire, and GNC just launched their own personalized vitamin subscription plan that utilizes a lifestyle assessment and DNA analysis. Big brands from luxury to mass such as Estée Lauder, Shiseido, L’Oréal and Maybelline have invested in beauty tech-enriched experiences for virtual try-on of color cosmetics and hair color.
The next big beauty SaaS opportunity is intelligent, bio-rich skincare personalization technology – that goes far beyond basic quizzes and selfie analysis; it is a largely untouched category when it comes to enterprise software. There is a demand for high tech personalization based on science that provides accuracy, not just a cool experience. For the companies developing differentiated technology and building proprietary data moats, retention will be higher and marketing ROI will continue to exceed their DTC counterparts. Retailers and brands know that personalization that accurately guides consumers to the right product will lead to higher conversions, faster checkouts, and higher average order values.
Tech will play an increasing role in the global beauty and consumer industries thanks to an increasing need for customer data and the willingness of young consumers to provide their data in exchange for a better experience. The service that beauty tech provides has now become part of the product experience. Thankfully, US investors are starting to take note of the Asian success stories. Beauty tech, especially companies with a SaaS, model can show investors the clear path to money.
Photo: via Pixabay