Earnings Call Transcript - SY Q3 2021

Operator, Operator

Good morning, ladies and gentlemen, and thank you for standing by for So-Young's Third Quarter 2021 Earnings Conference Call. As a reminder, today's conference is being recorded. I will now turn the meeting over to your host for today's call, Ms. Vivian Xu. Please proceed.

Vivian Xu, Host

Thank you, operator, and thank you for joining So-Young's Third Quarter 2021 Earnings Conference Call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC, including our annual report on Form 20-F. So-Young does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Joining us today on the call are Mr. Xing Jin, our Co-Founder, Chairman and CEO; and Mr. Min Yu, our CFO. At this time, I would like to turn the call over to Mr. Xing Jin. Kass, please?

Xing Jin, CEO

There are potential risks and uncertainties that could impact our current expectations, which are detailed in our public filings with the SEC, including our annual report on Form 20-F. So-Young does not have any obligation to update forward-looking statements, except as mandated by law. Today, we have Mr. Xing Jin, our Co-Founder, Chairman and CEO, and Mr. Min Yu, our CFO, joining us on the call. I will now hand it over to Mr. Xing Jin. Kass, please?

Vivian Xu, Host

Thank you all for joining our earnings call for the third quarter of 2021. We continue to execute our growth strategy during the quarter and are pleased to deliver solid financial performance despite the challenges and impact of COVID-19 in part of China. Revenues grew to RMB 431.5 million, in line with our prior guidance, an increase of 20% from the same period of 2020. Non-GAAP net income attributed to So-Young International Inc. was RMB 28.9 million, an increase of 9.6% from the third quarter of last year.

Xing Jin, CEO

Thank you for joining our earnings call for the third quarter of 2021. We continue to execute our growth strategy during the quarter and are pleased to deliver solid financial performance despite the challenges and impact of COVID-19 in part of China. Revenues grew to RMB 431.5 million, in line with our prior guidance, an increase of 20% from the same period of 2020. Non-GAAP net income attributed to So-Young International Inc. was RMB 28.9 million, an increase of 9.6% from the third quarter of last year.

Vivian Xu, Host

In the third quarter, the resurgence of COVID-19 in several cities across the country resulted in weaker-than-normal consumer sentiment and heightened containment measures that had a negative impact on our business. Having said that, we firmly believe that the long-term outlook for the medical aesthetics industry remains strong and intact.

Xing Jin, CEO

In the third quarter, the resurgence of COVID-19 in several cities across the country resulted in weaker-than-normal consumer sentiment and heightened containment measures that negatively impacted our business. However, we firmly believe that the long-term outlook for the medical aesthetics industry remains strong and intact.

Vivian Xu, Host

Let's talk about our strategy progress on our operations during the quarter. Firstly, our team worked tirelessly with institutions to increase brand endorsements on the platform with the aim of improving conversion rates. The number of paying medical service providers on our platform was 4,841, an increase of 18.2% from 4,096 in the third quarter of 2020. So-Young has become the premium one-stop comprehensive medical aesthetics and medical service platform to facilitate presales and after-sales services, thus closing the information gap between online and offline demands. Information service revenue maintained steady growth, increasing 21.1% year-over-year to RMB 321.6 million. The number of key medical service providers subscribing to So-Young's information service was 2,242, up from 2,146 in the prior year.

Xing Jin, CEO

So-Young has established itself as the leading one-stop platform for comprehensive medical aesthetics and medical services, bridging the information gap between online and offline demands. Information service revenue continued to grow steadily, rising 21.1% year-over-year to RMB 321.6 million. The number of key medical service providers using So-Young's information service increased to 2,242, up from 2,146 last year.

Vivian Xu, Host

In terms of user experience, we focused on a few key areas: strengthening the digital capabilities of So-Young platform, increasing personal data protection and improving the customization of community content based on individual profiles and purchasing behaviors.

Xing Jin, CEO

In terms of user experience, we focused on a few key areas: strengthening the digital capabilities of So-Young platform, increasing personal data protection, and improving the customization of community content based on individual profiles and purchasing behaviors.

Vivian Xu, Host

On the nonsurgical product side, the popularity of nonsurgical categories remains high in terms of user demand. We further increased the number of SKUs on our platform to optimize the online transaction experience with more transparent pricing and attractive incentives for the users, particularly as a way to reward our loyal repeat users. Our online consumer protection projects have gained much traction and demonstrated progress in brand loyalty as we continue to strengthen the management and control of our product authenticity and the supervision over treatments and services. Alongside the standardization of nonsurgical procedures, as of September, over 140,000 nonsurgical SKUs were available on our platform, an increase of 26% compared with the same period last year. As a result, in the third quarter, revenue contribution of our nonsurgical business increased to 49% of total revenue, up from 43% in the third quarter of 2020.

Xing Jin, CEO

We are enhancing our management and oversight of product authenticity and service treatments, which is fostering customer loyalty. As of September, we offered more than 140,000 nonsurgical SKUs on our platform, marking a 26% increase compared to the same time last year. Consequently, in the third quarter, the revenue share from our nonsurgical operations rose to 49% of total revenue, up from 43% in the third quarter of 2020.

Vivian Xu, Host

Secondly, we worked to ensure consistent standardization of nonsurgical procedures and services, while helping institutions enhance contract performance and the authenticity of high-quality service. We will continue to grow our market share in the nonsurgical categories and expand our go-to-market strategy by introducing more upselling and popular products that address different customer needs.

Xing Jin, CEO

We worked to ensure consistent standardization of nonsurgical procedures and services, while helping institutions enhance contract performance and the authenticity of high-quality service. We will continue to grow our market share in the nonsurgical categories and expand our go-to-market strategy by introducing more upselling and popular products that address different customer needs.

Vivian Xu, Host

To refine our operation in the surgical categories, we allocated more resources to support reputable doctors and expand our advantage in this area. We upgraded our customized treatment program to help users find personalized solutions consisting of effective diagnosis and treatment by matching them with the right doctor and the professional consultants.

Xing Jin, CEO

Vivian Xu, Host

Now I would like to give you an update on our business integration with Wuhan Miracle Laser Systems. We closed the deal in the middle of Q3. The acquisition of Wuhan Miracle has helped us expand our institutional network, fulfill service, and is a great example of our strong growth strategy, exploring new collaboration opportunities with equipment and device manufacturers as well as medical drug providers. We have set up a flagship store for Wuhan Miracle on So-Young's platform and added online products to So-Young. As of early November, So-Young had established business relationships with more than 30 institutions derived from the Wuhan Miracle network.

Xing Jin, CEO

Han Miracle has helped us expand our institutional network, fulfill service, and is a great example of our strong growth strategy, exploring new collaboration opportunities with equipment and device manufacturers as well as medical drug providers. We have set up a flagship store for Wuhan Miracle on So-Young's platform and added online products to So-Young. As of early November, So-Young had established business relationships with more than 30 institutions derived from the Wuhan Miracle network.

Vivian Xu, Host

Going forward, we will scale this service model and seek opportunities with upstream product providers through trials that will connect them directly with many of our users.

Xing Jin, CEO

Going forward, we will scale this service model and seek opportunities with upstream product providers through trials that will connect them directly with many of our users.

Vivian Xu, Host

On the regulatory front, we remain in close communication with regulators and follow industry guidelines by promoting self-discipline on platform governance, conducting stringent internal review mechanisms on all doctors and institutions in our database, and facilitating rigorous approval processes for content and service offerings. As a leader in the medical aesthetics and medical industry, we particularly focus on the accuracy of the online information we provide on medical aesthetics services, assisting our institutional partners with compliance audits and promoting the standardization and orderly development of the medical aesthetics industry.

Xing Jin, CEO

We are implementing strict internal review processes for all doctors and institutions in our database and conducting thorough approval procedures for our content and service offerings. As a leader in the medical aesthetics and medical industry, we pay special attention to the accuracy of the online information we share about medical aesthetics services, supporting our institutional partners with compliance audits and encouraging the standardization and structured growth of the medical aesthetics industry.

Vivian Xu, Host

To summarize, So-Young's goal is to provide comprehensive medical aesthetics and medical information that will resolve information asymmetry within the industry. Meanwhile, we are developing a B2B platform to enhance our cooperation with upstream product suppliers. In addition, we are strengthening our community operations capabilities on the supply end and improving overall user satisfaction rates by facilitating value-added services in the treatment execution phase. We believe this will help us extend our reach to a growing number of users and raise the size of the total addressable market. As we continue to grow our reputation as the most trusted medical aesthetics and medical care platform in China, we will further strive to raise standards and the quality of the industry.

Xing Jin, CEO

Strengthening our community operations capabilities on the supply end and improving overall user satisfaction rates by facilitating value-added services in the treatment execution phase. We believe this will help us extend our reach to a growing number of users and raise the size of the total addressable market. As we continue to grow our reputation as the most trusted medical aesthetics and medical care platform in China, we will further strive to raise standards and the quality of the industry.

Vivian Xu, Host

Now let me invite Min to give us an overview of the results of the quarter, before we open up to the Q&A.

Min Yu, CFO

Thanks, Kass. Please be reminded that all amounts quoted here will be in RMB. Please also refer to our earnings release for detailed information on our comparable financial performance on a year-over-year basis. For the third quarter 2021, total revenues were RMB 431.5 million, up 20% year-over-year from RMB 360 million, in line with our previous guidance. The increase was primarily due to an increase in the number of paying medical service providers and the consolidated revenues of RMB 48.1 million in '21 Q3 from Wuhan Miracle. The number of paying medical service providers on the platform was 4,841, an increase of 18.2% from 4,096 in the third quarter of 2020. The total number of medical service providers subscribing to information services on So-Young's platform was 2,242 during the quarter compared with 2,146 in the third quarter of 2020. Within total revenues, information services and other revenues were RMB 369.7 million, up 39.2% year-over-year from RMB 265.7 million. Reservation Services revenues were RMB 61.7 million, a decrease of 34.3% from RMB 93.9 million in the third quarter of 2020. Cost of revenues were RMB 89.6 million, up 63.7% year-over-year from RMB 54.7 million in the third quarter of 2020. The increase was primarily due to the consolidation of the costs of Wuhan Miracle; cost of revenues included share-based compensation expenses of RMB 4.8 million compared with RMB 5.1 million in the third quarter of 2020. Total operating expenses were RMB 322.5 million, a decrease of 3.7% from RMB 335.1 million in the third quarter of 2020. Sales and marketing expenses were RMB 190.7 million, down 13.9% from RMB 221.6 million a year ago, primarily due to a decrease in expenses associated with branding and marketing activities. Sales and marketing expenses included share-based compensation expenses of RMB 2.2 million compared with RMB 2.2 million in the corresponding period of 2020. G&A expenses were RMB 54.7 million, up 8.7% from RMB 50.3 million a year ago, primarily due to the consolidation of General and administrative expenses of Wuhan Miracle. G&A expenses included share-based compensation expenses of RMB 10 million compared with RMB 12.2 million in the corresponding period of 2020. Research and development expenses were RMB 77.1 million, up 22.1% from RMB 63.2 million a year ago. The increase was primarily due to the consolidation of the research and development expenses of Wuhan Miracle. R&D expenses for the third quarter of 2021 included share-based compensation expenses of RMB 5.1 million compared with RMB 6 million in the corresponding period of 2020. Income tax expenses were RMB 4.3 million compared with RMB 16.3 million income tax benefit in the third quarter of 2020. Net income attributable to So-Young International, Inc., was RMB 6.8 million compared with net income attributable to So-Young International, Inc., of RMB 0.9 million in the third quarter of 2020. Non-GAAP net income attributable to So-Young International was RMB 28.9 million compared with RMB 26.4 million in non-GAAP net income in the same period of 2020. Basic and diluted income per ADS attributable to ordinary shareholders was RMB 0.06 and RMB 0.06, respectively, compared with RMB 0.01 and RMB 0.01, respectively, during the same quarter of 2020. Now for our balance sheet. As of September 30, 2021, we had total cash and cash equivalents, restricted cash and term deposits, and short-term investments of RMB 1.8 billion compared with RMB 2.7 billion as of December 31, 2020. For the fourth quarter of 2021, So-Young expects total revenues to be between RMB 430 million and RMB 450 million, representing a 1.3% to 6% increase from the same period of 2020. The above outlook is based on the current market conditions and reflects the company's preliminary estimates of market and operating conditions and customer demand. This concludes our prepared remarks. I will now turn the call to the operator and open the call for Q&A.

Operator, Operator

Your first question comes from the line of Thomas Chong from Jefferies.

Thomas Chong, Analyst

I have a question about the regulatory side. Can you provide any comments on the guidelines regarding the enforcement of medical and aesthetic advertising laws, as well as the current regulatory situation?

Xing Jin, CEO

I have a question about the regulatory side. Any comments about the guidelines on medical and aesthetic advertising law enforcement as well as the relevant regulatory situation?

Vivian Xu, Host

As medical aesthetics has both medical and consumption nature, the guidelines on medical aesthetics advising law enforcement, issued by the SAMR, the State Administration for Market Regulation, will help maintain the order of the medical aesthetics market and truly protect the rights and interests of consumers.

Xing Jin, CEO

The guidelines on medical aesthetics advising law enforcement, issued by the State Administration for Market Regulation, will help maintain the order of the medical aesthetics market and truly protect the rights and interests of consumers.

Vivian Xu, Host

As our online service platform for medical aesthetics, we will strictly follow the requirements of law on protection of consumer rights and interests, e-commerce law, and other laws and regulations as mentioned in the guidelines as we provide online information services. We will let consumers acquire specific information about products, including price, performance, specifications, and disclosure of the information of the products or services in a comprehensive, generic, accurate, and real-time manner to guarantee the right to know and the right to choose of consumers.

Xing Jin, CEO

We comply with laws protecting consumer rights and interests, including e-commerce regulations. Our goal is to provide consumers with detailed information about products, such as pricing, performance, and specifications, in a clear, accurate, and timely way to ensure they have the right to know and choose.

Vivian Xu, Host

Meanwhile, we will proactively follow the guidance of the guidelines to further establish and optimize our self-discipline and block illegal promotional information, maintaining standardized and further developing opportunities. As a platform that started in the first place and continuously conducts self-disciplined practices, we believe institutions should not cheat consumers with aggregation or fraudulent information in marketing and consumer acquisition. We strictly forbid illegal promotional information and focus on the protection of consumer rights and interests. For institutions, they will turn to more prudent, professional, and compliant platforms when choosing marketing channels.

Xing Jin, CEO

We believe institutions should not deceive consumers with misleading information in marketing and consumer acquisition. We strictly prohibit illegal promotional content and prioritize the protection of consumer rights and interests. As a result, institutions are more likely to select more reliable, professional, and compliant platforms for their marketing needs.

Vivian Xu, Host

In the long run, regulations are positive for the healthy development of the industry. As a leader in the industry, we will stick to self-discipline, improve our internal review mechanisms, and drive medical aesthetics to return to its medical nature.

Operator, Operator

Your next question comes from the line of Nelson Cheung from Citi.

Nelson Cheung, Analyst

Let me translate myself. With the decline in reservation revenue this year, can management explain the reasons for it? What are your expectations for the long-term trend of this business going forward?

Xing Jin, CEO

Let me translate myself. So with the revenue decline in reservation revenue this year, can management share the reasons behind it? And what's your expectation for the long-term trend of this business going forward?

Vivian Xu, Host

First, is due to the resurgence of COVID-19 in some member cities, consumers' confidence is weaker than normal and their willingness to spend is not that strong. It's impacted the medical aesthetics market.

Xing Jin, CEO

First, it is due to the resurgence of COVID-19 in some member cities, which has weakened consumer confidence and reduced their willingness to spend. This has impacted the medical aesthetics market.

Vivian Xu, Host

Secondly, the price for medical aesthetic treatment is generally expensive and some consumers need to travel to get the treatment. The containment measures in some cities prohibit their movement.

Xing Jin, CEO

Due to the resurgence of COVID-19 in certain cities, consumer confidence has dipped below normal levels, leading to a weakened willingness to spend, which has affected the medical aesthetics market. Additionally, the generally high costs of medical aesthetic treatments and the need for some consumers to travel for these services are constrained by movement restrictions in various cities.

Vivian Xu, Host

In the meantime, in Q3, we tested new promotions with selected institutions. We encouraged institutions to expand inventories and give more rebates to users, making them have more incentives to place orders online.

Xing Jin, CEO

In the meantime, in Q3, we tested new promotions with selected institutions. We encouraged institutions to expand inventories and offer more rebates to users, providing them with greater incentives to place orders online.

Vivian Xu, Host

As a result, under the new promotion, GMV of online transactions in September was 96% and 78% higher than that in March and June, respectively, while ARPU was 76% and 39% higher, respectively, as well.

Xing Jin, CEO

In the meantime, in Q3, we tested new promotions with selected institutions. We encouraged institutions to expand inventories and provide more rebates to users, creating greater incentives for them to place orders online. As a result, under the new promotion, the gross merchandise volume of online transactions in September was 96% and 78% higher than in March and June, respectively, while average revenue per user was 76% and 39% higher, respectively, as well.

Vivian Xu, Host

Over the long run, with a better use of the online experience and the standardization of our product offerings, we will enhance the fulfillment of the online transaction and extend our service to offline, ensuring users get the authentic products. For institutions using online payment services, it will be an important factor for them to drive higher traffic and conversions, encouraging them to allow users to place orders online.

Operator, Operator

Your next question comes from the line of Vincent Yu from Needham and Company.

Vincent Yu, Analyst

My first question is about the impact of COVID-19. As you mentioned, the resurgence of COVID-19 has continued to affect our business operations. Can management share your perspective on its impact in the fourth quarter, particularly regarding user base sites? Also, for next year, what are your expectations for user growth and revenue growth? My second question is about the progress in So-Young PASS. Compared to surgical categories that are significantly influenced by COVID-19, what is the growth trend for the nonsurgical category, and can you highlight any key points here?

Xing Jin, CEO

COVID-19 resurgence has continued to affect our business operations. Can management provide insights on its impact for the fourth quarter, particularly regarding user base sites? Additionally, what are your expectations for user growth and revenue growth for next year? My second question pertains to the progress of So-Young PASS. In comparison to the surgical categories, which have been significantly impacted by COVID-19, what is the growth trend for the nonsurgical category and what highlights can you share?

Vivian Xu, Host

Thank you for the first question. In Q3 and Q4, the rebound of the pandemic in some cities brought short-term uncertainties to our business. We are monitoring the development of the market and will make timely adjustments to our marketing strategy.

Xing Jin, CEO

My second question is about the progress in So-Young PASS. Compared to surgical categories, which are greatly impacted by COVID-19, how is the growth trend for the nonsurgical category and highlights here? Thank you for the first question. In Q3 and Q4, the rebound of the pandemic in some cities brought short-term uncertainties to our business. We are monitoring the development of the market and will make timely adjustments to our marketing strategy.

Vivian Xu, Host

For Q4 and next year, we believe the popularity of the nonsurgical category will maintain its momentum. We will solidify our existing strong position on the surgical side while executing our established strategy on the nonsurgical side to penetrate more into the market and gain more market share.

Xing Jin, CEO

We are monitoring the development of the market and will make timely adjustments to our marketing strategy. For Q4 and next year, we believe the popularity of the nonsurgical category will maintain its momentum. We will solidify our existing strong position on the surgical side while executing our established strategy on the nonsurgical side to penetrate more into the market and gain more market share.

Vivian Xu, Host

In the past several years, the main driver for the growth of the medical aesthetics industry came from plastic surgeries because these surgeries are nonstandard treatments, the quality of which is largely dependent on surgeon doctors. Therefore, the status of the industry remains fragmented with no universal standard and poor service quality. The COVID-19, to some degree, has changed user behavior. In the meantime, advancements in the technology of light aesthetics and expanding user groups are accelerating the development of digitalization and standardization of the industry.

Xing Jin, CEO

The industry primarily consists of plastic surgeries, which are considered nonstandard treatments, and their quality largely relies on the skills of the surgeons. As a result, the industry remains fragmented, lacking a universal standard and exhibiting poor service quality. The COVID-19 pandemic has somewhat altered user behavior. Additionally, advancements in light aesthetics technology and a growing user base are driving the digitalization and standardization of the industry.

Vivian Xu, Host

We believe such trends will continue in the next 5 years. Institutions will be required to improve their medical skills and service quality, while the upstream equipment and drug providers will want to increase their exposure and brand influence to end users. Both of them will need more service from our platform.

Xing Jin, CEO

The technology of light aesthetics and the growing user groups are driving the advancement of digitalization and standardization in the industry. We believe these trends will persist over the next five years. Institutions will need to enhance their medical skills and service quality, while upstream equipment and drug providers will seek to boost their visibility and brand influence with end users. Both will require more services from our platform.

Vivian Xu, Host

Operation for So-Young PASS started last October, and the number of cities covered has expanded to over 50 by the end of this quarter from 11 at the beginning. Corporate institutions also increased from more than 250 from 90 at first. While expanding the coverage, we are continuously optimizing service experience and popular categories of So-Young PASS.

Xing Jin, CEO

Our exposure and brand influence to end users will increase the demand for services from our platform. Operation for So-Young PASS started last October, and by the end of this quarter, the number of cities covered has grown to over 50 from 11 at the outset. The number of corporate institutions has also risen from 90 to more than 250. While we expand our coverage, we are continually optimizing the service experience and the popular categories of So-Young PASS.

Vivian Xu, Host

For nonsurgical, the orders accounted for 76% of total orders during the quarter. Meanwhile, the hot selling products were established with our advantage in community content and new media such as Fotona4D, photorejuvenation, and other categories recording more than 85% year-over-year growth in average GMVs from users' online orders. Among them, the online GMV for Fotona4D even grew over 400% year-over-year.

Xing Jin, CEO

For nonsurgical procedures, the orders made up 76% of total orders during the quarter. Additionally, our popular products benefited from our strength in community content and new media, such as Fotona4D and photorejuvenation, with these categories achieving over 85% year-over-year growth in average GMVs from users' online orders. Notably, the online GMV for Fotona4D saw an impressive growth of over 400% year-over-year.

Vivian Xu, Host

In addition, we added So-Young PASS to the shop openings and the promotional campaigns of newly joined institutions, focusing on healthy small- and medium-sized institutions with less online resources and operational experience to rapidly increase exposure and improve accurate client acquisition.

Xing Jin, CEO

We experienced more than 85% year-over-year growth in average GMVs from users' online orders. Notably, the online GMV for Fotona4D saw an impressive increase of over 400% year-over-year. Additionally, we introduced So-Young PASS to the shop openings and promotional campaigns for newly joined institutions, targeting healthy small- and medium-sized institutions that have limited online resources and operational experience to quickly enhance visibility and improve client acquisition accuracy.

Vivian Xu, Host

In summary, we mentioned before, So-Young PASS is just the first step we are taking to enhance contract performance for users, while also investing in the nonsurgical side. For the whole nonsurgical business, benefiting from the rising popularity of nonsurgical services, we are committed to the standardization of nonsurgical service in the long term, continuously enhancing content performance and ensuring users enjoy a premium experience with authentic products on the nonsurgical side. Meanwhile, we are seeking cooperation trials with upstream manufacturers, further helping users solve their pain points in nonsurgical categories, improving overall user satisfaction, and penetrating more medical aesthetics users.

Operator, Operator

Your next question comes from the line of Leo Chiang from Deutsche Bank.

Leo Chiang, Analyst

I'll translate my question. My question is about the monthly active users and sales and marketing. I would like to understand the reason behind the decrease in monthly active users and the reduction in marketing expenses. What is the marketing and promotion strategy for the next quarter and the upcoming year?

Xing Jin, CEO

I'll translate my question. My question is regarding the monthly active users and sales and marketing. I'm curious about the reason behind the decrease in monthly active users and the reduction in marketing expenses. What is the marketing and promotion strategy for the next quarter and the upcoming year?

Vivian Xu, Host

Firstly, due to the negative impact of the resurgence of COVID-19 in some large cities, consumer confidence was hurt and consumption willingness declined, resulting in the Q-on-Q decrease in MAU.

Xing Jin, CEO

Firstly, due to the negative impact of the resurgence of COVID-19 in some large cities, consumer confidence was affected, leading to a decrease in willingness to consume, which resulted in the quarter-on-quarter decline in MAU.

Vivian Xu, Host

Secondly, as we already mentioned at the beginning of this year, our marketing strategy is to acquire more quality users, putting the priority of user quality ahead of quantity, which is different from the strategy last year when we focused on targeting new users.

Xing Jin, CEO

Due to the negative impact of the resurgence of COVID-19 in some large cities, consumer confidence was hurt and willingness to consume declined, resulting in the quarter-on-quarter decrease in monthly active users. As we already mentioned at the beginning of this year, our marketing strategy is to acquire more quality users, prioritizing user quality over quantity, which is different from last year's focus on targeting new users.

Vivian Xu, Host

Referring to the total marketing fee during the quarter, we optimized our marketing strategy, reducing branding spending in offline channels and increasing online promotional content, leveraging our content advantages and releasing premium content on third-party platforms to enhance effectiveness, establishing our image as a professional medical aesthetics platform.

Xing Jin, CEO

We optimized our marketing strategy by reducing branding spending in offline channels and increasing online promotional content. This approach allowed us to leverage our content advantages and release premium content on third-party platforms to enhance effectiveness, establishing our image as a professional medical aesthetics platform.

Vivian Xu, Host

Looking forward to the whole year of 2021, we estimate the total sales and marketing expense will account for no more than 50% of our revenues, maintaining the same level as we projected at the beginning of this year.

Operator, Operator

Your next question comes from the line of Shiqi Ge from CICC.

Shiqi Ge, Analyst

Can you provide us with more updates on Wuhan Miracle? Additionally, since you have added upstream equipment supply to your business, could you share more details about your long-term development strategy?

Xing Jin, CEO

Just wondering if you could provide us with more business updates on Wuhan Miracle? Additionally, since you have added the upstream equipment supply business, could you also share more details about your long-term development strategy?

Vivian Xu, Host

In the third quarter, we closed the deal of acquiring Wuhan Miracle. We have set up a flagship store for Wuhan Miracle on our platform and promote its products to our users and integrate its products with So-Young PASS. As of early November, So-Young had established business relations with more than 30 institutions derived from the Wuhan Miracle network.

Xing Jin, CEO

In the third quarter, we closed the deal of acquiring Wuhan Miracle. We have set up a flagship store for Wuhan Miracle on our platform, promoted its products to our users, and integrated its products with So-Young PASS. As of early November, So-Young had established business relations with more than 30 institutions derived from the Wuhan Miracle network.

Vivian Xu, Host

Referring to your second question, in the past few years, we have made efforts to solve the difficulty of user decision-making by providing more transparent information, normalizing and optimizing our community content to enable our users to gain a better understanding of medical aesthetics treatments with professional help at the information level.

Xing Jin, CEO

In the past few years, we have made efforts to solve the difficulty of user decision-making by providing more transparent information, normalizing and optimizing our community content to enable our users to gain a better understanding of medical aesthetics treatments with professional help at the information level.

Vivian Xu, Host

With the refinement of our operations, our online service will be more standardized and transparent in pricing. We are able to correctly display to users the place of production, usage, specifications, and other information. We are also pioneering in offering online rights protection at no cost, providing advanced compensation and insurance for relevant medical aesthetics treatment to our users.

Xing Jin, CEO

Vivian Xu, Host

At present, as we better understand the medical aesthetics industry, we are aware that the higher transaction value of upstream products and the limited choice of categories have set limits for more users to enjoy medical aesthetics consumption. From the user demand side, we see that medical aesthetics consumption is expanding out of the original user base as the demands for medical aesthetics continues to rise. For that reason, we believe at the current stage, we will leverage our platform's advantages, enhance cooperation with the supply end, explore into new industries, and enable more users to have access to quality medical aesthetics experiences, thereby expanding the overall market size.

Operator, Operator

If there are no further questions, that brings us to the end of the call. Thank you for participating. You may all disconnect now. Thank you all.

Vivian Xu, Host

Thank you. Good night.