RLX Technology’s Revenue Surge Masks EPS Underperformance Amid Global Expansion Challenges

RLX Technology Inc. (RLX) delivered a mixed performance in its 2024 earnings report, showcasing robust revenue growth driven by aggressive international expansion but falling short on earnings per share (EPS). While the company’s top-line results outpaced expectations, the lag in bottom-line metrics underscores the operational and financial trade-offs of scaling rapidly in a highly regulated industry. Investors must weigh these diverging trends against RLX’s strategic priorities and macroeconomic risks to assess its long-term value.

Revenue Growth Outshines EPS Performance

RLX’s full-year 2024 revenue surged to RMB2,748.6 million (US$376.6 million), a 73.3% year-over-year increase, fueled by its push into international markets. The company’s innovative open-system and disposable e-vapor products, launched to address global demand for harm-reduction alternatives, have become key growth drivers. Gross margins improved to 26.4%, up from 24.4% in 2023, reflecting cost optimization and a favorable product mix.

However, earnings trailed behind. GAAP net income rose modestly to RMB564.3 million, while non-GAAP net income grew to RMB934.0 million, excluding share-based compensation. On a per-share basis, though, GAAP EPS dipped to RMB0.448 (US$0.061), down from RMB0.407 in 2023. Non-GAAP EPS also fell, highlighting pressures from rising operational expenses and regulatory compliance costs.

Key Drivers and Operational Challenges

1. Global Expansion as a Double-Edged Sword
RLX’s revenue boom is tied to its aggressive international strategy, particularly in markets like the U.S., EU, and Southeast Asia. However, scaling into new regions requires significant upfront investments in compliance, marketing, and distribution. For instance, Q4 2024 saw selling expenses rise 19.5% to RMB45.4 million due to higher branding and salary costs, while R&D spending jumped 52% to RMB32.4 million as the company prioritized product innovation.

2. Margin Pressures and Share-Based Compensation
Despite improved gross margins, operating losses in 2024 totaled RMB107.1 million, a marked improvement from RMB496.7 million in 2023, but still a drag on profitability. Non-GAAP operating income of RMB262.5 million reflects efficiency gains, yet GAAP metrics remain weighed down by share-based compensation, which drove a 12.3% decline in operating expenses in Q4. This highlights the need for RLX to manage incentive costs to sustain EPS growth.

Financial Strengths and Risks

RLX enters 2025 with a solid balance sheet, holding RMB15.87 billion (US$2.17 billion) in cash and equivalents—up 3.3% from Q3 2024. This liquidity buffer positions the company to navigate regulatory headwinds, such as stricter vaping product regulations in key markets like the U.S., where FDA approvals remain a hurdle.

However, rising geopolitical tensions and macroeconomic uncertainty could disrupt supply chains and consumer demand. Additionally, RLX’s shareholder returns—US$122.9 million in 2024, including buybacks and dividends—must be balanced against reinvestment needs.

Conclusion: A Company at a Strategic Inflection Point

RLX Technology’s 2024 results paint a complex picture. On one hand, its top-line momentum and margin improvements signal a successful execution of its global growth strategy. The company’s cumulative repurchases of US$304.7 million since inception also reflect confidence in its long-term prospects.

Yet, the EPS lag and rising expenses raise red flags. Investors should monitor whether operational efficiencies and cost controls can stabilize margins while sustaining growth. If RLX can manage regulatory risks, optimize expenses, and maintain its product innovation pipeline—notably, its 2024 launches set “industry trends”—it could unlock further value.

The stock’s valuation, however, remains a critical factor. At current levels, it trades at a price-to-sales ratio of ~0.7x, reflecting skepticism about its ability to translate revenue into sustained profitability. A visual comparison of RLX’s stock price performance against peers like JUUL (PAX.N) could clarify its relative standing.

In summary, RLX’s story is one of promise and peril. The company’s aggressive expansion and product leadership position it well for long-term growth, but investors must remain vigilant about the execution risks and the path to bridging the gap between its top-line triumph and bottom-line challenges.