Is the last batch of 10-billion-level IPOs of China's Internet finally coming?

Text: Hong Kong Stock Research Society

"A community is not a collection of content, but a collection of people," said founder Qu Fang, who once described the underlying logic of Xiaohongshu's products.

Nowadays, there are more and more investors and institutions gathered behind Xiaohongshu, and the issue of listing is naturally on the agenda again. On October 13, according to the United Kingdom Financial Times, Xiaohongshu's latest results in 2024 were released, with first-quarter revenue of $1 billion and net profit of $200 million, a year-on-year increase of 67% and 400%, respectively, and the news of listing in Hong Kong was once again reported.

Xiaohongshu, as one of the last unicorns established in the mobile Internet wave in 2013, is it finally going to go public?

The "N" listing is rumored, and VCs around the world are looking forward to a super IPO

Founded in June 2013 in Shanghai, Xiaohongshu has grown into an all-encompassing content community that started with the sharing of shopping tips.

At that time, China was ushering in an unprecedented wave of mobile Internet entrepreneurship. ByteDance, Didi, Pinduoduo, and Dewu, which were born at the same time, soon ushered in an explosion in the scale of users and revenue. Among them, Pinduoduo successfully landed on the NASDAQ in only 3 years, and its market value once surpassed that of Alibaba.

In contrast, Xiaohongshu has gone through a long period of exploration before ushering in an explosion. During the period from 2013 to 2020, the outside world unanimously believed that Xiaohongshu was an out-and-out "slow company" in terms of user growth and commercial operation. Founder Qu Fang even said frankly, "Xiaohongshu's attitude towards business is to let it grow slowly, rather than rushing to harvest traffic." ”

Until the beginning of 2021, the increase in home office scenarios brought opportunities to Xiaohongshu, and the number of daily active users soared to 40 million, becoming one of the fastest-growing Internet products at that time. At that time, Byte once tried to buy Xiaohongshu for $20 billion, but was ultimately rejected by the latter.

Judging from Xiaohongshu's financing experience, a group of new and old capital bigwigs have gathered - Xiaohongshu is not short of money.

According to Tianyancha, since its establishment, Xiaohongshu has raised a total of 7 times, Zhen Fund, Alibaba, and Tencent have invested many times, and in July this year, it introduced a new batch of star investment institutions, including DST Global and Sequoia China, and its valuation has rebounded from last year's low of $10 billion to $17 billion.

The main reason for the rebound in valuation is that the company has shown clear listing expectations, as early as April 2018, Qu Fang, the founder of Xiaohongshu, revealed the plan for Xiaohongshu to go public. In 2021 and 2023, Xiaohongshu has announced that it will be listed in United States and Hong Kong.

Although the exact time and location of the listing has not been determined, VCs see potential exit opportunities.

On the other hand, with a clear strategy, Xiaohongshu has gradually found its own commercialization rhythm. In 2023, the company's overall revenue will reach $3.7 billion and net profit will be $500 million, which is a turnaround from $2 billion in revenue and $200 million in loss in 2022.

Therefore, whether it is for Xiaohongshu or for institutions, the surge in performance in the first quarter of 24 is a definite positive under the trend of valuation logic returning to value investment. Although Xiaohongshu officials are still reluctant to disclose more IPO-related details, one thing is for sure, "waiting for the wind" Xiaohongshu is only a matter of time before it goes public.

Grow in grass and prosper in e-commerce

Looking back on the commercialization of Xiaohongshu, from a vertical community to an e-commerce platform, Xiaohongshu has completed the transformation of the platform's tonality.

Since 2014, Xiaohongshu has begun to try e-commerce monetization and develop its own cross-border e-commerce "welfare society". However, as an attempt by Xiaohongshu in the field of e-commerce, the "Welfare Society" failed to bring a breakthrough to Xiaohongshu. According to iiMedia data, Xiaohongshu's market share in the cross-border e-commerce sector fell from 6.5% in 2016 to 4.3% in 2018.

Subsequently, from 2016 to 2018, Xiaohongshu began to introduce third-party merchants and tried to build its own brand. By the end of 2016, the number of SKU on the platform increased to 150,000, covering multiple categories such as beauty, clothing, and food.

According to Yiou, citing people familiar with the matter, Xiaohongshu's sales in 2017 were 6.5 billion yuan, and it plans to 12 billion yuan in 2018, but its sales in the first half of 2018 were the same as the same period in 2017, or even lower.

At the same time, in order to promote the development of "online and offline integration", Xiaohongshu began to enter physical stores in 2018 and opened its first offline experience store, RED home, in Jing'an Joy City, Shanghai. But the good times didn't last long, and on New Year's Day 2020, RED home finally failed to escape the fate of withdrawing the store.

In other words, as of 2019, Xiaohongshu has tried a variety of e-commerce monetization models such as cross-border e-commerce, merchant entry, self-operated brands, and offline stores, but none of these seem to have been able to create profits for Xiaohongshu. According to Caijing, Xiaohongshu's GMV targets for 2018 and 2019 were not met.

Until 2020, Xiaohongshu started live broadcasting. With live streaming as the entry point, Xiaohongshu has found the most suitable entry point for itself - buyer e-commerce.

In the second half of 2020, Xiaohongshu signed former entertainment agent Yang Tianzhen and beauty expert Fu Peng. Both of them have won a record of GMV2000 million yuan in a single live broadcast.

In 2023, actors Dong Jie and Zhang Xiaohui will become popular in Xiaohongshu's "slow live broadcast". According to Xiaohongshu's official "Live Potato" data, Dong Jie's account has increased by 1.1 million+ fans after the first three live broadcasts, and the cumulative total GMV has exceeded 100 million; Zhang Xiaohui's GMV exceeded 50 million in the first broadcast, with more than 1 million viewers and 57 sold-out links.

Under the model of "buyer e-commerce", the core advantage of buyers is not price, but includes the output of aesthetics, style, personalized experience and emotional value similar to the buyer's style, so it is more in line with Xiaohongshu's grass planting attributes.

From this point of view, after a full decade of development, Xiaohongshu, which has been oscillating between different business paths for a long time, has finally found the most suitable answer for itself.

How does Xiaohongshu make a trade-off between content and business?

However, the problem of commercialization has been solved, and with it, marketing content inevitably erodes the community ecology.

In 2021, Xiaohongshu misled users due to marketing, hype, and excessive beautification of scenic spots, which sparked heated discussions on the "crackdown" of Internet celebrity attractions. In 2023, Xiaohongshu will have problems such as "false grass planting" again, and it has become the focus of public opinion many times.

In fact, the dilemma encountered by Xiaohongshu is actually an insolvable pain point for all current content-based e-commerce platforms, that is, how to maintain a balance between commercialization and content ecology? Previously, similar problems have also appeared on content platforms such as Bilibili and Zhihu.

From a historical point of view, in the current environment, "excessive pursuit of profit may lose tomorrow, but not profit will make the company unable to survive today". Therefore, giving priority to making a profit is the bargaining chip that allows the content platform to "stand on the table" and continue to roll.

However, while pursuing profits, how to learn to "collect and release freely", reasonably promote the commercialization process, strengthen the integration of content and commercialization, ensure user experience, and achieve the sustainable development of the platform? These are questions that Xiaohongshu needs to think about.

In July this year, Xiaohongshu COO Conan defined for the first time that Xiaohongshu's e-commerce is a "lifestyle e-commerce", weakening the original "buying system" and beginning to return to the core, "bringing users value and lifestyle experience beyond price".

This move can be seen as Xiaohongshu's return to the original intention of the company on the road of pursuing commercialization, and it also confirms the CEO face-to-face at the end of 2023, the founder Mao Wenchao summarized the corporate value of Xiaohongshu: "For things closely related to life, Xiaohongshu must have the most complete answers in the world." ”

From this point of view, this sentence both explains the past of Xiaohongshu and tests its future. Finding an innovative model that meets business needs while maintaining the community atmosphere will be a key factor in determining Xiaohongshu's long-term success.