On social media platforms, topics surrounding Xiaohongshu seem never-ending. In recent times alone, there have been a series of incidents such as "not hiring employees over 35," "layoffs," and "App crashing." It would be inappropriate to attribute all of this to the saying "the more popular someone is, the more controversies they attract." Nevertheless, Xiaohongshu continues to demonstrate remarkable investment value. The latest news indicates that its valuation has increased by 3 billion USD compared to last year, raising the question of whether an IPO is imminent?

01, "Queen of Topics," Fearless of Storms

In last year's phenomenally popular TV series "The Knockout," Gao Qiang had a famous quote, "The bigger the storm, the more expensive the fish." If we extrapolate this, it aptly describes many industries and businesses. For Xiaohongshu, a social platform that specifically attracts young people, the biggest fear is not being criticized or scolded but rather lacking "volume"!

Living up to its name, Xiaohongshu indeed has a "red" aura. Even incidents like App crashes can frequently be seen trending on Weibo, reflecting not only the public's love for gossip but also the vast reach of Xiaohongshu's audience.

It's easy to deduce the logic. If I were a Xiaohongshu user and suddenly found the App crashed, unable to browse or post, what would I do? I would undoubtedly check the news on Weibo, the largest Chinese social media platform. And lo and behold, many others have encountered the same issue.

Among Xiaohongshu's users, in addition to a large number of ordinary people, there are also numerous multi-platform influencers. When they all speak up, it's not difficult for a topic to trend.

Some of my friends couldn't help but joke that this might be a staged tactic by Xiaohongshu. In doing so, they get free trending exposure on Weibo (which is not cheap, by the way, those in the know understand), and every time the App crashes and is then fixed, they potentially gain publicity twice. Imagine the psychological impact of such back-and-forth.

Left: Weibo CEO Laiquzhijian

The public is not only curious about Xiaohongshu's crashes but also about the state of its employees. After all, Xiaohongshu gives off a vibrant vibe in terms of content style. Recently, there were media reports claiming that "Xiaohongshu's hiring age limit is 35, and now, perhaps even 32-year-olds may not be considered."

From Xiaohongshu's perspective, aiming to maintain a dynamic workforce and pursuing organizational youthfulness seems understandable. However, the topic of 35-year-olds is like a landmine in the workplace, attracting criticism and doubt. This time, Xiaohongshu chose a Buddhist-like "silent" response, which, in retrospect, was indeed a clever move.

Earlier this month, according to Phoenix Tech, Xiaohongshu recently initiated a new round of layoffs, focusing on employees with performance scores of 3.5 and below, accounting for about 30% of the company's total workforce. A Xiaohongshu employee stated, "The layoffs have just reached the HC stage, and we're currently conducting a headcount, but no official announcement has been made yet. Everyone is waiting for an email internally."

In addition to Phoenix Tech, Sina Finance, ZAKER, Jinan Times, and other media outlets have also reported on this. Similarly, Xiaohongshu chose not to respond. This conservative public relations strategy might be the best way to keep the incident calm. Unlike the various jokes about App crashes, "layoffs" are not something any company would publicize loudly.

It's worth mentioning that in 2023, Xiaohongshu's MAU reached 312 million, a year-on-year increase of 20%, with a DAU of 106 million. Although this fell short of expectations, it surpassed the 100 million mark. Judging from Xiaohongshu's user demographics, 72% of core users are post-90s, and 82.47% are aged 16-34.

According to a vote initiated by tech media Digital Tail on Weibo, Xiaohongshu came second only to Weibo among young people's favorite non-video-based social platforms, surpassing video platform Kuaishou and image-text platform Coolapk.

These figures to some extent demonstrate the extent to which young users love this "grass-planting" platform. Young people represent incremental space and imagination. Whoever can attract them is likely to receive significant capital favor, which is an important reason why Xiaohongshu has the support of well-known investors. However, capital looks not only at development but also at returns. Can the 11-year-old Xiaohongshu deliver a satisfactory answer?

02, Does an IPO Require a "New Story"?

On July 11, Financial Times reported that after recently selling existing shares to DST Global, Xiaohongshu's valuation reached 17 billion USD, an increase of 3 billion USD from the 2023 valuation of 14 billion USD, or approximately 20 billion USD in market value. However, this is still slightly below its peak valuation of 20 billion USD in 2021.

Image source: Qingyang Feng

In addition to investment from Russian capital DST, Xiaohongshu has also received increased holdings from renowned investors such as Hillhouse Capital, Boyu Capital, CITIC Capital, and Sequoia China, sparking speculation within and outside the industry that Xiaohongshu is gearing up for an IPO. However, as mentioned above, both Xiaohongshu itself and the aforementioned investors have declined to comment.

Low-key seems to have become an unspoken virtue in the industry. Of course, one can be low-key in character but must be high-profile in actions. In the traffic-driven business world, even industry giants like Lei Jun and Wei Jianjun, with tens of billions in wealth, have transformed into friendly elders in live streaming rooms, closely interacting with netizens and promoting their respective brands, almost to the point of personally live-streaming sales.

With e-commerce giants like Taobao, JD.com, Pinduoduo, Douyin, and Kuaishou fiercely competing, how could Xiaohongshu remain indifferent?

In January 2024, Wu Yingbing, former head of supply and demand strategy at Didi, joined Xiaohongshu to oversee the e-commerce sector, while Zhang Rui, former head of Didi's Hitch business, joined the company's commercialization team. In March of the same year, Ye Heng, former head of Kuaishou, joined Xiaohongshu as the lead for the e-commerce C-end product, and in April, Jiang Yuan joined to oversee the community content sector, reporting directly to company founder and CEO Mao Wenchao.

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Apart from recruiting industry heavyweights, Xiaohongshu has also invited knowledgeable female celebrities, such as Dong Jie, to participate in live streaming sales, which has even trended on Weibo.

To boost GMV, during the 618 shopping festival, Xiaohongshu provided merchants with 10 times the support resources and offered users billions of platform subsidies, with some categories offering subsidies that surpassed those of Douyin e-commerce.

The final report showed that by June 18, the number of live streaming orders on Xiaohongshu was 5.4 times that of last year, with the number of users purchasing in live streaming rooms reaching 5.2 times that of the same period last year. Among them, orders placed through store broadcasts were 9.4 times higher than those of the same period last year, and single live streams breaking the million mark were triple that of the previous year.

It is evident that Xiaohongshu's investments have not been in vain, and it is clear that Xiaohongshu is no longer content with merely being a niche buyer's e-commerce platform but is extending its business reach into the broader e-commerce world.

It's worth noting that Xiaohongshu has not disclosed specific e-commerce sales figures. However, according to a research report published by GF Securities in February 2024, Xiaohongshu's advertising revenue share declined slightly in 2023 but still accounted for nearly 80% of the company's total revenue.

This can be used to infer that the e-commerce business's contribution to the company's overall performance is still less than 20%, which also means that the e-commerce business has significant room for growth compared to the advertising business.

In 2023, Xiaohongshu achieved profitability for the first time, with a net profit of 500 million USD and revenue of 3.7 billion USD, marking the company's first turnaround in a decade since its establishment.

Having achieved profitability and a valuation increase of 3 billion USD, will Mao Wenchao make another push for an IPO?

Let's wait and see!

References:

Xiaohongshu Does Not Hire Employees Over 35, Now May Not Even Consider Those Under 32 - Jinrongjie

Xiaohongshu is Reported to Have Received Investment from DST, Market Valuation May Reach 17 Billion USD - Qilu Evening News

Xiaohongshu Sells Existing Shares, Company Valuation Reaches 17 Billion USD - Beijing Business Daily

Xiaohongshu is Reported to Have Completed a New Round of Financing, Valuation Reaches 17 Billion USD - Zhitong IPO

Xiaohongshu Undergoes Heavy Layoffs, Mao Wenchao Worried About E-commerce - Rui Caijing

Xiaohongshu is Not Just Trapped in "Human Efficiency" - Fortune China