As one of the unicorns in China's internet industry, Xiaohongshu has been around for ten years and has gone through six rounds of financing. Now, it's reportedly a step away from going public.
On December 25, market rumors suggested that Xiaohongshu might initiate an IPO in Hong Kong in the latter half of the following year. However, an internal source at Xiaohongshu told Wall Street that the company has no immediate plans for listing.
Over the past two years, there have been multiple rumors about Xiaohongshu's imminent IPO, but none have materialized. This time, however, the rumors are accompanied by news that Xiaohongshu's net profit for 2023 is expected to reach $500 million, a tenfold increase from the company's earlier prediction of $50 million. Xiaohongshu has not commented on this.
One fundamental reason Xiaohongshu has not gone public in the past is its inability to develop a profitable business model, wavering between community and e-commerce operations. Its advertising revenue accounts for 80% of its income, indicating a single business model with weak risk resistance.
In contrast, contemporaneous internet companies have mostly developed mature e-commerce models, with several companies using this to enter the capital market. Pinduoduo went public three years after its establishment, deeply ingraining its low-price e-commerce into people's hearts, with a GMV reaching 3 trillion in 2022. Kuaishou was established in 2011 and went public in 2021, with its GMV nearing a trillion in 2022. Douyin, only seven years old, has also seen its e-commerce business GMV exceed 2 trillion this year.
However, Xiaohongshu, despite being ten years old, has shown mediocre commercial performance and is understandably under pressure.
Nevertheless, this year, Xiaohongshu has made significant progress in business exploration and has established a buyer e-commerce model. This means that although Xiaohongshu has denied the IPO rumors, the path to going public has essentially advanced further.
During this year's Double Eleven shopping festival, celebrities Zhang Xiao Hui and Dong Jie broke records with single-session sales exceeding 100 million, setting a new record for Xiaohongshu live broadcasts. Wall Street has learned that during the big promotion period, Xiaohongshu e-commerce saw growth in buyer sales, user numbers, and participating merchants.
An insider close to Xiaohongshu mentioned that the $500 million net profit is due to the clear success of the e-commerce business, which may bring new rounds of financing or ultimately lead to an IPO.
According to data from Tianyancha, Xiaohongshu has undergone six rounds of financing from 2013 to 2021, with total financing exceeding $900 million, and the longest holding time for investors is nearly ten years. Shen Meng, director of Chanson Capital, believes that Xiaohongshu's IPO can raise certain funds for business development while providing exit possibilities for investors.
Jiang Han, a senior researcher at the Pangoal Institution, thinks that an IPO can accelerate Xiaohongshu's commercialization process, provide more financing channels, and enhance the company's credit rating and capital strength. Additionally, going public can promote standardized governance and operation of Xiaohongshu, improving management levels and efficiency.
However, even with a breakthrough in e-commerce and profit growth, Xiaohongshu faces many challenges in going public in the next few years.
The e-commerce market has entered a mature phase, and competition is increasingly fierce. The growth story of Xiaohongshu's buyer e-commerce is not easy to tell.
On December 25, market news stated that Tencent had adjusted its WeChat payment and video number organizational structure, intending to increase investment in "live broadcast with goods." This means that internet giants like Alibaba, JD.com, Pinduoduo, Douyin, and WeChat are all vying for a share of the e-commerce market.
Over the past ten years, companies like Alibaba, JD.com, and Pinduoduo have created new myths in the capital market, and internet companies were once the darlings of the capital market. However, Xiaohongshu seems to have missed the best opportunity for the capital market to embrace internet companies.
Nowadays, only a handful of Chinese internet unicorns have not gone public, including Xiaohongshu, ByteDance, and Shein. Xiaohongshu's unique e-commerce model lies in finding a new growth path in the red ocean of e-commerce dominated by low-price competition. A high average order value also implies a high moat.
In Xiaohongshu's live room, Zhang Xiao Hui and Dong Jie narrate the stories behind each product, while outside the live room, Xiaohongshu is running hard. It must seize the last opportunity in the e-commerce market to win more chips for itself.
