Recently, Chinese social media platform Xiaohongshu has been making headlines with its strong financial performance, drawing speculation about a potential IPO. In the first quarter of this year, the company reported a staggering fourfold increase in net profit, reaching $200 million, and its estimated valuation has surged to $17 billion. The company is still aiming for a listing in Hong Kong but is currently awaiting approval from Chinese authorities regarding overseas IPOs for large tech firms.
According to the Financial Times, Xiaohongshu’s revenue for the first quarter climbed to $1 billion, up from $600 million in the same period last year—a 67% increase. Their net profit saw a remarkable increase from $40 million to $200 million, marking a twofold jump. These figures position Xiaohongshu as one of the fastest-growing social media platforms in China.
However, the company’s path to an IPO may face challenges due to its extensive data collection on Chinese consumers, which could potentially violate cross-border data regulations. As of now, Xiaohongshu has declined to comment on this issue.
The report highlights that this impressive growth is primarily attributed to Xiaohongshu’s increased advertising investments targeting Gen Z female consumers, who represent a significant part of its user base. Advertising has consistently been a major revenue source for the platform. Previous reports indicated that in 2022, advertising accounted for roughly 80% of Xiaohongshu’s total revenue.
Notably, Xiaohongshu is particularly popular among young women, with 70% of its users being born in the 1990s. Last year, the platform reached 312 million monthly active users, reflecting a 20% annual increase.
Additionally, insiders revealed that in July of this year, Xiaohongshu welcomed Russian venture capital firm DST Global as a new shareholder through a share sale transaction with existing shareholders. This move contributed to its valuation soaring to $17 billion. DST Global, along with Sequoia Capital China, also participated in this funding round, while other Chinese firms, including Hillhouse Capital, Boyu Capital, and CITIC Capital, have also ramped up their investments.
Founded by Israeli tech entrepreneur Yuri Milner in Moscow, DST Global has previously invested in renowned companies such as Facebook and Xiaomi.
Looking back to 2021, during a period of peak valuations for Chinese tech stocks, Xiaohongshu’s valuation had briefly reached $20 billion after securing funding from Temasek, a Singapore-based investment company.
