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Chinese social media sensation Xiaohongshu has seen its growing popularity lead to profits for the first time, as the Instagram-like platform brings in revenues from advertising and a nascent ecommerce business.
The Shanghai-based video and photo-sharing app raked in $500mn in net profit last year on revenues of $3.7bn, according to four people briefed on the figures, which are not public. By contrast, it made a $200mn loss on revenues of about $2bn in 2022.
The fast-growing social media start-up, which was valued at $20bn in its last funding round in 2021, has been a rare recent success story in a sector battered by falling valuations and divestments from foreign investors.
Xiaohongshu, which translates to “little red book”, has big-name backers including Alibaba, Tencent, GGV Capital and the former Sequoia China venture capital firm HongShan. It is popular with young Chinese women, who flock to the platform for travel, beauty and lifestyle tips.
It has also been growing its male user base, with a focus on promoting content about cars, science fiction and memes. The service generates the bulk of its revenues from advertising but has been growing its ecommerce function, which influencers use to sell products through livestreams and short videos.
Despite Xiaohongshu’s strong numbers, one investor who did not wish to be named said its future direction remained uncertain, with no clear path towards an initial public offering. “I am positive on the company, but the lack of a clear exit through an IPO is a big problem,” the investor said.
Beijing resumed giving the green light to tech companies for US listings last year after an 18-month pause over national security concerns stemming from the botched New York IPO of ride-hailing service Didi Chuxing in 2021. Experts caution that listing large social media companies such as ByteDance and Xiaohongshu is more complicated given the wealth of consumer data they hold.
Xiaohongshu reached 312mn monthly active users in 2023, a 20 per cent increase from the previous year, according to figures shared with investors, making it the fastest-growing large social media platform in China last year, based on a Financial Times calculation.
Li Chengdong, head of tech think-tank Haitun, said the strong financial figures showed “brands have increased their marketing spending on Xiaohongshu because the effectiveness of advertising is higher than other platforms”.
Xiaohongshu is an increasingly important channel for brands targeting young women with purchasing power. According to a company presentation seen by the FT, 70 per cent of users are female, and 50 per cent are under the age of 30.
Xiaohongshu has a more upmarket reputation than main rivals such as ByteDance-owned Douyin and Kuaishou. Even so, it struggled to commercialise its service as users would find product tips using the app before turning to Alibaba-owned Taobao and Tmall’s ecommerce platforms to make purchases.
However, over the past year, it has found a “niche” with “slow livestreaming”, in which influencers promote products in a “calm and slow” manner to capture the trend of “quiet luxury”, said Olivia Plotnick, founder of Shanghai-based social media consultancy Wai Social. It has distinguished itself from Taobao, on which influencers hawk goods in “chaotic” marathon sessions, typically with significant discounts to lure in shoppers, Plotnick added.
Xiaohongshu’s gross merchandise value — the total value of goods sold on the platform — through its livestreaming business, launched at the outset of the pandemic, grew by nearly five times during last November’s “Singles’ Day” shopping festival, the equivalent of the US’s Black Friday, according to the presentation.
“Xiaohongshu is a better place for companies to build brand identity and relationships with customers than Taobao, where sales are pushed on to them,” said Plotnick.
Xiaohongshu has a smaller user base than Douyin and Kuaishou, which have monthly active user bases of about 750mn and 700mn respectively. But Li said the platform’s 312mn users were concentrated in affluent cities, making it an effective marketing platform to target high-spending consumers.
Xiaohongshu did not respond to requests for comment.
Li of Haitun said Xiaohongshu’s path to profitability opened up when China shed its zero-Covid controls. That saw merchants bolster their marketing spending.
“Xiaohongshu is unique in that it isn’t a low-price-driven platform,” he said, “so it does not dilute brand value.”
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