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Revenues at Xiaohongshu, the start-up known as China’s answer to Instagram, surged to $1bn in the first quarter of 2024 as it ramped up advertising from retailers targeting Gen Z women.
The picture and video sharing app generated $200mn in net profit in the first three months of the year on just over $1bn of sales, according to two people briefed on the numbers, which are not public. This is up from $40mn in the same period last year on revenues of about $600mn.
China’s fastest-growing social media platform, which is popular with young women, is a rare recent success story in a tech sector hit by bankruptcies and falling valuations.
In July, the social media start-up gained the backing of venture capital firm DST Global in a share sale between current and new shareholders that valued the company at $17bn. At the height of Chinese internet start-up valuations in 2021, Xiaohongshu was valued at $20bn during a funding round that brought in Singaporean state-backed investor Temasek.
The vote of confidence from foreign investors comes after Xiaohongshu turned profitable in 2023, a trend that has continued in the first quarter as the social media platform increased its advertising revenues.
It made $500mn in net profit last year on revenues of $3.7bn, the Financial Times reported previously. By contrast, it made a $200mn loss on revenues of about $2bn in 2022.
Xiaohongshu, which translates as “little red book”, is an important platform for fashion and beauty brands to reach high-spending consumers in cities through advertised posts or paying influencers.
The start-up launched an ecommerce function in 2021 in a bid to capture transaction revenues from the brands advertising on its platform, but the group remains reliant on ads for the bulk of its sales.
Investors are betting that Xiaohongshu is one of a small group of Chinese tech unicorns that will be able to achieve a blockbuster initial public offering after delivering strong growth.
The platform hopes to list in Hong Kong but is waiting until Beijing provides more clarity on its stance towards overseas listings of large tech groups, people close to the company said. Xiaohongshu declined to comment.
Xiaohongshu has the backing of both internet giants Alibaba and Tencent, as well as venture capital firms GSR Ventures, HongShan, private equity group Hillhouse and Singaporean state-backed investor Temasek.
Investors are hopeful that Beijing will start to take a looser regulatory stance on overseas listings following its crackdown. The recent bull market in Chinese equities has added to the optimism.
There is a pipeline of IPOs of Chinese tech companies targeting Hong Kong listings but awaiting regulatory approval, including Lalatech Holdings, which operates the on-demand logistics provider Lalamove and podcast provider Ximalaya.
Fast-fashion start-up Shein is waiting for Beijing’s approval to list in London, after shifting away from New York.
However, Xiaohongshu’s path to an IPO is complicated by the wealth of data it holds on Chinese consumers, which could fall foul of Beijing’s rules on cross-border data controls.
The unicorn reached 312mn monthly active users in 2023, a 20 per cent increase from the previous year, making it the fastest-growing large social media platform in China last year.