Last year’s revenue of about $ 1 billion, 80% by advertising, valuation of $ 10 billion expensive?
In 2020, Little Red Book will have advertising revenue of $600-800 million, accounting for about 80% of total revenue; e-commerce GMV of about $1 billion, with e-commerce revenue accounting for about 15%-20%. Little Red Book is pushing for a Pre-IPO round of financing, with a target valuation of $10 billion, according to which the P/S reaches 10 times. Is it worth it?
The progress of financing and listing of Little Red Book is being highly concerned by the outside world.
Recently, a number of investors told IGreatBI that Little Red Book is in the process of raising a Pre-IPO round with a target valuation of $10 billion.
As a “lifestyle platform and decision portal for young people”, Xiaohongshu is a popular investment target in the primary market today. “Visited the company, can not get a share,” said a private investment source.
Little Red Book’s valuation in the primary market has also gone up and up.
In March 2020, LatePost reported that Little Red Book was raising Series E funding at a valuation of $5 billion, with High Tide Capital as one of the lead investors. Between the middle and second half of last year, its valuation quickly rose to $6-8 billion; now the target valuation has come to a super unicorn level of $10 billion.
So, what kind of report card is the sought-after Little Red Book taking to support the $10 billion target valuation?
The company’s revenue is expected to grow 3 times to $600-800 million in 2020, accounting for about 80% of its total revenue. The rapid growth of Xiaohongshu’s advertising business is based on a group of high-quality, high-income young female users on the platform, with 400 million users in 2020; DAU (daily active users) also grows rapidly from the 10 million level in 2018 to 50-60 million in 2020. in 2020, Xiaohongshu’s e-commerce GMV reaches about $1 billion (including self-operated e-commerce and third-party platform e-commerce); e-commerce business revenue accounts for about 15%-20% of total revenue.
Xiao Hong Shu has not responded to the above data so far.
Also according to ai Finance News Agency, there are 43 million sharers on the Xiaohongshu platform as of the end of 2020. At the 2020 (19th) Annual Meeting of Chinese Business Leaders, the founder of Xiaohongshu, Qu Fang, revealed that Xiaohongshu has more than 8 billion daily note exposures and more than 1.3 billion people have searched for food-related videos on Xiaohongshu. A recent article in Pinoy mentioned that in February 2021, Xiaohongshu MAU (monthly active users) reached about 138 million, up 72% year-on-year.
Some brokerage analysts believe that Xiaohongshu has the value of unique branding and the current performance can support a $10 billion valuation; only the next growth momentum aspect of the company will depend on how Xiaohongshu tells the story of breaking the circle and the execution of breaking the circle.
A PE fund just looked at the Little Red Book project not long ago. However, they finally decided to give up their stake for two main reasons: a single source of revenue and too expensive valuation.
If we count $800 million in advertising revenue in 2020, accounting for about 80% of total revenue, Little Red Book’s total revenue last year was about $1 billion. If the latest target valuation of $10 billion, it means its overall P/S (price-to-sales ratio) of 10 times.
“If you break out the advertising business and look at it separately, Little Red Book’s advertising business is 10 times P/S, and Byte Jump’s advertising business is only 5 times P/S,” the PE fund’s investor argued, adding that Little Red Book’s e-commerce business is currently contributing little to the company’s value and is basically negligible.
According to media reports, the revenue of ByteDance in 2020 is about $35 billion, and the latest valuation is $400 billion, according to this rough calculation, the P/S is 11.4 times.
In the opinion of Zhou Xian (a pseudonym), an investor from the PE firm mentioned above, the overall growth momentum of Xiaohongshu is much inferior to that of Byte Jump.
Today, Xiaohongshu has become a national “grassing community”, where more and more young people like to discover and share good consumption styles and brands.
Because of this, Xiaohongshu has also become a marketing mecca for many consumer brands, and even some investors are looking for potential projects here.
The founder of Xiaohongshu, Qu Fang, said, “The ideal state of Xiaohongshu should be the Qingming Shanghe Tu of modern life”, and what she wants to do is to help everyone to spread the scroll slowly.
In recent years, Xiaohongshu has been using the slogan “mark my life” to reinforce its Internet community label to the outside world.
Since 2020, Internet community-based companies have seen a major explosion in the capital market. In February, Racer went public in Hong Kong; in March, Zhihu IPOed in the US and B Station returned to Hong Kong for a second listing.
On the day of Racer’s listing, the market value once shot up to HK$1,388.6 billion (about US$179.1 billion); B Station’s public offering in Hong Kong was oversubscribed by more than 170 times, one of the highest subscription multiples in this round of secondary listing of Chinese stocks.
B-site’s share price in the U.S. also rose like a rainbow at one point. In the past year so far, its stock price has risen from a low of $25 to a high of $157, or 528%. 2018, when B station IPO in the United States, the issue price was only $11.5.
Rumors about Little Red Book’s upcoming IPO continue to circulate in the market.
In April this year, Reuters reported that Xiaohongshu was planning an IPO in the U.S. at a valuation of more than $10 billion. In March, Xiaohongshu said it had “no plans for an IPO at this time,” and they have not commented on the Shanghai rumors.
Also as an Internet community-based company, Xiaohongshu is seen as the next object to be sought by the capital market.
So, how should the capital market define Xiaohongshu? In terms of valuation logic, who should it benchmark more appropriately?
According to an article on Xinhua in October last year, Xiaohongshu has more than 100 million monthly active users, 72% of which are “post-90s” users, of which 50% are “post-95” “Generation Z” users. The “Generation Z” users.
As Xiaohongshu makes efforts in video and breaks the circle to many fields other than beauty, there are voices in the market that Xiaohongshu is competing with B station for young people and it is becoming more and more like B station.
B Station is known to be a gathering place for the Generation Z crowd, with 86% of its monthly active users under the age of 35.
However, Xiaohongshu is still very different from B Station in terms of community positioning and revenue composition.
The slogan of B Station is “all the videos you are interested in are on B Station”, which is first and foremost a video community, with video content partly provided by the platform and partly created by UP owners. The content of Xiaohongshu is graphic + video, and most of it is produced by UGC. In the user’s mind, use Xiaohongshu to share and discover lifestyle, and in B station for leisure and entertainment + learning.
In terms of revenue composition, about 80% of Xiaohongshu’s revenue relies on advertising, while B station has shown more restraint in advertising business for a long time in the past.
In the past three years, the game business accounted for 71%, 53% and 40% of B station’s total revenue, so in the past, B station was jokingly called a “game company”. However, in the past two years, B station is also promoting the diversification of revenue sources, with live streaming, advertising, e-commerce and other revenues accounting for an expanding proportion.
Xiaohongshu is also considered to be the closest community platform to Instagram in China. People’s Daily once concluded that Xiaohongshu = Amazon + Instagram.
Instagram, a photo social product with over 1 billion monthly users worldwide, was acquired by Facebook for $715 million in 2012. According to Bloomberg, Instagram’s advertising revenue of $20 billion in 2019 represents more than 25% of parent company Facebook’s total revenue; if Instagram were an independent company, the valuation would be expected to exceed $100 billion.
Instagram now also has excellent brand “seeding” capabilities. But Xiaohongshu is still not quite the same as Instagram, and there is even a big difference. After all, in terms of positioning, Instagram is a photo social product, while Xiaohongshu is a community, pan-lifestyle platform.
The founder of Xiaohongshu, Qu Fang, said in 2019, “Xiaohongshu has people, everyone has goods, and the final platform created is a field, which is the ultimate direction.”
What’s Worth Buying”, listed on the A-share GEM, is a UGC (user-produced content) e-commerce shopping guide platform, and some people see it it model as a male version of Little Red Book.
In 2020, what’s worth buying revenue of RMB910 million, of which 50.66% came from e-commerce guide commissions and 48.36% from advertising. At present, the market value of the company worth buying 9.85 billion yuan.
Although the platform value of What’s Worth Buying is more small and beautiful than Little Red Book, some analysts believe that it can be used as a reference for the valuation of Little Red Book.
Zhou Xian, the above-mentioned Pe investor, believes that the source of revenue determines the nature of a company, and Xiaohongshu, which relies on advertising for 80% of its revenue, is currently essentially an advertising company; its ad load rate is about 10%, which means that users swipe 10 videos to see one ad, far exceeding B station’s 5%. Therefore, to hit a higher market value, Little Red Book must break the circle to expand the number of users, improve advertising efficiency and scale, and increase e-commerce cash.
Little Red Book is indeed trying to break the circle.
Founded in 2013, Xiaohongshu started from a seafood shopping guide and gradually developed into a beauty goodies sharing platform after accumulating a group of seed customers who love fashion.
In 2017, Xiaohongshu introduced Fan Bingbing and other celebrities to quickly break the circle through the star operation strategy; after that, it began to extend to a pan-lifestyle platform including “eat, drink and play”.
Under the circle-breaking efforts, Xiaohongshu has also rapidly harvested a group of users in the past few years: in June 2018, their user volume broke 100 million, and reached 150 million four months later; in January 2019, the number of Xiaohongshu users broke 200 million, and then broke 300 million six months later, with monthly activity breaking 100 million.
Today’s Xiaohongshu no longer has only the label of beauty. It is said that during the epidemic last year, food on Xiaohongshu has surpassed beauty and become the first category. At present, in addition to beauty and food, the content categories of Xiaohongshu are also gradually covering travel, sports, workplace, digital, finance and economics, games and many other fields.
In addition to more diversified content areas, in 2019, Xiaohongshu, which is mainly based on graphic notes, also began to make efforts in short video and launched the “10 billion flow up plan” to support video content creators.
Video is indeed a major trend, especially in the 5G era. Compared to Jitterbug, Racer, and B station, the small red book only in 2019 from graphic to short video transition, obviously has been slow.
You may want to feel the user scale and growth rate of Jitterbug, Racer and B Station.
In January 2020, Jitterbug DAU broke 400 million; by August 2020, together with Jitterbug Volcano version, Jitterbug DAU broke 600 million.
At the end of November 2019, the DAU of Racer App was 170 million and MAU was 320 million, after a year, at the end of November 2020, these two figures increased to 260 million and 480 million respectively.
In 2020, B Station MAU exceeded expectations by 200 million, with a year-on-year growth rate of over 53%; during 2023, B Station is expected to break 400 million MAUs.
Their rapid growth is due in part to big marketing investments. Take B station as an example, in 2020, high investment and high user growth is the main theme, its annual marketing investment reached 3.5 billion yuan, a year-on-year surge of 191%.
In an environment where the traffic dividend is peaking, the financially strong Jieyin, Racer and B Station are all desperately trying to smash resources and grab users. For a medium-sized content community like Xiaohongshu, it’s not a good thing.
In fact, in the diversified content area that Xiaohongshu wants to dabble in, besides Rachet, Jieyin and B Station, there are other players secretly grabbing the market, such as Ctrip in the travel field and VW Dianping in the food field are all making efforts in community content.
The user volume of Xiaohongshu is still growing, but it is foreseeable that the subsequent growth is under pressure.
Over the years, Xiaohongshu’s road to e-commerce has taken some twists and turns.
It initially started with cross-border e-commerce, and the internal positioning of e-commerce was once – e-commerce is responsible for making money to support the family, and the content is responsible for looking beautiful as a flower.
The company’s cross-border e-commerce business is smaller and less competitive than Tmall International, NetEase Kaola and Jingdong Global Shopping, etc. In 2016, cross-border e-commerce suffered a policy shortfall, and a large number of vertical cross-border e-commerce businesses fell into difficulties or even closed down.
The attitude of Xiaohongshu towards e-commerce has also gradually changed. at the end of 2017, Qu Fang told the media: Xiaohongshu is not an e-commerce company, but a playground.
In August 2018, Xiaohongshu was exposed to significantly lay off staff in the e-commerce department and transform to a content community. That year, Xiaohongshu also did not meet its e-commerce GMV target.
In fact, at the beginning of 2018, the idea of weakening e-commerce in Xiaohongshu should have been confirmed, because they made a clear move: changing the company’s slogan from “find good stuff from all over the world” to “mark my life”.
From the external publicity caliber, Xiaohongshu seems to be emphasizing more on community ecological construction, community governance, content quality and tone, and not in a hurry to commercialize.
In March 2020, LatePoint reported that Xiaohongshu’s commercialization strategy saw a major adjustment: cutting into live-streaming with goods.
Taobao Live, Jieyin, and Racer have all proven the value of the live e-commerce model. The path they take is usually: high and high, by creating the head anchor to set the benchmark, to achieve the broken circle, and then to the waist, the tail anchor expansion, bigger platform with goods scale.
The other side of the coin is that it does not have super head anchors like Weiya, Li Jiaqi, Simba and Luo Yonghao, so it is difficult to get out of the circle and start the volume of live e-commerce; and the ability of those small and medium anchors to bring goods is also very limited. .
Although late, the results are not significant, but at present, live e-commerce is a small red book had to use the means of cash.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/who-gave-little-red-book-the-courage-to-be-valued-at-10-billion/
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