Why is Xiaohongshu in a hurry?

Visual China.

Text |The most talkative funtalk, author |Wang Fangjie, editor |Liu Yuxiang.

One was on November 23, when Xiaohongshu held an annual marketing summit for the education industry, at which the concept of "Xiaohongshu planting grass can pull weeds across the whole domain" was proposed.

Then, on November 30, Xiaohongshu held the 2023 Xiaohongshu Cultural Tourism Summit in Jingdezhen with the theme of "Little Travels, Big World". At the meeting, Xiaohongshu reiterated the above concept and directly announced the in-depth cooperation with Qunar.

According to reports, at present, Qunar and Xiaohongshu have carried out a deeper level of data integration, Qunar recommends good content, hotels, and destinations to users on Xiaohongshu, and then diverts the flow to its own platform, and users can return to the Qunar app through a specific password code to trade.

In fact, there is no need for Xiaohongshu to hold a conference, and merchants and platforms have already smelled the smell of users, planted grass here, and then changed their tricks to attract traffic to themselves.

Of course, for the purpose of lower commercial costs, everyone's grass is shy to answer, for example, Xiaohongshu has long been full of a large number of soft advertisements for tourism, **exquisite, attractive content, but the merchant did not directly show the transaction link, but in the comment area private message those "polite price" users.

As a user, it should be possible to judge from the frequency of this kind of content, and businesses should have paid for it.

Therefore, today, when Xiaohongshu clearly proposes the solution of "planting grass in the station and pulling weeds in the whole area", it should hope to go further in the commercialization of related industries.

This must not be a bad thing for the platform, but I am afraid it can also reflect Xiaohongshu's eagerness for commercialization, you know, but a few months ago, Xiaohongshu engaged in buyer e-commerce, on the basis of cutting off the external link of drainage, and tried its best to form an internal closed loop of transactions through live broadcasts and notes.

It's just that there are only two people who are really out of the circle on Xiaohongshu, Dong Jie and Zhang Xiaohui, and the frequency of live broadcasts of both of them is not high. As far as note delivery is concerned, since most merchants have chosen to operate globally, Xiaohongshu has always been regarded as a low-cost traffic channel before this, and now everyone is suddenly allowed to complete grass planting and weeding in the platform, that is, the original external circulation advertising for a larger transaction volume is replaced by a relatively small amount of internal circulation advertising, I am afraid everyone will also have to settle accounts.

E-commerce transactions generally bring two parts of revenue to the platform, the first and largest part is the internal circulation advertising, and the second is the transaction point, but all these prerequisites are that the platform needs to have a relatively large transaction base. In other words, when Xiaohongshu cuts off the external chain and deepens the closed loop of e-commerce transactions, there will be a long period of time, because the transaction volume almost starts from 0, then the resulting e-commerce transaction revenue will not be able to make up for the previous effect advertising revenue brought by grass planting.

If everything happens in a better market environment, the first child of e-commerce transactions is still on the track of rapid growth, then as the cake becomes bigger, new entrants can also share a large piece, and now everyone needs to face the cruel reality that the transaction volume of the entire e-commerce ** is basically stable, that is, it has entered the zero-sum game era of more and less of you.

Of course, this is not to say that Xiaohongshu has no chance, but that the threshold of competition has been extremely raised, and the cost has also increased.

In other words, as far as the ROI of Xiaohongshu itself is concerned, it is in a more challenging situation, so in this case, the platform needs to spend more bullets to capture this city, once the accumulation is completed, that is, a relatively wide range of consumption minds have been established, then the platform will enjoy the compound interest brought by the closed loop in the later stage.

All in all, Xiaohongshu needs to hurry up to make money.

An enterprise's demand for capital is an eternal proposition, so what about the money coming from?As far as Internet platform enterprises are concerned, there are no more than two channels, one is financing cash flow, including pre-listing financing and listing financing, and the other is operating net cash flow.

The more embarrassing situation now is that for Xiaohongshu, financing may face challenges. First, this is a company that has been financed for at least 6 rounds, the equity has been relatively dispersed, and there are two main founding shareholders, namely Mao Wenchao and Qu Fang, refinancing will only further dilute the shares of the two, and may even make the position of the major shareholders unstable, such as shareholders who are relatively low, can completely exceed the shares of the two through acquisitions, and realize control of the platform, of course, the two can act in concert through the agreement, AB shares form to protect against this risk, so this is not the most critical issue.

What's more troublesome is that now is not a good time for financing, due to the uncertainty of the entire market situation, and now the valuation level of Internet companies in the entire financing market has been extremely lowered, but Xiaohongshu has been valued at 20 billion US dollars in the last round of financing, that is, 156.2 billion Hong Kong dollars, you must know that the current market value of Kuaishou is less than 230 billion Hong Kong dollars, and Xiaohongshu is 7% off according to Kuaishou** There should be a lot of pressure to devaluation, and if further financing is to be raised, then the valuation can only be lowered, and I am afraid that it will be difficult for old shareholders to agree.

In September, news came out on the market side that Sequoia China had taken a stake in XiaohongshuAfter seeking confirmation from people familiar with the matter, "Most Words" learned that this equity transaction is the purchase of old shares, that is, the old shareholders of Xiaohongshu are in a hurry to liquidate, and unless he lends the funds to the company in the form of loans, it has nothing to do with the company.

It is also reported that the deal values Xiaohongshu at just $14 billion, a 30% discount to the $20 billion financing valuation in 2021.

It seems that there is only one way left to go public, butNow is not a good time for Xiaohongshu to go publicOn the one hand, the valuation logic of the entire capital market for Internet companies has changed, from the past purely looking at user growth and scale, and now it is more inclined to look at profit performance, but the commercialization of Xiaohongshu can only be said to have just started, and I am afraid it is difficult to have beautiful numbers to write a prospectus.

On the other hand,Once listed, Xiaohongshu will immediately face the problem of shrinking valuation, and the resulting investment gains and losses will be included in the financial statements of the listed shareholders for the year, which is probably not acceptable to the shareholders of Xiaohongshu.

It is not difficult to find from the list of previous financing shareholders of Xiaohongshu that there are roughly two kinds, one is a well-known Internet company, and the other is a VC institution, the former is now also facing the dilemma of valuation downgrade, and the latter is even more difficult to survive in the context of liquidity crunch, not only is it difficult to write a report for LP, but it is also unprecedentedly difficult to raise new **.

In short, everyone doesn't want a concrete loss, so it's better to let everything still be under the lid.

In fact, these difficulties are not only faced by Xiaohongshu, but also the common difficulties faced by all unlisted new economy enterprises. So this year, there are very few new economy companies listed on the Hong Kong stock market, and even if they do succeed in landing, they usually only carry out symbolic issuances to control the outstanding shares to ensure the low level of trading volume, in order to create an illusory stock price, but they have actually raised very little money.

So why do these companies even go public?On the one hand, I'm afraid it has something to do with the previous commitment to shareholders, on the other hand, these companies have either already shaped their ability to make their own blood, or the founders have finally figured it out and simply become a small and beautiful company, so that the company will not spend too much money, and of course it will not need to raise money again.

But Xiaohongshu is different, Xiaohongshu also needs to make money to prove its worth.

Xiaohongshu is almost monopolistic in the subdivision of the Chinese Internet, and the giants have imitated it several times and have not made substantial competitors. And its target overseas company Instagram is valued at least $300 billion, accounting for almost 40% of the market value of its parent company Meta, and some aggressive investors even attribute half of Meta's valuation to Instagram.

Instagram has such a high valuation because of its large user base, with more than 2 billion monthly active users. According to Hootsuite research data, Instagram ads reached 1.8 billion potential users in 2022 and generated $43.3 billion in ad revenue in 2022.

In comparison, Xiaohongshu has more than 2 monthly active users600 million, according to Gray Dolphin data, in May 2023, there will be about 8,100 brands advertising on Xiaohongshu, and the number of notes will be about 1750,000 pieces, with an amount of nearly 1 billion yuan.

From the perspective of advertising revenue and monthly active users, Xiaohongshu's ad monetization ability is much worse than that of Instagram. If you look at the valuation revenue, the current valuation of Xiaohongshu is indeed about $12,014 billionAnd Instagram faces global users and markets, including developed markets with stronger purchasing power, while Xiaohongshu is limited to the Chinese Internet market, and the potential difference is even greater.

Therefore, although Xiaohongshu's current growth is still very benign, the community atmosphere is good, and more and more advertisers are testing the waters, the ceiling of advertising monetization may be getting closer and closer.

A brand leader told us that the conversion rate of advertising in Xiaohongshu is facing a decline, first, the willingness of consumers to buy is declining, second, there are more and more advertisements on the platform, and third, the growth rate of new users seems to be slowing down. The relationship between the brand and the traffic is in a situation of "more monks and less porridge". There are also brand owners who reduce the in-feed advertising on Xiaohongshu, and instead bypass the platform and directly cooperate with KOLs and KOCs, which will further reduce the platform's advertising revenue.

Therefore, monetizing traffic more efficiently and deeply to increase revenue and support higher valuation is a problem that Xiaohongshu must consider.

Looking at the lively buyer e-commerce, although the prospect is promising, it cannot quench its thirst in the near future. That's why, the company has gone back and started planting grass again.

At present, Xiaohongshu's grass planting and drainage adopts a vertical strategy, that is, in non-e-commerce verticals such as education and tourism, corresponding grass planting solutions are proposed. This belongs to digging deep into the value of traffic and selling the unit traffic as high as possible.

Objectively speaking, this is indeed a very rational choice, on the one hand, no longer swaying in the e-commerce business, a company is actually very taboo about strategic swaying, and Xiaohongshu's strategy for e-commerce business has indeed undergone many migrations, resulting in many criticisms from the outside world.

On the other hand, whether it is education or tourism, it is fundamentally an industry that needs to deliver services, and content platforms have no foundation in terms of delivering services.

Because of this, the education and tourism industry still requires deep professional ability, taking tourism as an example, although in recent years, whether it is Alibaba's Fliggy or Meituan Tourism, but once hoped to be able to cut the cake of the tourism industry, but after a few years, it still cannot shake the foundation of Ctrip.

Of course, although it is backed by the shadow of Ctrip, Qunar is basically an independent operation, and it still needs to face the embarrassment of a small market share.

According to statistics, in 2021, Ctrip's travel market share in China's OTA market was 363%, firmly at the top of the list;Meituan's market share is 206%, ranking second;Tongcheng Travel has a market share of 148%, ranking third;The market share of Qunar Travel and Fliggy Travel is3%, ranked first.

Fourth, fifth. There is an old saying that when the boss and the second child fight, it is easy to die first is the third, and the current situation of Qunar is also very similar, at present, Ctrip and Meituan have launched a new round of competition with content as the core, and if Qunar does not solve its own traffic entrance, it is easy to further dilute its market share.

This is the reason why Xiaohongshu and Qunar can stand together, but cooperation is only the first step, and the two sides will face many problems next.

One. Unlike e-commerce transactions, the frequency of wine and tourism transactions is very low, which also means that the income expected from planting grass is relatively low

Two. Although there are only a few e-commerce platforms, there are many merchants in long-term operation, and there are a variety of goods, which leads to the fact that the repurchase rate that the same merchant can get will not be too high, so everyone will have a long-term strong demand for investment and drainage.

However, the hospitality business is different, because the platform is deeply involved in the entire service delivery chain, consumers will often Xi inertia to repurchase on the platform after they are accustomed to Xi a platform, and once the repurchase rate reaches the ideal range, the platform itself has no motivation to invest in the stream.

In fact, the education industry is also very similar, as the primary market has almost been accompanied by the double reduction and closure, every company is more important than ever to profitability and ROI level, as we all know, it is difficult for education companies to achieve profitability in the first order, everyone's profits are achieved through the continuous renewal of students, expansion and word-of-mouth referrals. Even if you choose to invest now, on the one hand, the scale of its investment is not the same as before the double reduction, and on the other hand, at present, every company is no longer driven by pure traffic purchasing.

This is the challenge faced by Xiaohongshu, and of course, the platform is not unaware of this, for example, its concept in the education scene is "garden-style operation", that is, to help educational institutions achieve multi-dimensional grass planting, not just simple streaming.

But in essence, institutions buy traffic on different platforms with different focuses. For example, everyone generally values the abundance of Douyin traffic, and under the expectation of flooding, the sensitivity to cost is low;When an agency engages in "operation" on a medium-sized traffic platform, it will pay more attention to the cost of traffic, no matter how "garden-style operation", and ultimately focus on reducing marketing costs.

But isn't what the platform earns is the money of marketing costs?

Even so, for Xiaohongshu, promoting the grass planting business in related industries can still bring it a part of its income and improve its self-hematopoietic ability to a certain extent.

It's just that whether these bloods can support this gradually huge body to complete the internal circulation and support the day when the e-commerce business is truly large-scale realization, so that the valuation will rebound and even exceed the valuation of 20 billion US dollars, this is a question that Xiaohongshu needs to think about.

Once, this is a company that prides itself on slowness, indeed, slowness has brought a good community ecology to Xiaohongshu, as well as a thriving user scale, but slowness must have also made it lose something, such as missing the best era of traffic monetization, the last ** financing window, and the listing is far away.

Today, it looks like it's a bit rushed, but that's not a bad thing.