Instagram's "Chinese Answer" Makes Its First Profit

The Xiaohongshu app has reported its first profit and become the fastest-growing social network in CHINA, where foreign services are blocked. This was made possible by the lifting of covid-19 restrictions. However, there are no clear prospects for an IPO.

Chinese video and photo sharing app Xiaohongshu reported a net profit of $500 million for the first time in a year, with revenue of $3.7 billion, the Financial Times reports, citing four sources.

By comparison, the company ended 2022 with a loss of $200 million on revenue of about $2 billion.

Xiaohongshu, which translates as "little red book" (similar to the unofficial title of a collection of Mao Zedong quotes), has become a sensation among Chinese internet users and a rare success story in China's social media industry, which has suffered in recent years from the withdrawal of foreign investors and gloomy analyst forecasts.

The Financial Times compares the app to Instagram (the owner of the social network Meta is recognized as an extremist organization and banned in RUSSIA), and describes the service similarly to SouthCHINA Morning Post, calling it China's answer to Instagram.

Last year, Xiaohongshu's number of monthly active users reached 312 million, a 20% increase from the previous year. As the FT notes, this made it the fastest-growing major social network in China.

The Xiaohongshu app is popular among young Chinese women interested in fashion, travel, and beauty, as well as men, thanks to its emphasis on promoting memes, car content, and science fiction. Around 70% of users are women, and half are under 30.

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According to one investor, Xiaohongshu's future remains unclear, as there is no clear path to an initial public offering. "I'm positive about the company, but the lack of a clear exit path through an IPO is a major problem," he said. Experts believe that going public will be challenging for the company due to the massive amount of consumer data it processes.

Xiaohongshu began turning a profit thanks to the lifting of the country's "zero COVID" policy, according to Li Chengdong, HEAD of the Haitun technology think tank. This led brands to increase their marketing spending.

In 2021, Xiaohongshu came under scrutiny from Chinese regulators.

Then, a social media account posted on Weibo (similar to Twitter) the phrase "Say it out loud, what's the date today?" The post appeared on the anniversary of the 1989 crackdown on student demonstrations in Tiananmen Square by Chinese troops. The repression of student protesters remains a sensitive topic for Chinese authorities , who delete information about the event, the reasons for the protests, the number of civilian casualties, and refer to the crackdown as a "historical incident."