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Xiaohongshu sees valuations drop in private equity market

November 22, 2022 1:03 am

The valuation of Xiaohongshu, China's answer to Instagram, has plummeted in the private equity market, amid a gloomy global economic outlook.

Private market stake sales since the beginning of the year have given Xiaohongshu an implied valuation of between $10 billion and $16 billion, Financial Times reported, citing private equity data provider Altive. One major Xiaohongshu investor was seeking bids to sell shares at a $14 billion valuation last month, according to the report.

Founded in 2013, the platform focuses on lifestyle and beauty content in livestreaming, short video, photo and text formats, targeting affluent young women. Users can buy products directly through the platform.

In November last year, the photo-sharing app, which boasts 200 million active users, raised $500 million from existing shareholders including Alibaba, Tencent, and Singapore state investor Temasek, valuing the company at $20 billion.

The startup reportedly halted its IPO plans last year as China tightened controls on overseas listings and data security. Under new rules for companies looking to list outside mainland China, announced last July, any Chinese company that holds the personal data of 1 million or more users must seek a cybersecurity review from the government.

After the new "Personal Information Protection Law" came into effect in November last year, Xiaohongshu was named by the Ministry of Industry and Information Technology for rectification due to improper behavior such as excessive collection of user data or publication of misleading information.

As prospects for an imminent IPO faded, the company announced it had dismissed just under 10% of its workforce in April, or 200 employees. Xiaohongshu said the job cuts were part of “normal HR optimisations” and “performance review process”.

According to Chinese research firm LeadLeo's estimation, Xiaohongshu generated 80% of its revenue from advertising and 20% from e-commerce in 2020.

Inflation, tightening monetary policy, supply chain problems, and other global economic headwinds have caused big tech stocks to suffer their biggest plunge in more than a decade, thereby slowing the pace of private funding and prompting startups to cut costs and lay off workers. That's a big change from last year, when fundraising environment was sizzling.

This year, ByteDance, which owns the viral short video app TikTok, internally lowered its valuation by 20%, to around $300 billion. Payments giant Stripe, last valued at $95 billion by private investors, cut the internal value of its shares by 28%.