Executive Summary
For global investors tracking Chinese tech unicorns, Xiaohongshu (小红书) presents a captivating yet perplexing case study. The platform commands a massive user base and soaring valuation, yet its path to sustainable profitability remains fraught with pitfalls. The abrupt demise of its ‘Little Red Card’ local services membership is merely the latest symptom of deeper, recurring commercialization woes. This analysis delves into the core challenges facing this social commerce giant.
– The swift failure of ‘Little Red Card’ after just three months exposes Xiaohongshu’s persistent difficulty in converting content influence into tangible transaction volume, a recurring commercialization imbalance that has plagued it for years.
– Despite aggressive 2025 pushes in e-commerce and local services, over 80% of revenue still relies on advertising, revealing a fragile business model ill-suited to support its $31 billion (approximately 220 billion RMB) private market valuation.
– Seven years of IPO speculation have yet to materialize into a public listing, as underlying commercial fragility and regulatory nuances create a ‘valuation without a market’ scenario, leaving investors in a holding pattern.
– The fundamental tension between preserving a community built on authentic user-generated content and pursuing aggressive monetization strategies remains unresolved, threatening long-term user trust and platform viability.
The Precarious Dance of Influence and Revenue
For the seventh consecutive year, the financial markets are abuzz with speculation about the initial public offering of Xiaohongshu. Investors clutch shares in a company valued at a staggering $31 billion in recent private transactions, a figure that dwarfs Western peers like Pinterest and significantly exceeds that of domestic rival Bilibili (哔哩哔哩). Yet, beneath this glittering valuation lies a stark, recurring commercialization imbalance. The platform, with nearly 400 million monthly active users, consistently struggles to translate its immense cultural influence and ‘grass-planting’ (种草) power into a diversified and robust revenue stream. The recent quiet shutdown of its ‘Little Red Card’ venture is not an isolated misstep but a glaring reminder of this chronic issue.
‘Little Red Card’: A High-Profile Launch and a Silent Retreat
In September 2025, Xiaohongshu unveiled ‘Little Red Card’ (小红卡) with considerable fanfare. Positioned as a curated ‘eat, drink, and play’ membership, it aimed to bridge the gap between lifestyle content and real-world consumption in key cities like Shanghai, Hangzhou, and Guangzhou. For an annual fee of 168 RMB, users were promised discounts at select local businesses. The platform employed a ‘dual-curation’ model, vetting merchants based on community reputation rather than paid promotion and targeting high-net-worth users through the fee barrier. To attract merchants, Xiaohongshu waived platform commission fees, charging only a 0.6% payment processing fee.
Despite these carefully designed mechanics, the initiative collapsed within 100 days. Official communications cited insufficient preparation and an inability to meet user expectations for service breadth and convenience. User feedback pinpointed the core flaws:
– Extremely limited merchant coverage: In dense commercial areas like Hangzhou’s Wushan Plaza, only a handful of stores participated.
– Poor value proposition: The 168 RMB fee was higher than competitors like Alibaba’s (阿里巴巴集团) 88 VIP (88 RMB) or JD.com’s (京东集团) PLUS membership (99 RMB), while offering far narrower benefits.
One user’s calculation was telling: to merely break even on the membership fee, they would need to dine out twice monthly at participating restaurants—a logistical challenge given the sparse network. This failure in local services, a sector dominated by Meituan (美团) and increasingly by Douyin (抖音), underscores Xiaohongshu’s recurring commercialization woes. It highlights the immense difficulty of building transaction infrastructure and merchant networks from scratch, even with a vast content ecosystem.
2025: The Year of Aggressive, Yet Unbalanced, Commercial Push
The ‘Little Red Card’ experiment was part of a broader, intensified commercialization drive throughout 2025. Internally, Xiaohongshu elevated its commercial operations to unprecedented strategic heights. In July, the company subtly shifted its brand slogan from ‘Your Life Guide’ to ‘Your Life Interest Community,’ signaling a deeper focus on monetizable community engagement. August saw the formal establishment of a major commercial division, jointly overseen by COO Kenan (柯南) and CMO Zhiheng (之恒).
In the e-commerce arena, the platform made direct assaults on established players. It introduced a new first-level entry point labeled ‘Bazaar’ (市集) on its app interface and launched a ‘Million Zero-Commission Plan’ (百万免佣计划), exempting merchants from platform fees on their first 1 million RMB in transactions. Furthermore, it aggressively expanded commercial conduits by allowing ordinary users to share product ‘blue links’ in comment sections of any note.
The Data Reveals a Persistent Gap
Despite these forceful moves, key performance metrics reveal a persistent commercialization imbalance. While Xiaohongshu’s e-commerce Gross Merchandise Volume (GMV) surpassed 400 billion RMB in 2024 and reportedly grew over 200% year-on-year in the first half of 2025, this growth starts from a low base. When placed in the broader industry context, the scale remains minuscule.
– Douyin E-commerce GMV: Approximately 3.5 trillion RMB.
– Kuaishou (快手) E-commerce GMV: Approximately 1.39 trillion RMB.
– Xiaohongshu E-commerce GMV: Approximately 400 billion RMB (est. 2024).
This means Xiaohongshu’s e-commerce scale is not even a fraction of its rivals’. More critically, advertising continues to dominate its revenue mix, accounting for an estimated 80% of total income. This over-reliance on a single, volatile revenue stream exposes the company to significant market risks and contradicts the narrative of a well-diversified social commerce platform. The recurring commercialization woes are evident: rapid internal growth metrics mask an inability to capture meaningful market share or build a resilient transactional business.
The $31 Billion Question: Valuation Without a Market?
The most poignant manifestation of Xiaohongshu’s recurring commercialization imbalance is its seven-year journey toward an elusive IPO. Since 2018, when founders first floated the idea of a public listing within 2-3 years, the market has been awaiting a liquidity event. The valuation in secondary markets has climbed relentlessly, hitting $31 billion in 2025—a 19% jump in just three months. This paper valuation is supported by impressive profit figures, with net income reportedly soaring from over $1 billion in 2024 to a projected $3 billion in 2025.
However, this financial glitter has not translated into a public market debut. The scarcity of shares in private transactions, with early investors like GSR Ventures (金沙江创投) holding tightly, has artificially bolstered the valuation. The situation presents a classic ‘valuation without a market’ scenario, where the price is set in illiquid, private deals rather than tested by public investor scrutiny.
Regulatory Hurdles and Structural Weaknesses
Beyond commercial metrics, external factors complicate the IPO path. In February 2025, Bloomberg reported that Chinese regulators had informally suggested to Xiaohongshu that introducing a state-owned shareholder could smooth future listing approvals. This hints at the nuanced regulatory environment for Chinese tech firms seeking overseas listings. More fundamentally, the recurring commercialization woes create a structural weakness that public market investors would likely penalize.
– Fragile Revenue Model: Heavy dependence on advertising makes the business susceptible to economic downturns and platform engagement shifts.
– Unproven Transactional Arms: Neither e-commerce nor local services have achieved the scale or profitability to meaningfully diversify revenue.
– Community-Commerce Tension: Every aggressive monetization move risks diluting the authentic, user-generated content that is the platform’s core asset. This recurring commercialization imbalance forces the company into a perpetual corrective cycle, launching and retracting initiatives like ‘Little Red Card.’
As People’s Bank of China Governor Pan Gongsheng (潘功胜) and other regulators emphasize stability in capital markets, a company with such evident commercial contradictions may face heightened scrutiny.
The Unresolved Core Dilemma: Authenticity vs. Monetization
At its heart, Xiaohongshu’s recurring commercialization woes stem from an intrinsic conflict: the platform was built on and thrives because of perceived authentic user sharing and recommendations. This ‘grass-planting’ economy is powerful precisely because users trust it is not overtly commercial. However, to justify its valuation and satisfy investors, the platform must aggressively monetize that very trust. This is not a new problem; it is a recurring commercialization imbalance that has derailed multiple ventures over the years.
Historical failures provide a clear pattern. Before ‘Little Red Card,’ there was the closure of its early self-operated e-commerce arm ‘Welfare Club’ (福利社) and unsuccessful forays into social group buying. Each attempt to insert a direct transaction layer into the community has met with user resistance or commercial failure, often because it altered the content ecosystem’s dynamic.
The Advertising Dependency Trap
The current over-reliance on advertising is both a symptom and a cause of this dilemma. To drive ad revenue, the platform must allocate more screen real estate and algorithmic weight to commercial content. This gradually increases the ‘noise’ of sponsored posts and branded content within user feeds. If this commercial saturation crosses an invisible threshold, it can erode the perceived authenticity that attracts users in the first place, creating a negative feedback loop. As Alibaba Group CFO Maggie Wu (武卫) once noted regarding platform economies, ‘Sustainable monetization is built on sustainable engagement.’ For Xiaohongshu, the balance is perilously delicate.
The platform’s efforts in e-commerce and local services are attempts to create more integrated, less intrusive monetization paths. However, building the logistics, merchant relations, and user habits for these businesses is a monumental task that requires years of sustained investment and patience—a challenge when facing pressure from a $31 billion valuation expectation. The recurring commercialization imbalance thus becomes a self-reinforcing cycle: pressure to monetize leads to rushed initiatives; rushed initiatives fail due to insufficient infrastructure or user backlash; failures necessitate a retreat, followed by renewed pressure to try something new.
Navigating the Path Forward for Investors and the Platform
The narrative surrounding Xiaohongshu is at a critical juncture. The company possesses undeniable strengths: a deeply engaged, high-quality user base, a powerful brand in lifestyle consumption, and impressive top-line profit growth. Yet, its recurring commercialization woes pose a fundamental risk to its longevity and investment thesis. The $31 billion valuation, while a testament to its potential, appears increasingly disconnected from its current commercial reality.
For the platform’s management, the path forward requires a disciplined, long-term strategy that prioritizes sustainable ecosystem health over short-term monetization grabs. This might involve:
– Patient, scaled investment in e-commerce supply chain and service capabilities, accepting slower growth to build a solid foundation.
– Developing more nuanced advertising products that enhance, rather than disrupt, the user experience.
– Exploring strategic partnerships or acquisitions to accelerate capabilities in lagging areas like local services, rather than building everything in-house.
For institutional investors and fund managers evaluating Chinese equity opportunities, Xiaohongshu serves as a cautionary case study in separating hype from substance. The key takeaway is clear: a massive user base and cultural influence do not automatically translate into a defensible, diversified business model. Until Xiaohongshu demonstrably cracks the code on its recurring commercialization imbalance—building successful transactional businesses that complement rather than compromise its community—its lofty valuation will remain vulnerable, and its IPO will likely stay in the realm of speculation.
The call to action for the global investment community is to look beyond the valuation headlines and scrutinize the underlying commercial mechanics. Monitor not just GMV growth rates, but market share, revenue diversification, and user sentiment metrics. The story of Xiaohongshu is still being written, but its next chapters must convincingly address the old problems that have, once again, come to the fore.