RED’s Post Investment Valuation May Rise to USD 6 Billion
RED's post-investment valuation may rise to USD 6 billion if their Series E USD 1 billion financing round follows through.
According to the Eight Sisters, RED’s (小红书) post-investment valuation may rise to USD 6 billion if its initial Series E USD 1 billion financing round follows through. The Chinese social media and e-commerce platform began the round with a USD 5 billion pre-investment valuation. This round may be the last before RED’s listing.
However, the platform hopes its post-investment valuation will reach USD 8 billion as it aims to become “China’s Instagram.” In Apr 2018, YU Fang (瞿芳), RED’s founder, said in an interview that he expects to have an IPO in the next two to three years.
After Tencent and Alibaba invested in RED, it received strong traffic support from Chinese Internet giant, Baidu, especially after RED became Baidu’s small app benchmark. Judging from the valuation and the previous financing amount, Tencent’s share in RED may be approximately 10%; Alibaba has less than 10%.
According to China Internet Watch, RED reached 100 million users in May 2018. It boasts 30 million monthly active users, a 40% increase at the end of 2017. The platform was initially launched in 2013 and built a community by sharing shopping tips. Eventually, it turned to user-generated-content (UGC) and evolved into a lifestyle app. RED’s platform is also predominantly female (87.72%) compared to male (12.28%).
RED’s app is also non-commercial; therefore, no advertisements or commercial posts are permitted on the platform. Compared to similar platforms NetEase Kaola, Tmall Global, JD Worldwide, and VIP Global, RED was the only one gaining more market share in the first quarter of 2018.
RED’s asset-light business model is generally favourable amongst investors: it maintains partnerships with foreign brands and ships directly from their warehouse to users.
China’s cross border e-commerce is becoming relatively mature. According to Analysis Yi Guan (易观), cross border e-commerce reached approximately USD 60 billion in 2017, growing at a 60% CAGR from 2012-2016. In 2019, cross border e-commerce is expected to grow 15% over the next three years due to higher product offerings, faster delivery times, and more favourable regulations.
In addition to e-commerce, RED opened three offline stores with over 1000 SKUs, allowing customers to get in-store experiences and testing products before purchasing through its mobile app. While it is not disclosed whether RED also uses its physical stores to gather customer data, it may utilize a strategy similar to NOME Home: heat maps to track popular products offline.
Serving as an information platform, it drives MAU growth. While users may buy from other e-commerce websites, RED still operates a value-added service reliably and transparently. Before posting product reviews, the user must prove that he or she has purchased the product. To incentivize reviews, RED also implemented award points.
Therefore, RED’s most significant investment advantage comes from being a transparent source to its prospective and current users. However, without proper regulation, it runs a risk of fake reviews which can significantly hurt RED's value-added service. In addition, depending on how reviews are worded, it may or may not be perceived as an ad. Therefore, perhaps further investment in technology regulation may help to curb this problem.