China Securities Co., Ltd.: High-activity lifestyle sharing community, Little Red Book advertising and e-commerce business accelerated advancement.

China Securities Co.,Ltd. released a research report stating that Xiaohongshu was founded in 2013, starting as a community for overseas shopping strategies, and has now grown into a community in the entire lifestyle field with 300 million monthly active users and 100 million daily active users. Xiaohongshu prioritizes recommending content with high interactivity, where both KOLs and ordinary users can receive fair exposure. The accumulation of real and useful UGC content and the active community atmosphere have built a strong ecological barrier. At the community level, Xiaohongshu has become a search engine for the "Z generation," and topics such as camping and cycling, MBTI, etc., within the platform have successfully led trends. On the commercial level, the Dandelion platform matches bloggers with merchants, forming the core business model, while also differentiating to create quality e-commerce, with the potential to achieve GMV growth through high average order values and high-quality product selection. Key points from China Securities Co.,Ltd. include: 1. Xiaohongshu: Unique algorithm and community atmosphere, one of the most active communities in China Founded in 2013, Xiaohongshu started as a community for overseas shopping strategies and has now grown into a community in the entire lifestyle field with 300 million monthly active users and 100 million daily active users. It is one of the most active and unique platforms in China. In January 2025, Xiaohongshu topped the US iOS app free list and is expected to continue to benefit from sustained traffic growth. From a product perspective, Xiaohongshu has three unique highlights: Algorithm: Fair exposure based on post content/location/tags, quick account growth for KOLs and ordinary users. Compared to other platforms like Douyin and Weibo which have relatively centralized algorithms, Xiaohongshu prioritizes content interaction data and geographic location, and tag categories as the main criteria for recommendations, allowing both KOLs and ordinary users to receive fair exposure. Positioning: Becoming a "Z generation" search engine with real and useful UGC content. Xiaohongshu has a large number of "experiential help" posts on its platform, providing users with scarce, genuine, first-hand experience feedback and creating the functionality of a search engine for the platform. By the fourth quarter of 2024, Xiaohongshu's daily average search volume was close to 600 million times, nearing half of Baidu's search volume, with over 70% of monthly active users on Xiaohongshu using the search function in 2024, of which 88% were actively searching. Tonality: Leading lifestyle trends, reinforcing high-quality impressions. From camping and cycling in 2022, City Walk in 2023, to MBIT in 2024 and other topics that are widely discussed, Xiaohongshu strives to lead or create trends, establishing a high-quality content/p... 2. Commercialization: Search and games drive advertising space, unique positioning for high-quality e-commerce Advertising: Matching bloggers with merchants, accelerating search advertising, expanding into new industries such as gaming. Xiaohongshu's advertising products are primarily on the Dandelion platform, which helps match bloggers with advertisers. Dandelion has signed up over 400,000 bloggers, with over 1,000 followers allowed for registration. In addition to information flow advertising, search advertising is also accelerating. From the perspective of advertisers, Xiaohongshu has expanded from beauty and personal care to female-oriented gaming industries like egg tarts, muffins, and RuYuan. E-commerce: Introducing "lifestyle" e-commerce, focusing on building quality e-commerce. The most typical case of e-commerce on Xiaohongshu is Dong Jie's live broadcasts, which differ from traditional live streaming styles that focus on selling and low average order value, instead emphasizing product design concepts and values. Currently, Xiaohongshu has 40 million daily shopping users, and the platform has unique product selection control in fashion trends, sports and outdoors, beauty and personal care, furniture, and baby products, aiming to achieve rapid GMV growth by positioning at higher price points. Risk factors Macroeconomic risks, weaker than expected copyright protection efforts, risks of unclearly defined intellectual property rights, risks of interruptions in cooperation with IP or celebrities, risks of changing public aesthetic preferences, risks of intensifying competition, risks of low willingness to pay among users, risks of difficulty in changing consumer habits, risks of governance in affiliated companies, risks of unsatisfactory performance in content launches, risks of slower-than-expected development in generated AI technology, risks of difficulty in product research and development, risks of product launch delays, risks of rising marketing and acquisition costs, risks of talent loss, risks of rising labor costs, risks of policy regulation, risks of commercial capabilities falling short of expectations.