EB SECURITIES: "TikTok refugees" surge into Xiaohongshu, giving rise to high popularity, the entire ecosystem chain is expected to continue to benefit.

EB SECURITIES released a research report stating that the "Tiktok refugee" incident has brought a large amount of overseas traffic influx, the preliminary establishment of an overseas user community, and is helpful in laying the foundation for Xiaohongshu to expand its overseas user base and international market share, bringing more medium to long-term commercial opportunities. Xiaohongshu has recently deepened its layout in commercialization, AI, and other aspects, and the entire ecological chain is expected to continue to benefit. Event: Due to concerns about the ban on Tiktok by American users, another popular social networking application in China, Xiaohongshu, quickly became popular on the American internet and topped the overall free chart for iPhones in the United States on January 13th. The main points of EB SECURITIES are as follows: After the oral argument in the U.S. Supreme Court, the risk of the Tiktok ban has increased, and American users have started considering using other platforms. On January 10, 2025, at 10 a.m. Eastern Time, the nine justices of the U.S. Supreme Court heard oral arguments from the parties involved in the Tiktok ban law ("Protecting Americans from Foreign Hostile Forces Controlled Applications Act") for two and a half hours. Tiktok and ByteDance's lawyer, Noel Francisco, stated in the argument that unless the Supreme Court stops the law, Tiktok will shut down from January 19. A large influx of former Tiktok users into the Xiaohongshu platform has sparked high popularity. The influence of influential internet celebrities, curiosity, product attributes, combined with risk avoidance of the Tiktok ban, have led to a large influx of former Tiktok users into the Xiaohongshu platform, sparking high popularity. Xiaohongshu has the convenience of attracting overseas users, Xiaohongshu has not yet classified content, and overseas user registration is relatively simple; the product characteristics of Xiaohongshu's information flow are similar to those of overseas apps like Tiktok; in terms of algorithm recommendation and content operation, Xiaohongshu meets the diverse needs of users for social interaction and content. According to DianDian data, Xiaohongshu has been climbing the iPhone overall free chart in the United States since January 12 (previously not on the charts), ranking first on the chart from January 13-16 (as of 3 p.m.); Xiaohongshu's popularity has spread to other regions, as of 3 p.m. on January 16, it ranks first on the iPhone overall free chart in 79 regions and in the TOP10 in 53 regions. Foreign users are using the term "Tiktok refugee" to post a large amount of English content, generating a surge in traffic; as of 3 p.m. on January 16, the Xiaohongshu app's "tiktok refugee" topic has had 800 million views and 14.8 million discussions. In the face of a large influx of traffic, Xiaohongshu may have begun to optimize for overseas users, with the opportunity to expand its international market share and lay the foundation for international development. Facing an unexpected influx of overseas traffic, Xiaohongshu still needs to adjust and solve some problems, such as Xiaohongshu not having a perfect built-in translation function, which may hinder communication between users; American users post more diverse content, increasing the difficulty of content moderation and management; protecting user data security remains a key factor in Xiaohongshu's overseas operations. According to reports from Economic Observer and Urban Scene, the Xiaohongshu team may be working on advancing real-time translation, product features, compliance, and security; several overseas celebrities have recently registered Xiaohongshu accounts, indicating that Xiaohongshu may be increasing its overseas content operations. The "Tiktok refugee" incident may have had some randomness, but it has successfully brought effective overseas brand publicity to Xiaohongshu, established an initial overseas user community, and formed a certain social effect and level of discussion. If Xiaohongshu deepens its overseas operations and cultivates a community atmosphere, it may attract more overseas traffic, open up medium to long-term growth space, and affect the global social app competition landscape. Xiaohongshu is a platform with scarce operational data and high-profit growth in the current Internet sector, and its 2025 commercialization and AI strategy is expected to further advance. In 2024, Xiaohongshu completed a round of private share trading, with a valuation of $17 billion, with DST and Sequoia China participating in this round of financing. According to Bloomberg, Xiaohongshu's profits are rapidly releasing, and overall profits in 2024 are expected to double to over $1 billion; in December 2024, Xiaohongshu determined three major directions for commercialization in 2025, and the comprehensive optimization of product infrastructure is expected to accelerate monetization. Xiaohongshu has been taking continuous operational actions recently; on January 11, Xiaohongshu incubated the AI search application "DianDian," updating it to further enrich search results presentation; on January 13, Xiaohongshu became the exclusive note-sharing platform for the China Central Television Spring Festival Gala 2025. Investment recommendations: 1) Advertising marketing-related companies: Inmyshow Digital Technology (600556.SH), Foshan Yowant Technology (002291.SZ), Shanghai Yaoji Technology (002605.SZ), etc.; 2) E-commerce service providers: Hangzhou Onechance Tech Corp. (300792.SZ), Guangzhou Ruoyuchen Technology (003010.SZ), etc.; 3) Content partners: Visual China Group (000681.SZ), etc.; 4) Content review partners: Fuchun Technology (300299.SZ), HuiZhou Intelligence Technology Group (002122.SZ), etc.; 5) Cloud service partners: BABA-W (09988); 6) Equity partners: TENCENT (00700), etc. Risk warning: Domestic and foreign policies; intensified competition; commercial progress falling short of expectations; AI development falling short of expectations.