Recently, the news about Xiaohongshu being valued at 26 billion USD has been all over the headlines. It has become the only unicorn company in China's mobile internet sector that is experiencing strong positive growth after the pandemic.

Due to my background in securities research, I particularly enjoy observing a phenomenon and breaking down the logic behind it. Recently, I attended a music festival and a slow life festival organized by Xiaohongshu in Dali, where I made some observations and experiences to discuss the secrets behind its high valuation.

First, it is definitely about positioning and user demographics. This time, there was a clear difference in customer spending or user profiles. Unlike the traditional weekend markets in Dali, the presence of the music festival, along with artists like Zhang Zhenyue and Da Zhangwei, ignited traffic and instantly elevated the entire slow life festival market's prestige. I surveyed several original small shops at the market, and the average customer spending ranged from 150 to 1500 RMB. Coffee prices generally started at over 30 RMB.

This group of people aligns perfectly with the consumer demographic of the "ideal lifestyle" narrative, and they are predominantly female, accounting for over 60%. Most of them flew in specifically from first- and second-tier cities just for this market. The age range is concentrated among women aged 18-35. In terms of lifestyle philosophy, they no longer pursue flaunting wealth but instead seek a life that is "tasteful" and "self-consistent," possessing high spending power and a strong willingness to produce and share content.

Xiaohongshu, through its online and offline traffic closed loop and content scenarios, meets young people's imagination and tangible presentation of "lifestyle upgrades," helping them dream and fulfill those dreams.

Second, there is a strong trust relationship. Currently, trust is the biggest barrier and cost for all internet products. Xiaohongshu has thoroughly understood how to break down trust barriers through authentic, high-quality content presentation and make users willing to pay for it.

Many people may only know about Xiaohongshu's advertising and e-commerce, which have seen rapid growth in recent years, with major brands willing to spend heavily on advertising on the platform. Last year, Xiaohongshu's advertising revenue exceeded 2 billion USD, surpassing Bilibili. Its self-operated e-commerce has also grown rapidly, with GMV breaking into the tens of billions, focusing on beauty and lifestyle categories. This level of growth is unprecedented, and there are often significant discrepancies between seller showcases and buyer showcases, leading to trust crises in various live-streaming e-commerce and traditional e-commerce.

Xiaohongshu has achieved a closed loop of: users viewing notes (UGC) → generating purchase desire (planting grass) → placing orders directly on the platform (e-commerce). It establishes a "credibility" barrier through the community's native grass-planting mechanism, combined with AI algorithm big data interest recommendations for precise matching of consumer demographics. This has also caused some issues, such as when I chat with friends about topics during meals, and then open Xiaohongshu after eating, I find my homepage filled with consumption points discussed at the dinner table. Privacy protection issues are quite serious, but fortunately in China, there isn't much privacy to speak of. If this were in Europe, I wonder how much the fines would be 😂.

So you will find that if Douyin is "interest e-commerce" for achieving 'instant satisfaction' (small amount consumption), then Xiaohongshu is "decision e-commerce" for achieving 'deep trust' (large amount consumption). For example, when I buy electronic products or large household items, I have developed a habit of first checking Xiaohongshu for reviews before making a decision to order. This is the dependency on trust; once a habit is established, it is hard to break.

Third, there is an experiential binding of online and offline. In the past two years, Xiaohongshu has held numerous offline experiential lifestyle expression events aimed at young people. There have been concerts, markets, outdoor enthusiast gatherings, etc. It presents the concrete manifestation of a beautiful lifestyle from online images and videos to offline experiences, fully reflecting the life that young people aspire to and their sense of resonance, achieving an internal circulation of traffic and reinforcing the flywheel. So one day, if Xiaohongshu opens a "Xiaohongshu Happy Tribe" similar to "Disneyland," I wouldn't be surprised at all, and once it opens, it will definitely be very popular and well-received by young people, because big data has already told them what young people like and what the future trends are.

This reminds me of the #AS (Arc'teryx's parent company) that I hold in my US stock portfolio. It is not just an outdoor clothing company but also an outdoor lifestyle experience company. For example, it has developed the first 5.15b difficulty climbing route in the Fengshan World Geopark in Guangxi, and outdoor experience trips in Shangri-La, etc. It arranges a complete outdoor lifestyle experience for you clearly, combining courses, coaches, and experiences to achieve experiential consumption and strong grass-planting. This is something other outdoor brands do not have and is very difficult to present. The deeper the penetration, the more it becomes a core barrier.

Just like a few years ago when Lululemon occupied the white-collar market, every Lululemon store within a 10-kilometer radius had several offline yoga venues, mostly located in high-end hotels or outdoors, where instructors would lead users who purchased Lululemon clothing in yoga courses and interest groups, building a community and training services for traffic closed loops. However, due to increased competition and the lack of innovation and fashion sense in Lululemon clothing, it is evident that its popularity has rapidly declined in the past two years. In the past two years, everyone has been talking about outdoor and mountain-themed outfits.

Due to space limitations, I will briefly discuss these points. Investment is rooted in life, and life is full of investment codes. Let's work hard together and discuss more 🧐

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