Xiaohongshu files for IPO: How will shareholders and competitors react?

Executive brief

Core judgment: Under the base case, releasing the prospectus now would trigger special regulatory inquiries, significantly delaying the listing timeline. Major disagreements exist among stakeholders regarding the characterization of compliance issues; before the regulator's stance becomes clear, the market is collectively in a wait-and-see mode rather than actively pushing forward or obstructing.

Stance landscape: Wait-and-see sentiment dominates absolutely. Existing shareholders and sponsor institutions are cautiously monitoring valuation safety margins, competitors are eyeing time-lag dividends, and complainants insist on the argument of fundamental compliance flaws. Interests are highly differentiated with divergent demands.

Key risks: Pushing forward despite unresolved issues may trigger a triple backlash: regulatory obstruction, valuation discounts, and collapse of ecosystem trust. Parallel domestic compliance acceptance and overseas reviews mean that any pending matter could become a substantive delay factor, potentially triggering a negative feedback loop.

Turning-point signals: Whether the risk factors section of the formal prospectus comprehensively covers reporting matters and governance challenges; issuance timelines and liquidity changes for comparable tech stocks. Disclosing superficially or declining sector heat both indicate deviation from the base-case judgment.

Recommended actions: Immediately form a cross-departmental compliance response team and conduct multiple rounds of simulated defense drills to ensure consistent messaging and complete evidence chains on sensitive issues. Simultaneously, engage proactively with key complainants to seek understanding.

Distribution of stances among key stakeholders: Interest differentiation under wait-and-see dominance

The simulation covers 13 key stakeholders—including founders, existing shareholders, sponsor institutions, regulatory authorities, former executives, complaining enterprises, competitors, and analysts—in response to the proposition that 'Xiaohongshu should release its prospectus now.' Statistics show that a wait-and-see sentiment dominates absolutely (accounting for 50.0% of posts), with explicit supporters at only 8.9%, opponents at 7.8%, and 33.3% of posts failing to indicate a clear stance. The overall public opinion reflects a 'collective waiting amidst highly divided interests': although all parties hold vastly different views on Xiaohongshu's fundamentals and compliance risks, they tend to suspend substantive statements or actions until the results of HKEX regulatory inquiries are clear, rather than pushing for or obstructing the release of the prospectus at this juncture. (Source: simulation)

Existing shareholders and sponsor institutions adopt a cautious wait-and-see attitude, with core concerns being valuation safety margins and disclosure adequacy. Simulation roles modeled after Tencent and Alibaba believe that Anonymous reporting (real-name whistleblowing) by former executives regarding VIE structures and labor compliance issues emerging precisely during the IPO window, combined with strict Hong Kong stock exchange review standards, necessitates waiting for regulatory inquiry results before assessing the listing pace; there is no rush to push for the prospectus release now. Their concern lies in the fact that hasty submission would make it difficult to digest the valuation discrepancy between $31 billion and $70 billion, which would be detrimental to valuation stability. (Source: simulation) Simulation roles modeled after Goldman Sachs and CICC emphasize that compliance rectification is a standard step for listing, not an insurmountable obstacle, but acknowledge that controversial matters must be fully disclosed in the prospectus. They are currently cooperating with the company to supplement materials, holding a stance of 'waiting for the scope of the inquiry letter while simultaneously preparing responses.' (Source: simulation) Zhang Jiakang from Gengxin Capital pointed out in the simulation that rising transaction prices among existing shareholders indicate sufficient financial preparation, but the race between the time cost of compliance rectification and market windows is the core variable; their bottom-line strategy remains wait-and-see. (Source: simulation)

The internal company and founder camps advocate that 'stability is more important than speed,' denying the intent to rush the window period but acknowledging that compliance requires continuous investment. Simulation roles modeled after Mao Wenchao and Qu Fang stated they will not rush into action due to market enthusiasm, nor will they waver in direction because of individual incidents; listing is a means, not an end, and they focus more on long-term value. Internal executive roles further elaborated on 'stability is more important than speed,' believing that compliance building is a continuous process with no one-time solution. (Source: simulation) The official Xiaohongshu account responded multiple times in the simulation that compliance matters are being systematically organized, with legal and audit teams cross-verifying working papers to ensure disclosures have a basis, while also admitting that content governance effectiveness still falls short of expectations, noting that trust is the lifeline. (Source: simulation) Notably, the founders referred to the former executive's whistleblowing as an 'individual incident,' which was pointed out by analyst roles as imprecise—effective judgments constitute substantive matters requiring specific inquiries in Hong Kong stock exchange reviews, rather than cases that can be downplayed. (Source: simulation)

Questioners and competitors form a de facto alliance for 'delayed submission,' but with different levels of demands. Former executive Chen Hao focused on the completeness of information disclosure in the simulation, questioning whether the responsibility division of the VIE structure, effective judgments, and the 'replacement' annotation of resignation certificates were truthfully disclosed in the prospectus. His logic is 'speak clearly and shut up, or if unclear, keep watching'; his Target (point of attack) is aimed at disclosure quality rather than opposing the listing itself. (Source: simulation) Complaining enterprises represented by Dreame and Lijiang Official questioned the effectiveness of fake information governance from the perspective of content ecosystem trust, demanding that the platform present verifiable rectification results before submission, arguing that 'rushing through with illnesses' lacks legitimacy. (Source: simulation) A competitor role modeled after Kuaishou viewed the opponent's entanglement in compliance mud from a competitive perspective, pointing out that VIE disclosure flaws combined with effective judgments constitute substantial thresholds, and every month delayed loosens the valuation narrative. (Source: simulation) Although all three objectively slowed the pace of prospectus release, the former executive wants 'disclosure transparency,' brand owners want 'governance results,' and competitors want 'time-lag dividends'; their demands are not consistent.

Regulatory authorities and the HKEX maintain procedural neutrality but clarify the boundaries between domestic compliance red lines and overseas review standards. Simulation roles modeled after cyberspace administration departments clearly distinguish two types of issues: VIE structures and labor compliance belong to technical review items for Hong Kong stocks with mature paths; however, content security, data Exit the country (cross-border data transfer), and minor protection belong to domestic statutory obligations, and standards do not lower regardless of the listing location. Furthermore, no systematic rectification report has been seen yet, so they continue to maintain a wait-and-see stance. (Source: simulation) Simulation roles for the HKEX Securities and Futures Commission reiterated reviewing complaint materials according to laws and regulations, stating that individual disputes will be comprehensively evaluated within the overall review framework without making predictions, calling on the market to rely on formal disclosures. (Source: simulation) This division of labor means that even if the HKEX inquiry is passed, domestic regulatory compliance acceptance remains an independent variable; the two run parallel without conflict, and any unresolved matter from either party could become a substantive delaying factor for the release of the prospectus.

Key divergence points and key uncertainties: The tug-of-war between compliance flaws and valuation anchors

The Dispute Over Compliance Nature: Technical Flaws or Substantive Obstacles

Centered on the proposition that "Xiaohongshu should now publish its prospectus," the core divergence among stakeholders lies in how to characterize the allegations by former executives and issues regarding content governance. Sponsors and certain analysts tend to define these as 'resolvable technical issues.' Simulation characters modeled after Goldman Sachs and CICC argue that there are mature pathways for addressing VIE structure disclosures in Hong Kong listings, that individual labor disputes do not equate to systemic defects, and that compliance rectification is a standard step for going public rather than an insurmountable obstacle (Source: simulation). However, the complainants and competitors insist this constitutes 'substantial compliance hard flaws.' Chen Hao, a former executive featured in the simulation, repeatedly emphasized that his whistleblowing was not merely about labor disputes but concerned the 'selective disclosure' of rights and responsibilities within the VIE structure, as well as the lack of compliance culture reflected by labeling termination certificates with 'replacement,' facts which have been confirmed by effective court judgments (Source: simulation). Verified online materials indicate that legal experts point out if inconsistencies arise between domestic and overseas information disclosures regarding core matters such as control arrangements and profit aggregation within the VIE structure, it would violate the Hong Kong Stock Exchange's strict rules on the truthfulness, accuracy, and completeness of information disclosure, potentially constituting significant compliance flaws or even delaying the listing process (Source: verified online, m.sohu.com). This divergence directly determines the timing of the prospectus release: if it is a technical issue, progress can be made by supplementing materials; if it is a substantive obstacle, thorough rectification must be completed before filing.

The Debate Over Valuation Anchors: Can High-Growth Narratives Cover Compliance Discounts?

There is a huge gap in market expectations for Xiaohongshu's valuation, reflecting a cognitive rift regarding the sustainability of its business model. The optimistic side focuses on fundamental support, with analyst characters in the simulation noting strong revenue and net profit guidance and a large monthly active user base, believing that performance is sufficient to support a higher valuation range (Source: simulation). However, the skeptical side argues that compliance risks are not yet fully priced in. A complaint entity character modeled after Dreame pointed out that the proliferation of false information on the platform leads to a loss of user trust, and this kind of 'messy ledger' at the ecosystem level is more fatal than financial data (Source: simulation). It is necessary to specify that the precise ratio of '63% of users abandoning the platform due to false information,' frequently cited in the simulation, could not be corroborated by the original 2025 iiMedia Research report upon verification (this data has not been traced to its original source); however, the trend of user trust crisis it reflects is corroborated by facts discovered in a May 2026 Xinhua News Agency investigation, such as issues involving borderline content concerning children and official warnings from Lijiang authorities against fake 'avoid-the-pit' posts (Source: material). Shareholder characters in the simulation also acknowledged that the valuation discrepancy from 31 billion to 70 billion dollars essentially stems from the market failing to reach a consensus on pricing the compliance risk premium, and rushing to issue a prospectus before inquiry results become clear is unfavorable for valuation stability (Source: simulation).

Key Uncertainty Variables and Signals to Watch

Under the current situation, there are four variables that remain undetermined but will directly decide whether the prospectus can be smoothly published and its issuance effect:

• The Scale and Timeline of HKEX Special Inquiry Letters: This is the 'touchstone' for judging the nature of compliance disputes. Signals to watch: Monitor whether the HKEX issues special inquiry letters regarding the completeness of VIE structure disclosures, employee option disputes, and employment compliance, as well as the number of inquiry rounds and response deadlines. If inquiries focus on detailed supplements, regulators view it as a technical issue; if they require restructuring the architecture or providing evidence of systematic rectification, it implies a substantive obstacle (Source: simulation).
• Progress of Domestic Regulatory Acceptance of Content Ecosystem Governance: Hong Kong listing reviews run parallel to domestic compliance. Signals to watch: Monitor whether cyberspace administration departments issue phased acceptance opinions on rectification or new administrative penalties regarding minor protection and false information governance. Regulatory body characters in the simulation explicitly stated that content security is a statutory obligation domestically, and standards do not lower based on the listing location, and no systematic rectification report has been seen so far (Source: simulation).
• Adequacy of Disclosure Regarding Controversial Matters in the Prospectus: The quality of information disclosure is key to resolving the trust crisis. Signals to watch: Monitor whether the 'Risk Factors' chapter in the formal prospectus (Form A1) comprehensively covers contradictions in the VIE structure involved in former executive whistleblowing, employment flaws confirmed by effective judgments, and structural challenges in content governance. The more transparent the disclosure, the shorter the time for the market to digest risks; if it avoids the heavy and picks on the light, it may instead trigger secondary regulatory inquiries (Source: verified online, m.sohu.com).
• The Race Between Competitor Window Periods and Market Sentiment: Time cost is a silent killer. Signals to watch: Monitor the issuance pace of similar tech stocks in Hong Kong and changes in secondary market liquidity. Gengxin Capital characters in the simulation pointed out that the time cost of compliance rectification is in a race with the market window; if delayed too long, declining sector heat and competitors grabbing the lead may render existing valuation logic invalid (Source: simulation).

Risk Warning: Three potential backlash effects triggered by forcing through while ill

If Xiaohongshu proceeds to publish its prospectus at this juncture, while current compliance controversies remain unresolved and regulatory inquiries are still unclear, it may face a triple backlash risk of blocked regulatory review, discounted market valuation, and collapsed ecosystem trust. These risks do not exist in isolation; they intertwine and amplify each other, constituting a systemic hidden danger of "rushing through with illness."

Recommended actions: Scenario-based responses to the timing of prospectus release

For the decision proposition that 'Xiaohongshu should release its prospectus now,' combined with the preceding analysis of stakeholders' stances, divergences, and risks, it is recommended to adopt a scenario-based response strategy. The current market is in a wait-and-see state (Source: simulation), and since compliance controversies and valuation anchors have not yet reached equilibrium, advancing with a single timeline is inadvisable. The following recommendations provide differentiated action paths and signals to watch for decision-makers based on three possible evolutionary scenarios.

Scenario 1: Base Case – Compliance Inquiries Trigger a 3-6 Month Delay in Listing Rhythm

This scenario assumes that the Hong Kong Stock Exchange issues special inquiry letters regarding previous executive whistleblowing and content governance issues, but domestic regulators do not impose administrative penalties or halt orders. Trigger conditions include substantive requests for supplementary materials raised by regulators during the statutory review period after the formal disclosure of the prospectus, requiring time-consuming responses from the company. Key actions include: First, the sponsor institution leads the formation of a cross-departmental compliance response team to prepare fully disclosed working papers that "exceed market expectations" regarding VIE structure responsibility allocation and employment flaws identified by effective judgments, avoiding selective disclosure that could trigger secondary inquiries; Second, proactively communicate phased results of compliance rectification to existing shareholders to stabilize secondary market valuation expectations and prevent loosening of valuation anchors due to information vacuums; Third, incorporate content safety and minor protection rectifications into the "business continuity" chapter of the prospectus, replacing qualitative statements with verifiable data (such as volumes of Violation notes cleaned up and algorithm optimization iteration records). Signals to watch: Monitor the specific number of items and wording intensity in HKEX inquiry letters, as well as whether the company's response cycle to the first round of inquiries exceeds the industry average (Source: simulation).

Scenario 2: Best Case – Full Disclosure Gains Recognition, Successful Hearing Within Window Period

This scenario assumes the company makes complete and transparent disclosures of historical compliance controversies in the prospectus, and recent content governance achieves verifiable results, with regulatory inquiries not touching substantial obstacles. Trigger conditions are receiving no major requests for supplementary materials within 60 days after formal submission, and domestic regulators issuing no new negative reports on content safety matters. Key actions include: First, highlight the narrative that "compliance costs have become explicit" in roadshow materials, transforming historical controversies into evidence of mature corporate governance to Strive for the upper end of the valuation range; Second, accelerate the landing pace of overseas businesses like Redshop to provide incremental support for the long-term valuation of a "global lifestyle platform" (Source: material); Third, lock in cornerstone investors early, leveraging the Hong Kong stock market recovery window (fundraising nearing $20 billion in the first half of 2026) to consolidate issuance certainty (Source: verified online, url: m.tech.china.com). Signals to watch: Monitor the issue price-to-earnings ratios and subscription multiples of similar tech stocks in Hong Kong; if sector heat persists and the company's inquiry responses receive positive feedback from regulators, this can be seen as a signal of an effective window period.

Scenario 3: Worst Case – Hard Compliance Flaws Compound Ecological Trust Crisis, Listing Process Substantially Stalls

This scenario assumes domestic regulators impose administrative penalties for content safety or data compliance issues, or previous executive whistleblowing is deemed a systematic disclosure defect, leading to suspended review by the Hong Kong Stock Exchange. Trigger conditions include regulatory inquiries involving substantial clauses of "non-compliance with listing qualifications," or authoritative media such as Xinhua News Agency exposing major content violation incidents again. Key actions include: First, immediately activate the listing suspension contingency plan, issuing voluntary announcements explaining reasons and rectification plans to avoid market speculation amplifying negative emotions; Second, the founder leads the establishment of a special governance committee for the content ecosystem, introducing third-party audit institutions to independently evaluate algorithm recommendation mechanisms and false information identification systems, forming a publicly available rectification roadmap; Third, re-evaluate valuation models; if explicit compliance costs render original growth narratives ineffective, proactively adjust financing scale or postpone listing to the next window period rather than forcing entry and accepting significant discounts. Signals to watch: Monitor whether domestic regulators issue targeted rectification notices or penalty decisions, and whether subsequent user trust survey data from third-party institutions such as iiMedia Consulting further deteriorates (the 63.01% churn rate data was not traced to its original source and serves only as a trend reference).

Supporting Action Recommendations

Regardless of which scenario unfolds, the following three tasks should be initiated immediately without delay pending regulatory results:

1. Establish a "stress test" mechanism for compliance information disclosure: Before formal submission, simulate the most stringent inquiry scenarios proposed by HKEX and CSRC, organizing internal legal teams, external lawyers, and sponsor teams for multiple rounds of defense drills to ensure consistent response Line of communication and complete chains of evidence for sensitive issues such as VIE structures, option disputes, and content governance.

1. Strengthen advance communication with complainants and brand partners: Simulations show that the core demands of complaining enterprises and brands are "specific case handling results" rather than "system-level investments" (Source: simulation). It is recommended to proactively report rectification progress to entities that have publicly questioned, such as Lijiang authorities and Dreame, before the prospectus release, striving for their understanding or at least reducing the probability of additional complaints during the review period.

1. Formulate a dynamic management plan for valuation expectations: Given the huge divergence in market valuation of Xiaohongshu ranging from $31 billion to $70 billion (Source: material), convey the expectation that "compliance discounts are already factored into pricing" to core investors through non-trading roadshows and closed-door analyst meetings prior to roadshows, avoiding sharp stock price fluctuations post-listing due to valuation gaps.

Materials and Sources

Verified Online Sources

• Behind a Whistleblower's Letter: Contradictions in Xiaohongshu's VIE Structure Disclosure May Hinder IPO Progress - Sohu
• The Shadow Over Xiaohongshu's Listing: When Strong Operational Performance Meets Heavy Whistleblowing by Former Employees - Tencent News
• Xiaohongshu's $31 Billion IPO, Chuangfu International Sends $9,000 to Support New Share Subscription - China.com

Material Sources

• finance.sina.com.cn
• wenxuecity.com
• cj.sina.cn