One year after the termination of the US stock market listing, Soul chose to go public in Hong Kong. On the evening of June 30, Soulgate, the operator of the social platform Soul, submitted an application for listing in Hong Kong stocks, with Bank of America Securities and China International Capital Corporation as the joint sponsors. Soul publicly disclosed its Nasdaq listing application in May last year. On June 23 of the same year, Nasdaq suspended Soul’s listing during the IPO pricing process.
Tencent is Soul’s largest shareholder, holding 49.9% of the shares. At present, nearly half of the voting rights are in the hands of Soul founder and CEO Zhang Lu. Six years after its launch, Soul’s revenue in 2021 reached 1.281 billion yuan, a year-on-year increase of 157.3%. As of the end of 2021, Soul has accumulated a loss of 2.53 billion yuan.
In 2021, Soul’s monthly active users (MAU) reached 31.6 million. And the daily active users (DAU) was 9.3 million. As an Internet platform with a large number of users, there are various issues. For example, data security compliance, algorithm management, and minors’ privacy protection are also future risk factors.
94% of revenue comes from virtual item sales and membership fees
Soul’s parent company Shanghai Yimen Technology Co., Ltd. came into existence in 2015 and launched Soul in 2016. In 2018, the number of daily active users exceeded 1 million, and the peak daily active users in 2021 exceeded 10 million.
Firstly, revenue status.
According to the prospectus, from 2019 to 2021, Soul’s income was 70.707 million yuan, 498 million yuan and 1.281 billion yuan respectively. The income in 2020 increased by 6 times on the basis of 2019, and the income in 2021 increased by 157.3% year-on-year. .
With the increase in revenue, Soul’s gross margin improved from 48.6% in 2019 to 85.2% in 2021.
Secondly, still at loss.
Soul is currently in a state of loss, and its net loss has expanded from 353 million yuan in 2019 to 1.324 billion yuan in 2021, and the loss in 2021 will expand year-on-year.
Thirdly, income source.
Soul’s main source of income is value-added services, mainly including the sale of virtual items and membership subscription services. In 2021, the value-added service revenue was 1.202 billion yuan, accounting for 93.9% of the total revenue.
In 2020, Soul further promoted commercialization and increased advertising services. Soul’s advertising revenue in 2020 and 2021 was 12.766 million yuan and 77.864 million yuan, accounting for an increase from 2.6% to 6.1% of total revenue.
Fourthly, diversified business.
Soul has opened the path of diversified business realization. In the first quarter of 2021, Soul added the ‘good things mall’ business, and the exchange of gifts between users increased physical gifts. This function is directly embedded into the user chat box column, which is as convenient as virtual item purchase. In 2022, Soul introduced the 3D video party room function in the APP.
According to the prospectus, Soul founder and CEO Zhang Lu holds 28.5% of the shares through Soulgate Holding Limited and has 49.9% of the voting rights. Zhang Lu, 37 years old, graduated from Sun Yat-Sen University, served as CEO from 2009 to 2015 after serving as a consultant for Innext China. Earlier, she worked at Nielsen from 2008 to 2009.
How to retain Gen Z
In 2021, the number of monthly active users of Soul was 31.6 million, an increase of 51.6% on the basis of 2020. And the number of daily active users was 9.3 million, an increase of 55.8% compared with 2020. Prior to 2020, both of these figures increased by more than 80% on the basis of 2019.
Firstly, focused Gen Z
The prospectus mentioned that in 2021, 74.9% of monthly active users was Generation Z (groups born after 1995). Soul prospectus quoted iResearch data, as of December 31, 2021, the total number of users of Gen Z mobile social network was 330 million, accounting for 34% of the total number of social network users in China. Data shows that in 2021, the size of China’s generation Z mobile social network market is 93 billion yuan, and it will probably maintain a compound annual growth rate of 24.3%.
Secondly, attract Gen Z
Soul mentioned several labels for the platform to attract young people in the prospectus, including virtual identity, interest attraction, immersive creative tool development, content decentralized traffic distribution, etc. The prospectus shows that in 2021, the response rate of Soul’s posts will exceed 91%. Soul is also experimenting with adding gamified experiences to boost user retention. According to the prospectus, the average monthly user retention rate for three months in 2021 is 79.1%. In 2021, the time spent on Soul APP by each daily active user will be 45.3 points.
Soul’s paying users and average monthly revenue per paying user are increasing. Average monthly paying users will increase from 268,900 in 2019 to 1.7 million in 2021. From 2019 to 2021, the average monthly income from each paying user is 21.9 yuan, 43.5 yuan and 60.5 yuan, respectively. Soul payment rate in 2021 is 5.2%.
Thirdly, nreleased potential
There is still room for Soul’s monthly active users and payment scale to compare with the same industry. In the same industry, Zhiwen Group, the parent company of Momo and Tantan, in the first quarter of 2022, the total number of paid users of live broadcast services and value-added services reached 11.1 million (including 2.4 million paid users of Tantan). In March 2022, the monthly active users of the main Momo app were 110.9 million, and the monthly active users of the Tantan app were 25.6 million.
It’s not difficult for Soul to make money, said Zhang Yi, CEO of iiMedia Research, told the Economic Observer Network reporter that the main reason is that its user stickiness is good, and virtual change is not a problem in the future.
Fourthly, competitor view
However, Momo and Tantan saw a decline in the number of paying users from the fourth quarter of last year to the first quarter of this year. This is also the problem faced by anonymous social apps after the growth period.
In terms of cost expenditure, Soul’s sales and marketing expenses in 2021 reached 1.513 billion yuan, 1.18 times of total revenue; Meanwhile, technology and development expenses reached 414 million yuan, accounting for 32.4% of revenue; In addition to that, administrative expenses reached 200 million yuan, accounting for 15.9% of revenue.
Compliance challenges
Firstly, major risks
In Zhang Yi’s view, social platforms such as Soul also have some major risks. On the one hand, it is the uncontrollable social interaction of strangers, which leads to the breeding of chaos. On the other hand, the current supervision and level of the virtual world are still relatively weak. This kind of growth risk is something Soul needs to consider.
Secondly, scams before
There have been many scams on Soul before. In January 2021, a girl from Jiangsu, was defrauded of 610,000 yuan by a netizen who she met on Soul. In December 2020, there were 11 cases in Kunming City of being deceived by meeting strangers on the Soul platform.
The content governance and privacy issues involved in the protection of minors are also part of the platform’s compliance. In June 2019, Cyberspace Administration of China carried out the special rectification of online audio. There are 26 apps including Soul were subject to step-by-step penalties such as interviews, removals, and service closures. Soul was suspended until early September 2019. Downloads were resumed after completing minor protection improvements. In July 2019, it was discovered that there were data privacy deficiencies. After that Soul received a written notice from the special governance of the APP, requesting rectification, but no penalty.
Soul also mentioned that there is still significant uncertainty about whether a Hong Kong listing will be subject to cybersecurity scrutiny.Deep Digital China will follow up and continue with reports on Soul’s listing.