The fourth IPO, Soul no longer talks about the metaverse

In 2014, Momo, dubbed the "first stock of stranger social networking," was listed on NASDAQ, opening a chapter in the capitalization of stranger dating applications in China. Since then, new generation dating applications such as Soul, Tantan, and Yidui have sprung up like mushrooms after rain.

Now, ten years have passed, and Tantan has chosen to sell itself to Momo's parent company, Hello Group (MOMO.O), for $760 million, while Soulgate Inc. (hereinafter referred to as "Soul") and Yidui's parent company, Milianketech Co., Ltd. (hereinafter referred to as "Milianketech"), have both launched a sprint towards the Hong Kong stock market.

Compared to Milianketech's core application Yidui, Soul's target demographic is more inclined towards young people.

Soul's monthly active users are several times that of Milianketech, reaching an average of 26.2 million by the end of 2024, more than three times that of the latter.

However, the revenue scale of both is comparable.

In 2024, Soul's revenue was 2.211 billion yuan, nearly on par with Milianketech's 2.373 billion yuan.

This reflects Soul's predicament of having lower commercialization efficiency compared to its peers. In fact, its exploration of commercialization prospects has always been wavering.

During the peak of the metaverse craze in 2022, Soul changed its slogan to "The Social Metaverse for Young People," and in its 2023 Hong Kong IPO prospectus, it even linked its growth potential to the metaverse.

Soul's founder, Zhang Lu, spoke extensively about the metaverse in interviews, claiming that "Soul is the application closest to the metaverse experience among mobile applications."

However, less than two years later, under the influence of the AI boom, Soul's latest prospectus no longer mentions the metaverse but instead embraces AI, positioning itself as an "AI + immersive social platform."

Nevertheless, Soul's shareholder lineup is quite strong, with Tencent still holding a stake of up to 49.9% as a strategic investor.

From Metaverse to AI

Soul is already a "veteran" in the battle for listing.

As early as 2021, Soul attempted to go public in the U.S. but ultimately chose to withdraw its application. It subsequently submitted applications to the Hong Kong Stock Exchange in 2022 and 2023 but has yet to succeed.

With this submission, Soul is making its fourth attempt at an IPO.

Comparing the previous attempts at the Hong Kong IPO prospectus, there have been some changes in Soul's business description.

In the prospectuses submitted in 2022 and 2023, Soul positioned itself as a social metaverse and pointed out that the pioneers of the social metaverse would form strong competitive barriers and are expected to stand out in future competition.

However, the term "metaverse" no longer appears in this prospectus; instead, it has donned the guise of AI and emotional value, positioning itself as an "AI + immersive social platform," and describing the virtual goods purchased by users for additional features and subscription fees as "emotional value service fees." In fact, the essence of Soul's business has always remained unchanged, which is to match strangers based on users' interest graphs and provide channels for making friends.

During the matching process, Soul users can enhance their recommendation opportunities by purchasing virtual items within the app or paying membership fees, which constitutes its main source of revenue.

"Users can purchase Soul coins or subscribe to become members to unlock advanced emotional value services, including various virtual items and membership privileges on our platform," Soul stated.

From 2022 to 2024, Soul's revenue from C-end user recharges (emotional value business) is projected to be 1.519 billion yuan, 1.667 billion yuan, and 1.969 billion yuan, accounting for 80-90% of total revenue.

With the changes in the business description in the prospectus, Soul's predictions regarding industry growth have undergone significant changes.

Soul originally viewed the development of the metaverse as a growth driver for future mobile social networks.

"The social metaverse is expected to drive the growth of open mobile social networks by bringing users into a broader digital realm and providing further engagement," Soul pointed out in the 2023 version of the prospectus.

However, Soul now associates its future growth potential with "AI + immersive emotional economy"—Soul cites Frost & Sullivan data, indicating that the market size of China's "AI + immersive emotional economy" will be 7.1 billion yuan in 2024, expected to reach 90 billion yuan by 2030, with a compound annual growth rate of 52.8% during this period.

However, behind the modification of the business description, Soul has indeed launched its self-developed SoulX and AI-driven recommendation system, but its more critical driving force may still stem from the sustained popularity of AI.

In fact, this year, aligning business descriptions with AI has become a common practice for many Hong Kong stock IPO projects.

Shenzhen Huaxida Technology Co., Ltd. (hereinafter referred to as "Huaxida"), which is sprinting for a Hong Kong IPO, has promoted the "AI Home" concept, but its core product is just a TV box.

In July of this year, the Securities Regulatory Commission mentioned in its feedback on Huaxida's overseas listing filing, "Please explain your company's business model in simple and understandable language."

However, the AI-driven recommendation system behind Soul primarily combines geographical location for matching recommendations.

According to tests conducted by Xin Feng, although Soul categorizes users into corresponding ranges based on MBTI personality type tests during registration, it still incorporates factors such as geographical location to facilitate user matching.

For this IPO, Soul plans to use the raised funds to further enhance its capabilities in AI, GPU, and data analysis. (Screenshot of XinFeng's actual test)

Urgent Need for Monetization

From the product design perspective, there are indeed certain differences between Soul and its competitors.

For example, MiLian Technology's YiDui primarily relies on the analysis of user relationship chain data, matching users based on information such as age, lifestyle preferences, and relationship intentions, and introducing matchmakers to facilitate video interactions, focusing on the lower-tier market crowd;

Soul, on the other hand, creates a more private space where users do not need to display their real names, appearances, or social labels, facilitating communication between strangers through algorithms like interest graphs, targeting the Z generation (people born between 1990 and 2009).

Compared to similar apps, Soul's advantages mainly lie in its higher gross profit margin and a large scale of active user base.

The advantage brought by Soul's algorithmic matching mechanism is a higher gross profit margin, reaching 83.7% in 2024, exceeding MiLian Technology by over 38 percentage points and slightly higher than Tinder's parent company MATCH (MTCH.O).

Even so, Soul is still not profitable, with a net loss of 149 million yuan in 2024.

This is mainly affected by the betting agreement.

Soul issued redeemable shares to investors as a bet on going public, forming a certain scale of financial liabilities. The change in the book value of redeemable shares and redemption obligations in 2024 reached 431 million yuan.

If this data is excluded, Soul's operating profit in 2024 could reach 295 million yuan.

Soul's active user scale also surpasses that of MiLian Technology, with an average monthly active user scale reaching 26 million by the end of 2024, while MiLian Technology only has about 30% of the former.

Despite having a large user base, monetization for Soul is not easy, with a payment ratio of only 6.3% in 2024, which is over 5 percentage points lower than MiLian Technology.

Perhaps realizing that the monetization effect brought by large-scale user acquisition is not impressive, Soul has reduced its marketing costs.

In 2024, Soul's sales and marketing expenses amounted to 889 million yuan, accounting for 40.2% of its revenue, a reduction of over 10% compared to 2022.

According to XinFeng's actual test, Soul is indeed "racking its brains" for commercialization.

Soul offers various virtual cards for user matching, such as positioning cards and time cards. For example, with a positioning card, users can pay to modify their location to match users from other cities; the time card provides a green channel for users to filter matches based on age; even the speed of matching between users can be accelerated through the purchase of acceleration cards.

How to continuously improve monetization efficiency while adhering to its core positioning has become a core issue that Soul faces in the long term.

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