Tencent-backed social media app Soul, a metaverse dating platform popular with young people in China, is vying for a listing in Hong Kong after abruptly pulling a plan to sell shares in the US last year.
Soul’s owner Soulgate filed paperwork in Hong Kong this week revealing the company had racked up a loss of Rmb1.3bn ($194mn) last year on Rmb1.3bn of annual sales. Still, it has attracted tech giant Tencent, which bought a 49.9 per cent stake in the company starting from 2020.
The social app lets users pick avatars and interact in the metaverse, with many of its 32mn users flocking to its app for dating. Soul prides itself on algorithmically connecting users based on their personality and interests, a strategy also used by ByteDance’s TikTok, which is now among the most popular apps in the US.
Unlike traditional dating platforms, Soul users use avatars — that often resemble Japanese anime — instead of profile pictures. The app also includes games.
“You don’t have to post pictures, so you can just be yourself in front of total strangers and say whatever you truly want to say,” said one user, who asked to remain anonymous.
But the headwinds to a successful listing for Soul in Hong Kong are significant. Investors have largely dumped shares in unprofitable tech companies this year, and unpredictable regulations in China, especially for data rich consumer internet companies, could overshadow the growth story.
Wang Qingrui, an independent internet industry analyst, said Soul had cancelled its US listing after rival social app Uki took aim at its business practices last year, alleging unfair competition in a lawsuit.
The case arose from two Soul employees posting pornographic images on Uki’s platform, and then reported the company for violations, leading Chinese regulators to ban downloads of its app.
Soul said the two employees acted “without our authorisation” and are no longer at the company. The two employees were found guilty.
Wang expected Soul’s odds would be better this time. “Trying to list in this type of market, they must already be thoroughly prepared,” he said.
Last week, Chinese podcasting platform Ximalaya suspended its plans to raise just $100mn in Hong Kong after investors wary of more regulation rebuffed its sales pitch.
Chinese tech listings in the financial hub have largely evaporated due to a crackdown on the sector launched a year ago by Beijing. The country’s securities regulator has yet to release finalised rules to govern a new regime for share offers outside of mainland China.
Soul’s more than 1mn users could also make the company subject to a data security review by China’s much-feared cyber space administration, another regulatory hurdle with an unclear timeline.
In its Hong Kong listing application submitted on Thursday, the company said there “remains substantial uncertainty” as to whether it will need to go through a cyber security review or receive approval from the securities regulator.
Shanghai-based Soulgate suspended its plans to list in the US a year ago after filing with the US Securities and Exchange Commission to sell shares on New York’s Nasdaq stock exchange.
The suspension proved fortuitous. Just days later China’s internet regulator launched an unprecedented investigation into ride-hailing group Didi, as well as two other data rich internet companies which had recently sold shares in the US.
Didi’s apps remain suspended from app stores while the two other companies, Boss Zhipin and Full Truck Alliance, were finally allowed to begin signing up new users on Wednesday.
The SEC filings show the New York share offer and a concurrent private placement would have raised up to $257mn for Soul, which it planned to use to fuel further growth.
Underwriters for the cancelled US listing included Morgan Stanley and Bank of America, the latter of which is serving as joint sponsor for the Hong Kong IPO alongside state-run Chinese investment bank CICC.