Soulgate, the Tencent Holdings-backed operator of Soul, an app that helps China's Generation Z to make friends, has filed for a listing in Hong Kong after last month officially ending its plan for a US initial public offering.

Soulgate's market debut will be a test of whether investors have appetite for a business based on lonely hearts and China's fickle but digitally-savvy youth.

Since its launch in 2016, Soul has gained popularity among China's Gen Z, which includes teenagers and those in their early 20s, allowing like-minded users to connect quickly. According to a prospectus filed last week, the app made a loss of 1.32 billion yuan (US$197 million) in 2021 and has 9.3 million daily active users.

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Li Chunjiao first met the man who became her husband on a digital square - which resembles Instagram's Explore - in the Soul app in 2020. Her first comment was: "I think you look great". They started chatting and then exchanged contact details. They talked for hours on the phone over the next few months before finally meeting in person for the first time.

"I was single and stressed out from work when I first started using Soul in 2018, I also had a paid membership to see how many people visited my profile," said Li.

However, after she got married, both Li and her partner stopped using the app - and this is a love-hate reality that Soulgate has to contend with when it comes to its user base.

Love, because a successful coupling strengthens the company's brand image as a place where you can find a life partner; hate, because once the user has achieved his or her goal, they stop using and paying for the app.

Soul is marketed as an "algorithm-driven virtual social playground where people can create, share, explore and connect". Unlike other well-known dating apps such as Tinder or Coffee Meets Bagel, Soul does not ask users to upload their photos, or to swipe left or right.

Users who want to talk can match with other strangers online and start a conversation via text or phone - and who you match with is completely decided by an algorithm, based on your specific interests and location.

The app has not escaped the impact of China's regulatory crackdown on the internet though.

In 2019, Soul was taken off the market for three months under orders from the Cyberspace Administration of China for allegedly spreading information that contains "soft porn". And the company's aborted plan for a Nasdaq listing was dogged by media reports that users had complained about verbal sexual harassment of underaged users on the platform.

Meanwhile, Soulgate is being sued by rival social media app Uki, which accused it in 2021 of unfair competition. Uki said two Soulgate employees posted pornographic images on Uki's platform, and then reported the violation. As a result, Uki was taken down from app stores for three months. The two employees were found guilty but they acted "without our authorisation", Soulgate states in its Hong Kong prospectus, adding that the case is still pending and the plaintiff is asking for 26.9 million yuan in compensation.

The lawsuit may slow down Soul's IPO process, said Zhu Xiaowen, an analyst at research firm LeadLeo. "If [the lawsuit becomes a problem] Soul may miss the best timing to go public, and three years of continuous losses may turn off investors," said Zhu.

It is now also offering Clubhouse-like audio chat rooms, which requires users to verify their real ID before they join. Each room has a topic to discuss, such as "let's talk about things that you can't share in your real life" or "why girls are only interested in love but not marriage".

One user, who is a member of the LGBT community and asked not to be identified for personal reasons, started using Soul at the end of 2019, when Covid-19 began to sweep across China. He said he mostly uses it for phone sex, and appreciates how each user can remain unknown to the other.

China's strict zero-Covid policies, including mass lockdowns, have fuelled demand from young people stuck at home in quarantine to connect with others online. Between 2019 and 2021, Soul's monthly active users almost tripled from 11.5 million to 31.6 million, according to company information.

As of the end of 2021, its 9.3 million daily active users spent an average 45.3 minutes on the app every day, representing a 55.8 per cent year-over-year increase, according to Soulgate's prospectus.

From 2019 to 2021, the company's annual revenue was 70.7 million yuan, 498 million yuan and 1.281 billion yuan respectively. It reported a total net loss of 2.2 billion yuan for the three years combined, according to its prospectus.

LeadLeo's Zhu said Soul's monetisation channels remain limited.

"Soul's commercialisation capability remains weak ... without constant innovation, it is difficult to attract inherent groups to recharge," said Zhu.

But other analysts take a brighter view.

"At this stage in the metaverse journey, it is a challenge for anyone to break even," said Mark Tanner, managing director at Shanghai-based agency China Skinny. "I expect that transactions will naturally increase in the later stages with insights, more users, and as greater competition among users encourages more spending and demand for exclusive experiences."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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