Summary of Key Points
The sudden decline in the popularity of Pop Mart's super IP, Labubu (which contributed 38% of revenue in 2025), has triggered a chain reaction: premiums for limited-edition items on the secondary market have dropped from 25 times to 5 times; regular-priced items have fallen in price within half an hour of release; both online and offline sales have declined (by 5% in China in May, and credit card spending in the US fell by 40% in the second quarter); inventory has surged (reaching 5.473 billion units by the end of 2025, a year-on-year increase of 259%); and the stock price has halved since its peak in August 2025. Investors' main question is: Is Pop Mart still worth investing in without another Labubu? The answer depends on whether the company can break free from its dependence on a single IP and develop a "platform-based capability"—that is, to enable mid-tier IPs to thrive independently, incubate potential IPs on a larger scale, and build loyal customer bases across various channels (where customers recognize the brand as a whole, not just a single product). Otherwise, the company's valuation could further decline.
I. The Decline of Labubu: From a "Social Currency" to a "Commodity"
The downfall of Labubu is not accidental but a result of two factors: the erosion of its scarcity and the loss of its core fan base:
- Secondary Market Impact: Premiums for limited-edition items have dropped significantly, from 25 times to 5 times; regular-priced items have fallen in price rapidly. Goldman Sachs reports that most products were sold at or below their list prices in May—similar to how limited-edition sneakers become commonplace and no longer command high prices.
- Overproduction Accelerates the Decline: To curb scalping and make products more accessible to fans, Pop Mart increased production. As a result, Labubu has transformed from a scarce item on social media into a mass-produced plastic toy, losing its appeal as a unique cultural artifact.
- Core Fans Drift Away: Hardcore enthusiasts of trendy toys prefer niche and less popular items. Once Labubu became a mainstream hit, they moved on to other less well-known IPs, weakening the IP's cultural foundation.
II. The Three Fatal Hits of Relying on a Single IP
Labubu was not just 38% of the company's revenue; it was the main driver of customer traffic. Its decline has had three major consequences:
1. Direct Revenue Loss: The company lost a revenue source worth 14.16 billion yuan.
2. Loss of Traffic Generation: The free traffic generated by Labubu (e.g., through celebrity endorsements) is no longer available, increasing customer acquisition costs.
3. Inventory Overload: Excessive production to accommodate demand for Labubu led to a surplus of 5.4 billion units, which now needs to be sold at discounted prices, eroding profits.
Worse still, the users attracted by Labubu were transient: they only bought Labubu and did not become loyal to other Pop Mart products. The CEO admitted, "These users are not familiar with trendy toy culture and will leave once the hype fades."
III. Building a Platform-Based Capability: Pop Mart's Lifeline
To break free from dependence on a single IP, the company needs to develop three key capabilities:
1. Mid-Tier IPs' Sustainability: Can IPs like SKULLPANDA and MOLLY maintain sales without Labubu's support? This depends on two factors:
- The lifespan of each product line: can they continue to sell naturally even six months after release, rather than relying on frequent new releases?
- Customer behavior with other IPs: Do customers who buy these products have healthy purchase habits and repurchase rates?
2. Innovation of Potential IPs: Are there mid-tier IPs with annual revenues of 100-500 million yuan? These IPs should not rely solely on promotional efforts from the company (such as app notifications or prominent store displays); instead, designers need to build their own fan bases through external channels. It's also important to see if designers stay with the company long-term—like Vinicius Costa, who left after achieving annual sales of over 100 million units.
3. Channel Development: Can Pop Mart become a platform like Sephora for trendy toys? Customers should visit the store for the brand itself, not just for specific products. If stores continue to attract customers even when there are no new releases, it indicates that customers recognize the Pop Mart brand as a whole.
IV. Three Possible Valuation Outcomes
The current PE ratio of 14 times reflects market uncertainty:
- Pessimistic Scenario: If Labubu's popularity declines and other IPs follow suit, with overseas growth stalling, the company's valuation could approach that of FUNKO (with a lower PE ratio).
- Neutral Scenario: If Labubu's popularity fades but mid-tier IPs perform well, with revenue growing by 15-20%, the valuation could be similar to that of Sanrio (with a PE ratio of around 15-20 times).
- Optimistic Scenario: If multiple mid-tier IPs attract customers and the company can develop local IPs overseas, as well as leverage big movies to attract new users, the valuation could rise to 25-30 times, indicating a platform with strong emotional appeal.
V. Key Indicators for the Next Six Months to Two Years
To assess Pop Mart's future, watch these indicators:
- Short-term (6-12 months):
- The number of items sold on platforms like Xianyu that fail to meet their initial price targets: If more than 70% of new products do not sell at their expected prices, it indicates a decline in market interest.
- Online customer spending patterns: If online sales are lower than offline sales, it suggests that existing customers are leaving the brand.
- Growth rates: A negative growth rate would indicate that the strategy of attracting high-end customers through Labubu is no longer effective.
- Long-term (24 months):
- The proportion of revenue from local IPs in key markets (e.g., Southeast Asia, Europe, and America): If local IPs account for more than 50% of sales, it shows that overseas markets are not just a dumping ground for Chinese hits.
- The impact of big movies: Can the company attract non-trendy toy enthusiasts to its stores, and do customers buy products beyond the movie's main characters? If so, its content strategy is effective.
VI. The Real Game Changer: More Than Just the Next Labubu
The real value of Pop Mart lies in its ability to create sustainable mid-tier IPs independently. This includes retaining designers, building strong fan bases for IPs, and establishing a brand that attracts customers beyond a single product. If it can achieve this, the company can emerge from the current valuation uncertainty (14 times PE). Otherwise, its valuation could drop significantly. The current 14 times PE ratio represents the market's last chance to see if Pop Mart can transform from a product-driven business into a platform with lasting appeal.
(End of Analysis)