Pop Mart craze cools down: Scalpers stop stockpiling, Labubu premium myth is collapsing

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The once scorching "Labubu economy" is facing a severe test. As the premium capacity of the secondary market significantly fades, the halo of Pop Mart, a darling of the capital market, is fading. Investors are beginning to re-examine whether this Chinese toy manufacturer can sustain its high-growth myth and whether its core IP is merely a short-lived trend.

According to Bloomberg, after media reports revealed waning demand from resellers ("scalpers") for Labubu toys, Pop Mart's stock fell as much as 6.2% on Tuesday, marking the largest drop in three weeks and becoming one of the worst-performing stocks in the MSCI Asia Pacific Index.

The immediate trigger for the sell-off was reports that sharp price fluctuations in China's secondary market signaled weak demand, causing some scalpers to suspend their hoarding activities.

This development badly damaged market confidence. Since peaking in August this year, Pop Mart’s share price has fallen about 44%, with its market value evaporating by more than $25 billion. Previously, boosted by the popularity of Labubu dolls, the company staged one of the most dramatic rebounds in the recent market. Although its stock price has still more than doubled this year, recent data shows signs of underperformance, both in domestic resale prices and overseas holiday sales.

Kenny Ng, a strategist at Everbright Securities International, pointed out that investors cannot shake worries about cooling product popularity, and reports of weakening demand often heavily hit share prices. Currently, the key market concern is whether the grinning monster that drove Pop Mart's 3200% rebound from its 2022 low is a long-lasting IP that can withstand the test of time, or simply a fast-fashion product whose shelf life has come to an end.

The Disappearance of Second-Hand Premium and Scalpers’ Exit

As an early warning indicator of the collectibles cycle, secondary market price fluctuations are the most sensitive.

Toy resale platform QianDao shows that the average prices of the full mini Labubu set or the "Sitting" series have dropped below the official retail price.

On U.S. resale site StockX, although Labubu still dominates collectibles, its premium myth is collapsing. The "Sitting" series, once speculated up to nearly $400, now sells for about $110, far below its $168 retail price; premiums for some rare editions have also shrunk sharply from their June highs.

This price inversion has directly led to scalpers leaving, which in turn affected investor sentiment. Jeff Zhang, an analyst at Morningstar, said some investors may be rotating out of China’s "new consumption" stocks to lock in profits. Fellow sector stocks Lao Pu Gold and Mixue Bingcheng also fell to varying degrees on Tuesday.

Slowing Growth and "Beanie Baby" Risks

In addition to the cooling resale market, Pop Mart’s overseas expansion has also faced doubts. According to data from New York analytics firm YipitData, as of December 6, Pop Mart's North American revenue growth slowed to 424% for the quarter, half the rate for the three months ending September. Although the company made aggressive marketing moves in the U.S., including Macy's Thanksgiving Day Parade and Empire State Building tours, its Google search interest has continuously cooled since peaking in summer.

Disappointing U.S. Black Friday performance, along with waning resale demand, reminded the market of the collapse of the 1990s "Beanie Baby" bubble. This also challenges the narrative of whether Pop Mart can become the "Chinese Walt Disney" or the Sanrio (parent company of Hello Kitty) of China.

S&P Global data shows that since November, short bets against the stock have tripled, reaching the highest level since August 2023.

Richard Lin, Chief Consumer Analyst at Puyin International, said: "The market is very focused on Pop Mart’s short-term data. The biggest question is, if it cannot maintain extremely high year-on-year growth by the end of the year, can it still achieve growth next year under the high base effect?"

Valuation Disputes and Diversification Attempts

Facing market doubts, some institutional investors are choosing to wait and see. Kevin Net, Head of Asian Equities at Financiere de L’Echiquier, said market sentiment has clearly turned negative; although valuations were not expensive in late September, there are now many questions about future EPS, so he chose to wait for an opportunity to re-enter.

EFG Asset Management fund manager Daisy Li also admitted that since Labubu is a non-essential consumer good and fundamentally difficult to model, it is hard to build firm investment conviction.

However, sell-side analysts remain generally optimistic, with the average 12-month target price about 84% higher than the latest closing price. Morgan Stanley’s Dustin Wei and others wrote in a report that although short-term profit-taking and pullbacks are normal, pushing the stock down to a bottom valuation seems "premature" and unreasonable. They think the market has overlooked the long-term expansion of Pop Mart’s recurring customer base.

To address the risk of reliance on a single IP, Pop Mart is betting on other IPs such as Crybaby, Twinkle Twinkle, and Hirono, and actively branching into the entertainment industry, including opening a theme park in Beijing, signing a movie development agreement with Sony Pictures, and launching a jewelry brand, POPOP.

But Xiadong Bao, Fund Manager at Edmond de Rothschild Asset Management, warned that the biggest current concern is whether Labubu and its top IPs are losing momentum; if Labubu sales decline, other characters "may not be enough to compensate and sustain the strong momentum already priced into the shares."

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