Jealousy over Pop Mart, the Hong Kong-listed Chinese toy maker whose Labubu dolls went viral and swept across the globe, is starting to get a rough awakening.
The toy maker’s shares dropped once again on Friday, saddled by intensifying regulatory pressure from Chinese state media and a strategic downgrade by global investment bank Morgan Stanley.
What was once China’s sweetheart for toys and collectibles, Pop Mart, is now a global phenomenon for its creative “blind box” business model. Consumers spend between $10 and $5 in sets of boxes to buy coveted figurines, a cyclical consumption behavior conditioned by younger consumers. The same business model now has the government increasingly worried.
Last week, People’s Daily, the government mouthpiece of the Chinese Communist Party, published a highly critical editorial calling for greater regulation over the blind box fad. Without directly mentioning Pop Mart, the article faulted the unmatched speed with which unchecked collectibles are spreading among children and young adults. The article cited money loss and addiction to behavior brought by these blind boxes and called for the government to act.
Pop Mart issues were also beset by Morgan Stanley delisting the shares from its Hong Kong and China focus list without giving a full reason. This follows just a few days ago when the investment bank upgraded the company’s target price to 302 HKD from 224 Hong Kong dollars, acknowledging its decent performance and long-term potential.
Despite this, Morgan Stanley analysts were concerned with the firm’s valuations. They cautioned that although Pop Mart’s growth in 2025 will be recognized, its longer-term trend is not that obvious. Since the share price has been at a higher level of 283.40 HKD for some time during the last week, the analysts are apprehensive about the enormous returns failing to be repeated in subsequent periods.
As of Friday, Pop Mart shares fell more than 5 percent, after falling 5.3 percent the previous day. This is the company’s first week of falls since May, wiping out more than 13 percent of its value in two trading days. However, its stock price remains up more than 160 percent year to date.
Aside from regulatory problems and investor repricing, the Labubu brand is a global phenomenon. The niche personality launched as a marketing gimmick has become a mass consumption phenomenon worldwide. Newspapers, including The New York Times and New York Magazine, are currently writing about the trend. The company has profited from merchandising Labubu-themed items like pillows and life-size statues. A four-foot-high Labubu fetched as much as $170,000 at a Beijing auction.
Pop Mart later aggressively went international, too, opening physical stores and websites in the United States, the United Kingdom, and Asia. Thus, international sales in 2024 totaled 5.1 billion yuan, more than what the company earned in 2021. Domestic sales within China were 7.97 billion yuan for the same year, making Pop Mart a top foreign toy brand.
But with all those ginormous numbers, the analysts are still unconvinced that Pop Mart can sustain the momentum. WPIC Marketing + Technologies CEO Jacob Cooke is a cynic who believes the firm has benefited from a string of good fortune and not a clever strategy. As hip as the brand is, perhaps, Cooke cautions that toy fads pass quickly. He pointed to previous waves of consumer frenzy, such as the mania for capybara plush toys, as proof that everything is short-lived.
Pop Mart stands at a crossroads. No matter how strong the demand and global renown rise, more government oversight and weaker investor demand might weigh upon it in the long run. It must now reconcile its web-celebrity-driven popularity with a sustainable, regulation-compliant business model that can weather market trends and regulatory regimes.
