Pop Mart's stock plunged after earnings: Is it over-reliance on Labubu, or can the company continue to incubate new IPs?

At noon on March 25, Pop Mart released its full-year results for 2025: revenue of 37.12 billion yuan, a year-on-year increase of 184.7%; net profit attributable to shareholders of 12.8 billion yuan, a year-on-year increase of 309%. In the afternoon trading session, the share price plummeted by 22.5%, closing at HKD 168.3, with trading volume ten times the daily average.

However, an annual report showing a threefold increase in net profit was met with a sell-off that cut the stock price in half. What the market is selling and what the annual report says are worth examining side by side.

Summary:

– The core reason for the market sell-off is that revenue of 37.1 billion yuan was slightly below the consensus expectation of 38 billion yuan, coupled with the concentration of THE MONSTERS series accounting for 38.1% of total revenue. Investors believe the company has yet to prove its ability to 'move away from Labubu dependency.' High concentration is indeed a fact, but the annual report also showed another side: the Star People line grew from 120 million yuan in 2024 to 2.06 billion yuan, an increase of 1602%, a hit deliberately created by Pop Mart; additionally, there are five IPs with annual revenues exceeding 2 billion yuan and 17 exceeding 100 million yuan, indicating that the breadth of the company’s IP portfolio is expanding.

– Full-year revenue from plush products reached 18.7 billion yuan, accounting for 50.4% of total revenue, surpassing collectible figures for the first time to become the largest contributor to the company’s income. Collectible figures follow a logic of collection and low-frequency consumption, while plush products are driven by companionship needs and high-frequency repurchase. Pop Mart is transitioning from being a 'collectibles company' into an 'emotional consumer goods company,' where the latter offers much higher ceilings and repurchase rates, and demonstrates that the age range of the company’s customer base is broadening, an important change ensuring future growth.

– Based on the FY2025 net profit attributable to shareholders of 12.8 billion yuan, the current share price of 168.3 Hong Kong dollars corresponds to approximately 15 times PE. As fellow IP platform companies, Sanrio trades at 26 times and Nintendo at 28 times, yet these two companies have much lower net profit margins than Pop Mart. The company's current share price is clearly undervalued, with the market pricing an 'IP factory' using the framework of a 'trendy brand'.

This isn’t the first time Pop Mart has been punished despite strong performance; it’s genuinely a bit unfair.

Last October, the company released its Q3 operating data showing overall revenue growth of 245%-250%, but the stock plummeted 8% on the same day and dropped another 9% two days later. In January this year, management stepped in with a 2.51 billion Hong Kong dollar buyback, stabilizing the share price. From last year’s high of 339.8 Hong Kong dollars to today’s 168.3 Hong Kong dollars, the price has been halved. Over these seven months, as performance steadily improved, the stock price consistently fell, creating an ever-widening scissors gap.

Fast forward to today, the trigger for the sell-off is quite specific: revenue came in at 37.1 billion yuan, nearly 900 million yuan below the market consensus of 38 billion yuan. Moreover, THE MONSTERS account for 38.1% of total revenue, which has made investors even more anxious about an old question – after Labubu, what will drive Pop Mart’s growth?

Wang Ning didn’t avoid addressing this anxiety during the earnings call this afternoon. He likened 2025 to a novice race car driver being thrust into an F1 race and characterized 2026 as “entering the pit stop for refueling and tire changes,” providing guidance of no less than 20% growth. Not pursuing aggressive top-line growth without profit, the drop from 185% to 20% in growth rate itself is one of the sources of panic.

A company whose CEO proactively chooses to step on the brakes is far safer than one forced to slow down.

Furthermore, even if the high concentration is factual, breaking down THE MONSTERS’ data shows that the market’s fear of “Labubu cooling off” hasn’t materialized. Full-year revenue was 14.16 billion yuan, with 4.81 billion in H1 and 9.35 billion in H2 – nearly double the first half. This single IP series’ annual revenue surpassed more than twice Pop Mart’s total revenue in 2023.

The 38.1% concentration isn’t because other IPs are weak, but rather because Labubu has reached an unprecedented level of strength in history.

In our view, what deserves closer inspection more than THE MONSTERS is Little Star People. Its significance doesn’t lie in the 2.06 billion yuan figure itself but in how it came about. Labubu’s explosive popularity involved some luck, including product endorsements by the Thai princess, social media virality, and celebrity effects. However, Little Star People’s success followed a different path. Starting from zero when Pop Mart signed the IP in August 2024, they gradually built it up to the 2 billion yuan scale through theme park character interactions, charity marketing, and collaborations on Douyin.

This is a meticulously crafted blockbuster hit.

In retrospect, the market's anxiety boils down to a qualitative question: Is Pop Mart a 'trendy brand' or an 'IP company'? If it’s a trendy brand, then the concentration of IPs becomes a fatal flaw—once Labubu cools off, there won’t be a second growth curve. But if it’s an IP company, the logic changes entirely; the value doesn’t lie in the success of a single product but in the industry chain itself.

The success of Little Star proves that this industry chain can proactively create blockbuster hits. SKULLPANDA grew by 170.6% to 3.54 billion, CRYBABY grew by 151.4% to 2.93 billion, and DIMOO grew by 205.3% to 2.78 billion. None of these IPs are named Labubu, yet they’re all accelerating. Wang Ning made a noteworthy statement during the earnings call: even without LABUBU last year, Pop Mart still experienced super rapid growth. President of China Operations, Chu Yin, provided more specific data, stating that across all categories in the Chinese market, LABUBU accounts for only about one-third, while 70% of revenue is driven by multiple IPs and categories.

More importantly, from a financial data perspective, Pop Mart has proven its ability to operate IPs globally rather than just domestically. The company’s overseas revenue for the full year reached 16.27 billion, increasing its share from 31.8% to 43.8%. Revenue from the Americas surged from 800 million to 6.81 billion, a staggering 748.4% increase. Domestically, the total number of members reached 72.58 million with a repurchase rate of 55.7%. And this rapid expansion did not come at the expense of profit quality—the company maintained a gross margin of 72.1% and a net margin of 35.2%, with 17.2 billion in net cash on hand and zero bank loans.

Of course, the company’s performance isn’t flawless. Inventory turnover days increased from 102 to 123, and inventory growth outpaced cost growth—a key metric consumer-focused companies need to monitor closely. In the US market, where growth was most aggressive, offline efforts still need substantial reinforcement.

Chief Operating Officer Si De admitted during the earnings call that last year, the US operations were managed with a budget allocation of 2 billion but ended up doing nearly 7 billion in business. Insufficient offline capacity led to an overly high proportion of online sales. This year’s goal is to expand the store count to over 100 to correct this imbalance. These issues are real and shouldn’t be overlooked just because overall performance is impressive.

But the core issue lies elsewhere. The real question is: Do you believe Pop Mart can continue to create the next Little Star? If the answer is yes, opportunities to buy at 15x PE don’t come often. If the answer is no, then it’s simply a trendy company waiting for a valuation shift. $POP MART (09992.HK)$

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