Shares of Labubu maker Pop Mart dip despite staggering third-quarter U.S. sales growth

Shares of Chinese toymaker Pop Mart fell 9%, extending a 30% decline since August, despite the company reporting Q3 revenue more than tripled year-over-year, with U.S. sales surging over 1,200%. This downturn is primarily attributed to concerns that the popular Labubu doll craze may be fading, evidenced by a significant drop in secondary market resale prices. However, analysts are divided, with some suggesting the falling resale values reflect Pop Mart's successful efforts to increase supply and curb scalping rather than a genuine decline in consumer demand, while global expansion and new character lines continue to underpin growth.

Analysis

Pop Mart (CPOP) shares experienced a 9% decline, marking its worst day since April and extending a 30% drop from its August peak, despite reporting a robust Q3. The company's third-quarter revenue more than tripled year-over-year, significantly boosted by U.S. sales surging between 1,265% and 1,270%. This divergence between strong fundamental performance and negative market reaction highlights investor uncertainty.

The primary concern centers on the potential fading of the popular Labubu doll craze, evidenced by resale prices on Qiandao dropping significantly, such as the Luck character falling from 500 yuan to 108 yuan. However, analysts are divided, with some suggesting this reflects Pop Mart's successful strategy to increase supply tenfold and curb scalping, rather than a genuine decline in consumer demand. Morgan Stanley notes that secondary market prices may not accurately reflect true supply and demand due to these initiatives.

Beyond Labubu, Pop Mart's growth narrative is supported by emerging characters like Twinkle Twinkle and ongoing global expansion opportunities. The company's increased manufacturing capacity, now at 30 million units monthly, suggests a strategic shift towards broader market penetration and reduced reliance on secondary market hype. This indicates a potential maturation of the business model.

Key Decisions for Investors

• Closely monitor secondary market pricing trends for Pop Mart's key products to differentiate between waning consumer demand and the impact of increased supply.
• Evaluate the success of Pop Mart's global expansion initiatives and the performance of emerging character lines as crucial drivers for diversified, long-term growth.
• Reassess CPOP's valuation following the recent 30% stock correction, weighing its robust Q3 performance and strategic supply management against ongoing market sentiment.