By Jacky Wong
Forget semiconductors or artificial intelligence -- one of the year's hottest stocks has fur and plastic eyes and comes from China. Pop Mart has turned cute collectible toys into treasure, and you might see more of its shops around if its overseas expansion goes according to plan.
Shares of the Hong Kong-listed company have more than quadrupled this year, handily beating better-known Chinese technology stocks including Alibaba and Tencent. It is a rare bit of good news for Chinese stocks. While the benchmark Hang Seng Index is up around 15% this year, on track to snap a four-year losing streak, it has lagged behind the S&P 500 by about 50 percentage points over the past three years.
Pop Mart's business is indeed booming. Its revenue last quarter more than doubled from a year earlier. The company sells collectible toys through so-called blind boxes, the contents of which buyers don't know until they are opened. While it has collaborated with popular brands including Marvel and Harry Potter, more than 80% of its revenue comes from its own designs. Some limited-edition toys fetch thousands of dollars on the secondhand market.
One particular character that stood out this year is a furry monster with pointy ears and sharp teeth, called Labubu. It got a boost in Southeast Asia as the Thai singer Lisa from the K-pop girl band Blackpink posted frequently about the character on social media. Revenue from products in the monsters series, which includes Labubu, nearly quadrupled in the first half of 2024 compared with a year earlier, and sales in Southeast Asia grew by close to 500%.
Around 30% of Pop Mart's revenue in the first half of 2024 came from outside mainland China. That share has been rising rapidly in the past couple of years and will likely continue to do so based on the company's breakneck international growth. Pop Mart's sales outside mainland China last quarter increased more than 400% year over year, compared with about 60% growth in mainland China. Morgan Stanley expects markets outside mainland China to account for more than half of Pop Mart's revenue and profit next year.
While almost 80% of those sales outside mainland China are in Asia, other regions are growing quickly too. North America, for example, is still a relatively small market, but sales there were surging in the first half and made up around 13% of sales outside mainland China, up from 10% a year earlier. While Pop Mart earns better margins abroad, diversifying away from its home market also helps to reduce potential regulatory risks. Chinese state media have published articles from time to time about the "blind box" craze, comparing it to gambling.
That isn't the only issue: The stock is no longer a bargain, trading at 31 times next year's earnings, according to consensus estimates collected by S&P Global Market Intelligence. Pop Mart's international growth is impressive, but there is always danger in extrapolating from what is essentially a fad. Are Pop Mart's monsters going the way of Tamagotchi or Pokémon? Anything resembling the latter phenomenon would be a smashing success. Right now, though, investors are paying top dollar for a blind box.
Write to Jacky Wong at jacky.wong@wsj.com
(END) Dow Jones Newswires
December 06, 2024 08:00 ET (13:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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