Breakingviews - China's Hello Kitty gifts investors a mystery box
LONDON, June 20 (Reuters Breakingviews) - China's answer to Hello Kitty is a plushy doll with a wicked, toothy grin. Known as Labubu, it has powered a 500% stock rally for its Hong Kong-listed owner Pop Mart International (9992.HK), opens new tab in just one year. British punters have scuffled in the streets for them while Aussies buy travel insurance to protect these collectibles. At $41 billion, Pop Mart's market value is more than triple that of Hello Kitty-parent Sanrio (8136.T), opens new tab and seven times Mattel (MAT.O), opens new tab, which owns Barbie. But in toys, as in markets, what skyrockets can just as quickly come crashing down.
Central to Pop Mart's early success is its "blind" box model: buyers don't know which version of the toy they will get, fuelling excitement and demand. Moreover, a doll only costs $40 apiece - which appeals to young Chinese shoppers eschewing luxury purchases. Labubu's first major taste of overseas fame came after K-pop star Lisa declared herself a devoted fan; superstars from David Beckham to Rihanna have recently followed. Thanks to booming international sales, Pop Mart's revenue is on track to grow 87% this year, to over $3 billion, and may top $10 billion by 2030, according to analyst forecasts on Visible Alpha.
It's no surprise that the company wants to capitalise on the frenzy. One of its suppliers has ramped up monthly production capacity of Labubu dolls to 10 million as of March, from 300,000 a year ago, according to Chinese media. Pop Mart is also starting to monetise its intellectual property: the firm recently opened a jewellery store in Shanghai and already has a theme park in Beijing. Video-games and films might also follow, JPMorgan analysts reckon.
Still, the future of this business remains, fittingly, inside a mystery box. Despite Hello Kitty's rise to fame, parent Sanrio still saw more than a decade of mostly declining or stagnant revenue until a digital rebranding effort paid off starting in 2022. Meanwhile, even the blockbuster Barbie movie in 2023 couldn't prevent a 12% drop in Mattel's related sales the following year. Regulatory scrutiny on the "blind box" collectible sector, opens new tab could put Pop Mart's domestic sales expected to be 48% of the group's total this year – at risk.
Even with an impressive 38% EBITDA margin - similar to Sanrio's - Pop Mart's valuation of 45 times this year's expected net income looks frothy, especially compared with the Japanese peer's 37 times and Mattel's 13 times. As Labubu's predecessors have shown, the path from cult favourite to enduring brand is rarely smooth. Pop Mart's explosive rise may just be another limited edition.
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