Author: Ye Zhen, Source: Wall Street Journal
The wildly popular Labubu has been jokingly referred to as 'the Moutai for young people,' so what are the similarities and differences between the two?
Bank of America recently released a report comparing this trendy IP with traditional liquor giants, attempting to clarify whether it is a historical repetition of the consumption cycle or a profound paradigm shift.
Bank of America analysts Alice Ma, Chen Luo, and Lucy Yu pointed out that although both are social currencies, Labubu's social attributes are more based on shared interests and values among the younger generation, while Moutai's social functions rely more on power and hierarchical relationships. This difference reflects the essential distinction between 'new consumption' and 'traditional consumption.'
Bank of America pointed out that, similar to Moutai, Pop Mart also faces the dual challenges brought by the IP cycle and investment attributes. If there is a long gap between Labubu and the next hit IP, the company's global growth may slow down.
In addition, investors cannot ignore the two major risks of regulation and market crowding. The report warns that the current phenomenon of concentrated capital flowing into the 'new consumption' track is quite similar to the previous capital crowding represented by Moutai's consumer blue-chip stocks; the vulnerability of this crowded trading may have a significant impact on valuations.
Bank of America maintains a buy rating on Pop Mart, with a target price of 275 Hong Kong dollars. According to statistics, Pop Mart's stock price has ranged from 34.4 to 283.4 Hong Kong dollars in the past 52 weeks, closing at 244.2 Hong Kong dollars on Monday.
Generational differences in social currency
Bank of America's research team believes that although Labubu and Moutai both possess social currency attributes, there are significant generational differences. Moutai's social function is more reflected as a 'social/business lubricant' productivity tool, while Labubu represents the younger generation's pursuit of emotional value, providing consumers with instant, nuanced, and affordable 'dopamine' experiences in the digital social media era.
Analysts point out that in a digital world where consumers face 'meaninglessness' and increased pressure, Labubu suggests that China is gradually shifting from an investment-driven model to a consumption-driven model. Moutai is deeply rooted in traditional Chinese culture, and its globalization process is still in the early stages, while Labubu, which aligns well with the global zeitgeist, has already achieved significant global success.
Differences in social attributes: Moutai's social attributes rely more on power and hierarchical systems, primarily serving business occasions; Labubu represents the younger generation's social interactions based on interests and values, emphasizing emotional value and instant gratification.
Consumer motivations: Moutai can serve as a 'productivity tool' (business lubricant), while Labubu meets the young people's pursuit of emotional value and 'dopamine'-like consumption in a digital social environment, reflecting China's shift from investment-driven to consumption-driven trends.
Globalization process: Moutai is deeply embedded in traditional Chinese culture and is still in the early stages of globalization; Labubu has already achieved significant success globally, aligning with global trends.
The double-edged sword of IP cycle risk and investment attributes
While experiencing rapid growth, Bank of America also pointed out the similar challenges faced by Pop Mart and Moutai, namely the dual challenges brought about by the IP lifecycle and product investment attributes.
Bank of America believes that whether Pop Mart's net profit in 2025 is 8 billion or 10 billion RMB is not important, as it depends on the speed of Labubu's shipments. Instead, what matters is how to balance recent growth with the IP lifecycle.
IP lifecycle risk: With a century of historical accumulation and official endorsement, Moutai has proven its ability to traverse cycles. In contrast, Pop Mart and LABUBU have histories of only 15 years and 10 years, respectively, making the IP lifecycle a core risk.
The report believes that as an IP platform, Pop Mart's diversified IP portfolio can disperse risks, but LABUBU is crucial for its global success. If there is a long gap between LABUBU and the next hit IP, its global growth may slow down. Furthermore, the 'mainstreaming' of subcultures may drive growth while also diluting LABUBU's unique social identity, thereby alienating its core consumer group.
The pros and cons of investment attributes: Moutai's history shows that 'investability' is a double-edged sword; it acts as a booster in an upward cycle and can amplify effects in a downward cycle.
The report notes that Pop Mart is actively managing second-hand market prices to ensure its appeal to young consumers and create a favorable environment for the launch of new IP and products. The recent drop in second-hand prices for the LABUBU plush toy series is seen as the result of Pop Mart's proactive management of supply and demand dynamics.
Regulation and market crowding that cannot be ignored
The report emphasizes that regulation and market sentiment are two other risk factors that investors must face.
Regulatory risks: Moutai is always affected by policies such as price controls and anti-corruption campaigns. Similarly, Pop Mart is not in a regulatory vacuum. A recent article from the People's Daily has reminded the market of related risks. However, Bank of America analysts believe that as Pop Mart's consumer base becomes increasingly diversified, 'mainstreaming' reduces its exposure to minors in the Chinese market. Meanwhile, the rapidly growing overseas business (expected to contribute over half of sales by 2025) also helps hedge against regulatory risks in a single market. Nevertheless, this risk may still negatively impact the company's fundamentals or trigger 'headline noise' that causes stock price volatility.
The vulnerability of 'crowded' trading: Each cycle in the capital markets might see dominant 'crowded trades.' The influx of funds into consumer blue-chip stocks represented by Moutai from 2016 to 2021 is quite similar to the current capital focused on the 'new consumption' track centered around Pop Mart. Changes in capital flow and positions can have a huge impact on valuations—Moutai's forward price-to-earnings ratio was close to 60 times at the beginning of 2021, while it is currently only 18-19 times. Although recent changes in capital flow have put some pressure on 'new consumption' stocks like Pop Mart, the report believes that, against the backdrop of a scarcity of quality investment targets, this 'crowded' situation may persist for some time. The real turning point may only come when significant turning points appear in high-frequency data from overseas markets or when a strong recovery in the Chinese economy provides investors with more choices.