Morgan Stanley believes that although the market has fully digested Pop Mart's high growth expectations for 2025, it has not yet fully reflected the company's long-term business scale potential. Products are key to Pop Mart achieving 'viral trial distribution' on social media; as long as Pop Mart can offer attractive new products, its growth sustainability will continue to bring surprises. Its success in overseas markets has revitalized domestic momentum, and sales in the North American market are expected to reach the level of the Chinese market by 2028-2029.
The IP craze sweeps the globe; can Pop Mart continue to reign?
According to news from the Wind Trading Desk, Morgan Stanley analyst Dustin Wei and his team recently released a new research report stating that with the viral spread of its IP products and strong support from social media, Pop Mart's exponential growth in the North American and European markets far exceeds expectations.
Morgan Stanley believes that although the market has fully digested Pop Mart's high growth expectations for 2025, it has not yet fully reflected the company's long-term business scale potential. Sales are expected to grow from $3.6 billion in 2025 to $6 billion in 2027, making it one of the fastest-growing consumer brands globally.
The report raised Pop Mart's target price significantly by 35% from HK$224 to HK$302, maintaining an 'overweight' rating.
The global social media-driven IP product flywheel effect
Pop Mart's explosive overseas growth is mainly attributed to the driving effect of social media.
At the beginning of 2024, after Lisa from the Korean girl group BLACKPINK showcased her Pop Mart collection on social media, products like Labubu quickly became a phenomenal hit. The spontaneous promotion by global celebrities and influencers, combined with viral videos of consumers lining up outside physical stores, boosted its brand popularity.
Google Trends data shows that Labubu's current global search volume has reached the same level as well-known IPs like Harry Potter, Star Wars, and Disney.
The report notes that this 'social hitchhiking effect' has allowed Pop Mart's penetration speed in the North American and European markets to far exceed expectations.
Labubu is just the starting point; the stock still has room to rise
The report emphasizes that although global social media has driven Pop Mart's expansion, it was actually the Labubu series blind boxes launched at the end of 2023 that initially ignited market enthusiasm.
The report shows that the key to Pop Mart's 'IP-product flywheel' theory lies in continuously launching highly attractive products. As Pop Mart's star IP, the Labubu series has a diverse product line and rapid iteration, with its revenue share reaching 28% in 2024, and the fourth generation of products expected to be launched by the end of 2025 or early 2026.
In addition, other IPs like Molly and Dimoo are also performing strongly, with many products experiencing supply shortages in both the Chinese and American markets, indicating that Pop Mart is not solely driven by a single IP. Its diversified IP matrix provides a broader growth space.
However, Pop Mart has not stopped at toys; its new businesses like Pop Land (IP theme park) and POPOP (fashion jewelry) are also considered important sources of long-term value increment.
The report indicates that the Pop Land project in Beijing has achieved profitability, with annual revenues expected to be between 300-500 million RMB. Future plans include expansion and the introduction of dynamic amusement facilities. Although the short-term return rate is lower than the toy main business, its significance as a platform for IP incubation and fan interaction is substantial.
POPOP aims at the $50 billion global fashion jewelry market, leveraging its existing 70-75% female user base and IP brand strength, and is expected to gain a larger share in the European and American markets.
Morgan Stanley points out that these new businesses have not yet been fully priced into the market and could be catalysts for further upward movement in the stock price.
The explosive popularity in North America and Europe is not a 'flash in the pan'.
The report also adds that expansion in the North American and European markets will be the key engines of Pop Mart's future growth. Based on the purchasing power and market size of American consumers, sales in the North American market are expected to reach the level of the Chinese market by 2028-2029.
The report indicates that starting from mid-April 2024, Pop Mart will raise the pricing of new products in North America by 80-100%, with single product gross margins expected to reach 75%. Even facing a potential 30% tariff pressure, Pop Mart's globalization potential should not be underestimated.
The report also states that Pop Mart's international success has revitalized its momentum in the domestic market, as the 'follow-up effect' of social media has had a positive impact on global consumers.
Overall, Morgan Stanley believes that as long as Pop Mart can offer attractive new products, its growth sustainability will continue to bring surprises.
The report states that although Pop Mart's revenue is expected to reach $3.6 billion in 2025, a year-on-year increase of 100%, the market has fully priced this growth expectation, with the current stock price corresponding to a price-to-earnings ratio of 41 times for 2025 and 28 times for 2026.