Pop Mart’s release: Doubled revenue brings market anxiety? valuation reset of the toy giant

• Pop Mart's FY2025 revenue reached RMB 37.1 billion, up 185% year-on-year, with overseas sales accounting for 44% of total revenue — yet the share price fell over 20% post-results.

• The Monsters/Labubu series alone contributed 38% of total volume, making the growth story structurally dependent on a single IP franchise.

• At a 72.1% gross margin and an operating cash flow-to-capex ratio of 16.9x, the underlying business quality remains high despite the sell-off.

• The forward P/E has compressed to 11.3x against a three-year historical average of 23.4x, reflecting the market's demand for a structural risk discount.

• Applying a 15x fair P/E on 2028 EPS of HKD 14.42, the implied target price of HKD 216.3 represents 29% upside — but recovery hinges on IP diversification, not revenue momentum alone.

Pop Mart has emerged as a leader in "new consumption" by leveraging its unique business model and IP advantages. Pop Mart recently released its FY2025 results, showing significant growth in both revenue and profit. However, the share price suffered a sharp decline following the announcement. Does this divergence reflect underlying market concerns regarding Pop Mart’s long-term trajectory?

Omnichannel marketing: Converting traffic into revenue

A core concept of new consumption is "emotional consumption," where products and shopping experiences serve as vehicles for emotional value. Pop Mart’s product design and retail formats offer high aesthetic and play value, generating strong emotional resonance that drives repeat purchases. Additionally, the products possess high social attributes, encouraging consumers to share on social media, which in turn generates brand traffic through interaction.

Marketing remains a pivotal investment for the company. In 2025, selling expenses reached CNY 8.1 billion, a y-o-y increase of 121.4%, accounting for 22.0% of total revenue. Pop Mart has constructed an extensive marketing network to reach consumers, aiming to convert brand traffic into revenue through different consumption scenarios while strengthening consumer loyalty.

Figure 1: Pop Mart selling and marketing expenses

Full-cycle IP operations and the brand Moat

Pop Mart has a mature IP operation system, which covers the full cycle from IP incubation to commercialization. IP incubation is the core of the brand’s operations. Pop Mart prefers collaborating with artists with high commercial value to enrich its proprietary IP matrix and improve the success rate of creating "blockbuster" series. It allows artists to focus on creative design, while the company manages product development and resource allocation based on preference shifts, thereby allowing them to further relieve the commercial value of their IP.

Proprietary and managed IP contributed 90.0% of Pop Mart’s revenue in 2025, a y-o-y increase of 4.7%. Notably, seven IP surpassed the RMB 100 million revenue threshold in last year, which proves that proprietary IP system is the primary engine of growth.

Overseas expansion as the second growth curve

In FY2025, the revenue reached RMB 37.1 billion, up 184.7% y-o-y. Driven by omnichannel marketing and the popularity of the "The Monsters" series, Pop Mart has entered an accelerated phase of international expansion. Overseas revenue surged by 291.9% to RMB 16.3 billion in 2025, accounting for 44% of total revenue, the proportion is also 5% higher than 2024.

The overseas strategy focuses on comprehensive product and channel coverage. Pop Mart plans to expand the geographical scope of IP licensing and increase its presence across global e-commerce, social media, and offline flagship stores. This expansion is designed to position international business as Pop Mart’s second growth curve for profit.

Figure 2: China and overseas revenue proportion

1. High gross margin underpins profitability

Pop Mart maintains a gross margin above 60%, and achieves 72.1% in 2025, significantly outperforming its peers.

Figure 3: Gross margin of Pop Mart and peers

From a pricing perspective, Pop Mart enhances product value through multiple dimensions including core IP strength, brand popularity, and scarcity. Furthermore, Pop Mart values the transmission of emotion by IP and prefers to incubate IP that can generate emotional links with consumers. The background story of the emerging IP "Twinkle Twinkle", for instance, aims to deliver love and courage to consumers. This strategy of emphasizing unique IP characteristics and spiritual resonance will deepen the emotional connection with consumers and encourage them to pay a premium for that emotional value. Pop Mart therefore gains larger pricing power, making its product unit prices higher than other similar products.

Pop Mart also benefits from strong bargaining power with suppliers. Suppliers in toy manufacturing is widely dispersed and large-scale buyers therefore have more choices, which imply a lower switching cost. Long-term partnerships and high-volume orders with a market leader will secure a stable revenue for manufacturers, thereby enables Pop Mart to obtain lower-cost suppliers. In addition, as Pop Mart can reuse the same IP across the product line, the design and licensing cost is then amortized over larger volume of goods.

2. Cash flow and capital structure ensure financial resilience

Offline store expansion is the core strategy for Pop Mart to reach its customers. In 2025, Pop Mart opened 109 new stores, with overseas locations accounting for 87.2%. Consequently, Pop Mart’s lease liabilities surged by 196.7% in 2025, with its proportion of total assets rising to 8.9%. Currently, Pop Mart’s liabilities primarily consisting of accounts payable and income tax liabilities, while interest-bearing debt solely includes lease liabilities. Despite a slight uptick in leverage, the ratio remains low, reflecting a robust financial structure.

Figure 4: Debt-to-Asset Ratio of Pop Mart

The account payables turnover days started to increase from 2022. However, due to increased inventory and sales, the turnover days decreased to 37 days in 2025. The aging profile is predominantly composed of short-term payables within 30 days, demonstrating the Pop Mart’s strong repayment capacity even the turnover days dropped.

Figure 5: Pop Mart Trade Payables Turnover Days

As of June 2025, operating cash flow covered capital expenditures by a multiple of 16.9, indicating that cash generated from core operations is sufficient to fund both tangible and intangible investments. It is obvious that even if the company is in a rapid expansion phase, its financial structure remains robust.

The non-negligible risks behind the divergence

Despite record-breaking revenue and profit growth in 2025, the market reacted negatively, with the share price plunging over 20%. This highlights structural risks within the business model.

1. The Double-Edged Sword of IP

Pop Mart’s investment thesis is heavily anchored in the commercial value of its IP. While this business model drives significant growth, there are also inherent risks within the revenue structure. The revenue surge of Pop Mart in 2025 was heavily reliant on "The Monsters" series, which accounted for 38% of total volume. The decline in revenue contribution from other IP suggests an over-dependence on a single flagship IP. As the Labubu craze may inevitably cool down, the commercial value of this series may face a downward adjustment, exposing the vulnerability of the revenue structure if IP development remains unbalanced.

2. High Sensitivity to Demand

Pop Mart exhibits high sensitivity to consumer preference and trend. While marketing spend is aggressive, demand remains inherently volatile. The growth in 2025 was fuelled by scarcity and emotional premiums. However, this format may face challenge in 2026. If Pop Mart fails to incubate new IP or if innovation lags behind demand shift, a contraction in demand could decelerate growth.

Commercialization remains as the core of growth logic

We believe that diversified monetization pathways are the fundamental logic driving Pop Mart’s long-term growth and the mitigation strategy against risks.

Pop Mart has expanded its product matrix to target diverse lifestyle scenarios and consumer segments. In 2025, revenue from plush toys accounted for 50.4% of the total, surpassing figure toys. Plush toys offer higher portability and decorative utility, fostering a stronger sense of "companionship." This shift also confirms that consumers are purchasing the emotional value rather than just the IP design itself.

Beyond toy design, Pop Mart is aggressively diversifying its business model. This includes the launch of the jewelry brand "Popop," the dessert chain "Pop Bakery," and future plans for home appliances. Through cross-industry innovation, Pop Mart’s can further unlock IP’s commercial value.

To sustain this momentum, Pop Mart must continue to identify high-potential IP while optimizing its existing portfolio. By reducing dependency on any single character, the company will enhance its operational resilience against shifting market demands.

Valuation reset to balance risk and growth

As of March 25, 2026, Pop Mart’s three-year average forward P/E was approximately 23.4x. However, with the recent decline, the forward P/E has fallen to around 11.3x, significantly below both historical and average levels.

Figure 6: 12-Month Forward P/E of Pop Mart

In summary, Pop Mart’s fundamentals remain resilient, but structural risks persist. Given the current downward volatility in the share price, our derived target price is lower than the recent average. Robust recovery momentum will depend on the further consolidation of the business structure.

Incorporating the aforementioned analysis, we have adopted a more conservative long-term valuation approach. Assuming a fair P/E multiple of 15x, our target price for POP MART (HKEX: 9992) before the end of 2028 is HKD 216.3, implying a 29% potential upside.

Table 1: Valuation and EPS Forecast of Pop Mart