Pop Mart's Online Sales Turn Negative in May, Maintaining Sell Rating

Overview

Deutsche Bank released an earnings review on Pop Mart, focusing primarily on the reversal in the company’s domestic sales momentum. The report shows that domestic online sales in May fell by 5% year-on-year, marking the first negative growth since 2024, confirming the institution’s earlier prediction that the domestic market would face pressure starting from Q2 2026. Based on expectations of waning IP popularity, high base effects, and a month-on-month decline in overseas markets, Deutsche Bank forecasts that the company will enter a more pronounced downward cycle in H2 2026, thus maintaining a ‘Sell’ rating and a target price of HK$140.

Core views

The turning point in domestic sales has arrived, reversing supply-demand dynamics. In May, online sales not only fell by 5% year-on-year but also dropped by 14% month-on-month, reaching 25% below the average level of H2 2025. Beyond online data, offline channel surveys show that store inventories continue to rise, sharply contrasting with the widespread stock shortages of 2025, indicating that the market has shifted from ‘supply shortage’ to ‘weak demand’. Although the company launched a series of new products such as Molly’s 20th Anniversary and Twinkle Twinkle in Q2 to boost sales, as the marginal effect of these new releases diminishes and ‘aesthetic fatigue’ intensifies, this intensive release strategy can hardly sustain growth anymore. IP popularity is cooling across the board, and secondhand prices are collapsing. As a leading indicator of IP popularity and supply-demand dynamics, the secondary market feedback is negative. The flagship IP Labubu has lost its scarcity due to excessive initial sales, causing demand to cool continuously; even the currently considered ‘scarce’ Twinkle Twinkle series has started trading at a discount; the highly anticipated ‘THE MONSTERS × FIFA’ World Cup co-branded series, despite high social media discussion, now trades at around RMB 550 (lower than the RMB 599 launch price), with ample supply both online and offline, showing that actual purchasing power hasn’t kept pace with marketing hype. Market expectations were overly optimistic, and valuations lack fundamental support. The report believes that the current stock rebound is mainly driven by well-known investor Duan Yongping’s increased holdings and southbound fund inflows, rather than improvement in fundamentals. Although southbound funds’ shareholding ratio has risen to a historical high of 26%, the market may have mistakenly extrapolated the explosive growth of 2025 linearly into the future. Deutsche Bank predicts that the company’s revenue in 2026 will decline by 2% year-on-year to RMB 36.5 billion, and operational deleveraging will push net profit down to RMB 1.13 billion, significantly lower than the market consensus estimate. Overseas business and new product catalysts remain uncertain. While investors are hopeful about the World Cup co-branded items and the upcoming Labubu 4.0, Google Trends show muted interest in the U.S. market, and historical experience suggests that sports sponsorships have limited impact on actual sales. Combined with the confirmed month-on-month decline in overseas IP sales in the Q1 2026 operational update, the report believes that both domestic and overseas markets will face tougher growth pressures in the second half of the year.

Analysis framework

In this report, Deutsche Bank adopted an analytical framework of ‘high-frequency alternative data + secondary market price signals’ to predict the company’s fundamental turning point. First, instead of waiting for official financial reports, the institution used third-party e-commerce tracking platforms (Moojing) to obtain monthly GMV data from Tmall/Taobao and Douyin, using this as a high-frequency leading indicator of revenue and catching the turning point of May’s sales decline ahead of time. Second, leveraging the unique characteristics of the trendy toy industry, the institution used the ‘secondary market premium rate’ as a core thermometer for measuring IP lifecycle. For blind box/trendy toy companies, primary market sales are often distorted by distribution rhythms, whereas the premium/discount in the secondary market better reflects consumers’ current willingness to pay and the scarcity of IPs. When multiple core IPs simultaneously see secondhand prices falling below their original retail price, it’s taken as a clear signal of waning demand. Finally, in attribution analysis, the institution distinguished between ‘funding noise’ and ‘fundamental facts’. By analyzing discrepancies between shareholder holding changes (such as Duan Yongping’s increased holdings and southbound fund flows) and e-commerce data, it concluded that the recent stock rally was mainly driven by chip structure and celebrity effects, thus concluding that the stock price had become decoupled from fundamentals.

Methodology notes

• Industry/sector analysis framework

  Secondary market premium as a leading indicator of IP popularity

  In the trendy toy/collectibles industry, the trend of secondhand prices after a new product launch is the most sensitive indicator of genuine IP demand. When secondhand prices shift from premium to discount (below the original retail price), it usually means oversupply or fan enthusiasm peaking—this signal often precedes the revenue decline reported in official financial statements.

• Industry/sector analysis frameworkPenetration S-curve

  Lifecycle of fashion IPs and aesthetic fatigue

  Trendy toys have typical fast-fashion attributes, and their boom follows an S-shaped curve. The report’s mention of ‘aesthetic fatigue’ refers to the phenomenon where, after intense exposure and frequent new product launches, consumers’ marginal utility declines rapidly. This explains why simply increasing SKU numbers cannot stop sales decline and may even accelerate IP value exhaustion.

• Quantitative/factor/portfolio theoryFund flow/chip analysis

  Differentiating stock price fluctuations driven by funds versus fundamentals

  When well-known investors (such as Duan Yongping) heavily invest or specific funding channels (such as southbound funds) significantly flow in, the stock price may temporarily deviate from fundamentals. Analysts cross-validate high-frequency sales data with fund flows to identify that the current stock rally is a ‘chip game’ rather than ‘performance realization’, thus warning of the risk of chasing higher prices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Pop Mart (9992.HK)

  Bearish Target: Domestic sales turning point established, IP popularity waning, expected to enter a downward cycle in H2 2026

  Strengths

  Strong IP development capabilities and global retail network; abundant cash flow, net debt ratio negative; endorsement by well-known investors brings short-term liquidity support

  Weaknesses

  Core IP Labubu entering a decline phase; new product iterations failing to effectively take over; overseas market growth slowing down; valuation not yet fully reflecting the slowdown in growth expectations

  Comparison

  Compared to the 2025 boom, 2026 faces a higher base and weaker consumer sentiment; compared to peers, it relies more on IPs and has weaker cyclical resistance at this stage

  Risks

  Continued decline in secondhand prices; failure of new IP incubation; overseas expansion hampered; major shareholder selling off shares

Key data

• May Domestic Online Sales Growth Rate-5% YoYFirst year-on-year negative growth since 2024, down 14% MoM
• 2026E Revenue ForecastRMB 36.48 billionDown about 2% YoY; market expectation may still be positive growth
• 2026E Net Profit ForecastRMB 1.129 billionAffected by operational deleveraging, the decline exceeds the revenue decline
• FIFA Co-branded Item Secondhand PriceAbout RMB 550Lower than the official retail price of RMB 599, indicating weaker-than-expected popularity
• Southbound Funds’ Shareholding RatioApproximately 26%Reaches a historic high, becoming the main buying force recently

Impact & implications

The report believes that Pop Mart is at a critical juncture, transitioning from ‘explosive growth’ to ‘cyclical adjustment’. For investors, this means that the logic of achieving multiple-fold growth over the past two years solely through single hit IPs has temporarily failed. The negative turn in May’s sales is not just a short-term fluctuation—it’s a signal that the IP lifecycle has entered the second half. If the subsequent Labubu 4.0 fails to reverse the secondhand price discount trend, or if the World Cup co-branded item fails to bring substantial incremental growth in overseas markets, the company’s valuation system will face restructuring. The current stock price reflects more the game of funds than a reasonable pricing of future cash flows; investors need to be wary of the risk of correction triggered by fundamental evidence being disproved.

Risks

• Existing IP’s global sales momentum better than expected
• Launching new hit IPs earlier than expected
• Labubu movie and other innovative product types making strong progress

What to watch

• Official release and sales feedback of Labubu 4.0 series
• Actual sales data of World Cup co-branded items in overseas markets
• Whether domestic e-commerce platforms’ sales trends stabilize in June and Q3
• Changes in premium rates of core IPs in the secondary market