The once red-hot "Labubu economy" is facing a severe test, as the secondary market's ability to command significant premiums notably diminishes, causing the halo around Pop Mart, a former capital market darling, to fade. Investors are beginning to re-evaluate whether this Chinese toymaker can sustain its high-growth myth and if its core IP is merely a fleeting trend.

According to a Bloomberg report, Pop Mart's stock fell as much as 6.2% on Tuesday, marking its largest single-day drop in three weeks and ranking it among the worst performers in the MSCI Asia Pacific Index, following media disclosures of weakening demand for Labubu toys among scalpers.

The immediate trigger for the sell-off was a report indicating that sharp price fluctuations in China's secondary market signal weak demand, prompting some scalpers to halt their stockpiling activities.

This development has severely impacted market confidence. Since peaking in August this year, Pop Mart's stock price has plummeted approximately 44%, erasing over $25 billion in market value. Previously, fueled by the popularity of Labubu dolls, the company staged one of the market's most dramatic rebounds; although its stock price has still more than doubled year-to-date, recent data suggests disappointing signs in both domestic resale prices and overseas holiday sales.

Kenny Ng, a strategist at Everbright Securities International, pointed out that lingering investor concerns about a potential cooling of its product popularity mean reports of weakening demand often deal a heavy blow to the stock price. The core market worry now is whether the grinning monster that powered Pop Mart's 3200% rebound from its 2022 low is a long-term IP that can withstand the test of time, or a fast-fashion product whose expiration date has arrived.

As an early warning indicator for collectible cycles, turbulence in the secondary market is the most sensitive.

Data from the toy resale platform Qindao shows that the average price for a full set of mini Labubu or the "Sitting Down" series has fallen below the official retail price.

On the US resale platform StockX, while Labubu still dominates the collectibles category, its premium myth is crumbling. The "Sitting Down" series, once speculated to nearly $400, now sells for around $110, significantly below its $168 retail price; the premium for some rare editions has also shrunk considerably from its June peak.

This price inversion has directly led to the departure of scalpers, subsequently affecting investor sentiment. Jeff Zhang, an analyst at Morningstar, stated that some investors might be rotating out of China's "new consumption" stocks to lock in profits; peers in this sector, including Lao Feng Xiang and Mixue Bingcheng, also experienced declines of varying degrees on Tuesday.

Beyond the cooling resale market, Pop Mart's expansion pace in overseas markets is also facing skepticism. According to data from New York analytics firm YipitData, revenue growth in North America for the quarter ending December 6 slowed to 424%, half the rate of growth seen in the three months ending September. Despite aggressive marketing campaigns in the US, including the Macy's Thanksgiving Day Parade and an exhibition at the Empire State Building, Google search interest has continued to cool since peaking in the summer.

Disappointing US Black Friday performance, coupled with cooling resale demand, has reminded the market of the 1990s Beanie Babies bubble burst. This also challenges the narrative of whether Pop Mart can become China's version of Walt Disney or the owner of Hello Kitty, Sanrio.

Data from S&P Global shows that short bets against the stock have tripled since November, reaching the highest level since August 2023.

Richard Lin, Chief Consumer Analyst at PUBI, said, "The market is highly focused on Pop Mart's short-term data. The biggest question is, if it cannot maintain an extremely high year-on-year growth rate before the year-end, whether it can achieve any growth next year given the high base effect?"

Faced with market skepticism, some institutional investors are choosing to wait on the sidelines. Kevin Net, Head of Asian Equities at Financiere de L’Echiquier, stated that market sentiment has clearly turned negative; although valuations were not expensive in late September, there are now many questions regarding future earnings per share, leading him to wait for a better re-entry opportunity.

Daisy Li, a Fund Manager at EFG Asset Management, also admitted that as Labubu is a non-essential consumer good and inherently difficult to model, it is challenging to build a firm investment conviction.

However, sell-side analysts generally remain optimistic, with the average 12-month target price implying an upside of about 84% from the latest closing price. Analysts including Dustin Wei at Morgan Stanley noted in a report that while short-term profit-taking and pullbacks are normal, pushing the stock price down to trough valuations appears "too preemptive" and unreasonable. They believe the market is overlooking the long-term expansion of Pop Mart's recurring customer base.

To address the risk of relying on a single IP, Pop Mart is betting on other IPs like Crybaby, Twinkle Twinkle, and Hirono, and actively venturing into the entertainment industry, including opening a theme park in Beijing, securing a movie development deal with Sony Pictures, and launching a jewelry brand, POPOP.

But Xiadong Bao, Fund Manager at Edmond de Rothschild Asset Management, warned that the biggest current concern is whether the momentum of Labubu and its leading IPs is fading, stating that if Labubu sales decline, other characters "might not be enough to compensate and maintain the strong momentum previously priced into the stock."