How to view the decline in LABUBU's search popularity? JPMorgan: Take HelloKitty as a reference, don't panic.

JPMorgan believes that although Labubu's search popularity has declined by 5% from its peak, this is not a signal of its popularity waning, but rather a normal phenomenon in the development process of a blockbuster IP. The lifecycle of top IPs can reach several decades, such as Mickey Mouse at 97 years and Hello Kitty at 51 years. Additionally, Labubu's collaboration with Uniqlo for T-shirts is about to be launched, and the animated series "Labubu and fren" will premiere this summer.

Written by: Long Yue

Source: Wall Street Journal

As the popularity of the trending IP Labubu begins to decline, the market is filled with anxiety, but an analysis from an investment bank suggests that this may just be a false alarm.

For investors in Pop Mart, any movements related to its IP Labubu are closely tied to market sentiment. Recently, its Google global search index fell 5% from its peak, raising concerns about whether its growth myth can be sustained.

However, according to news from the Chasing Wind Trading Platform, JPMorgan has clearly stated in its latest research report that this volatility is a normal phenomenon in the lifecycle of blockbuster IPs, rather than a dangerous signal of declining popularity. The lifecycle of top IPs can reach several decades, such as Mickey Mouse at 97 years and Hello Kitty at 51 years, while ordinary IPs only last 6-24 months. An initial explosive popularity means a longer lifecycle.

The background of this viewpoint is that since the strong semi-annual performance forecast was released on July 15, the stock price of Pop Mart has fallen by 7%, while the Hang Seng Index has risen by 3% during the same period. The market attributes this performance to the fact that although its performance growth is astonishing, with sales in the first half of the year increasing by over 200% and net profit by over 350%, it only reached the lower limit of expectations from some buying institutions. At the same time, the resale price and search popularity of Labubu have also exacerbated investors' anxiety.

JPMorgan rebutted this pessimistic view. The bank's analysts Kevin Yin and Yibo Wu emphasized in their report that for a newly popular IP, the search index is an effective leading indicator of new user acquisition speed, but it may not be directly linked to continuous sales. Once a brand establishes widespread recognition, consumers often go directly to shopping platforms, resulting in a natural decline in search volume.

Search popularity has declined but remains in a leading position

Although Labubu's search index has declined by 5% from its peak on July 13, this has not shaken its leading position in the trend toy field.

According to data from JPMorgan Chase, even after the decline, Labubu's current search index is still 13 times that of KAWS and Sonny Angel, 3 times that of Doraemon, and 2.5 times that of the classic IP Hello Kitty.

The line believes that when an IP quickly becomes popular, new consumers will search to understand, discuss, and share, thereby boosting the search index. However, once brand awareness reaches a certain threshold, the consumption behavior of loyal fans and repeat users will occur more within e-commerce apps rather than search engines. Therefore, a decline in the search index and a continued increase in sales can occur simultaneously.

Learning from History: The Experience Curve of Hello Kitty

Historical data provides strong support for this view. JPMorgan conducted a case analysis on Hello Kitty. The data shows that in fiscal year 2013, when Hello Kitty's search index dropped from a peak of 55 to 37 in fiscal year 2014, its parent company Sanrio's sales growth, although slowing from 30% to 20%, still maintained positive growth.

Research has found that a year-on-year decline in IP sales typically occurs after the search index drops to a certain "critical level" far below its peak. In the case of Hello Kitty, this critical point is 21% of the peak.

In addition, the report also mentions Pokémon, whose search index in 2023 is only 15% of the peak in 2016, but its global merchandise trading volume (GMV) is three times that of 2016. This indicates that for mature IPs, the correlation between search popularity and commercial value will gradually weaken.

Supply Bottlenecks and Six Potential Catalysts

In addition to the analysis of the demand side, the report also reveals the current situation on the supply side. Recently, JPMorgan communicated with a leading toy manufacturing supplier and learned that due to more IP brands relocating their supply chains out of China, overseas global toy OEM capacity is currently in short supply. This has directly led to the continued out-of-stock status of popular products such as Labubu and Crybaby.

As the production capacity bottleneck eases, its growth potential is expected to be further unleashed. JPMorgan reaffirmed its "overweight" rating on Pop Mart, viewing it as the industry favorite.

Looking to the future, JPMorgan has listed six potential catalysts, including the upcoming release of the 2025 first-half financial report in mid-August, the launch of the Labubu and Uniqlo co-branded T-shirts, the premiere of the animated series "Labubu and Frens" in the summer, and the possible launch of the Labubu 4.0 series before the year-end holidays. These intensive operations and product releases are expected to provide ongoing momentum for Bubble Mart's growth story.

• Performance release for the first half of 2025 (mid-August);
• Two newly opened "POPOP" jewelry stores will sell Labubu and Crybaby products.
• The first season of the animated series "Labubu & Friends" will premiere in the summer (20 episodes of 2 minutes each);
• Labubu x Uniqlo T-shirt will be launched in August;
• Labubu 4.0 Preview / Release before Christmas / Spring Festival holiday;
• May launch interactive /AI toys.