Wall Street Talks LABUBU and Moutai: A Familiar Encounter or a Paradigm Shift?

Author: Ye Zhen, Source: Wall Street Watch

The trending Labubu is jokingly referred to as the "Maotai for young people". So what are the similarities and differences between the two?

Bank of America recently released a report, comparing this new trendy IP with traditional liquor giants, attempting to clarify whether it is a historical replay of the consumption cycle or a profound paradigm shift.

Bank of America analysts Alice Ma, Chen Luo, and Lucy Yu pointed out that although both are social currencies, Labubu's social attributes are more based on the common interests and values of the younger generation, while Moutai's social functions rely more on power and hierarchical relationships. This difference reflects the essential distinction between "new consumption" and "traditional consumption."

Bank of America pointed out that, similar to Moutai, Pop Mart also faces dual challenges from the IP cycle and investment attributes. If there is a long gap between Labubu and the next hit IP, the company's global growth may slow down.

In addition, investors cannot ignore the two major risks of regulation and market congestion. The report reminds that the current phenomenon of capital concentration pouring into the "new consumption" track is quite similar to the previous trend of funds clustering around consumer blue-chip stocks represented by Moutai, and the fragility of such crowded trading may have a significant impact on valuations.

Bank of America maintains a buy rating for Pop Mart with a target price of HKD 275. According to statistics, Pop Mart's stock price has ranged from HKD 34.4 to HKD 283.4 over the past 52 weeks, closing at HKD 244.2 on Monday.

Generational differences in social currency

The Bank of America research team believes that while Labubu and Maotai both possess social currency attributes, there are significant generational differences. The social function of Maotai is more reflected as a productivity tool serving as a "social/business lubricant," whereas Labubu represents the younger generation's pursuit of emotional value, providing consumers with immediate, nuanced, and affordable "dopamine" experiences in the era of digital social media.

Analysts point out that in a digital world where consumers face "meaninglessness" and increasing pressure, Labubu suggests that China is gradually transitioning from an investment-driven model to a consumption-driven model. Moutai is deeply rooted in traditional Chinese culture, and its globalization process is still in the early stages, while Labubu, which aligns closely with the spirit of the global era, has already achieved significant global success.

Social attribute differences: Moutai's social attributes rely more on power and hierarchical systems, primarily serving business occasions; Labubu, on the other hand, represents the younger generation's social interactions based on interests and values, emphasizing emotional value and instant gratification.

Consumer motivations: Moutai can serve as a "productivity tool" (business lubricant), while Labubu meets the emotional value and "dopamine" consumption pursuits of young people in a digital social environment, reflecting China's shift from investment-driven to consumption-driven growth.

Globalization Process: Moutai is deeply rooted in Chinese traditional culture and is still in the early stages of globalization; Labubu, on the other hand, has already achieved significant success worldwide, aligning with global trends.

The double-edged sword of IP cycle risks and investment attributes

While growing rapidly, American banks also pointed out the dual challenges faced by Pop Mart, similar to those of Moutai, namely the dual test brought about by the IP lifecycle and product investment attributes.

Bank of America believes that whether Bubble Mart's net profit in 2025 is 8 billion or 10 billion RMB is not important, as it depends on the shipping speed of Labubu. Instead, what matters is how to balance recent growth and the IP lifecycle.

IP Lifecycle Risks: Moutai, with its century-long history and official endorsement, has proven its ability to weather cycles. In contrast, the histories of Pop Mart and LABUBU are only 15 years and 10 years respectively, making the IP lifecycle a core risk.

The report suggests that as an IP platform, Pop Mart's diversified IP portfolio can mitigate risks, but LABUBU is crucial for its global success. If there is a long gap between LABUBU and the next hit IP, its global growth may slow down. Moreover, the "mainstreaming" of subcultures, while driving growth, may also dilute LABUBU's unique social identity, thereby alienating its core consumer group.

The pros and cons of investment attributes: The history of Moutai shows that "investability" is a double-edged sword, acting as a booster during upward cycles and becoming an amplifier during downward cycles.

The report noted that Pop Mart is actively managing the second-hand market prices to ensure its appeal to young consumers and create a favorable environment for the release of new IPs and products. The recent drop in the second-hand prices of the LABUBU plush toy series is viewed as a result of Pop Mart's proactive management of supply and demand dynamics.

Unignorable regulation and market congestion

The report concludes by emphasizing that regulation and market sentiment are two other risk factors that investors must confront.

Regulatory risks: Moutai is always affected by policies such as price controls and anti-corruption campaigns. Similarly, Pop Mart is not in a regulatory vacuum. A recent article in the People's Daily reminded of the market-related risks. However, Bank of America analysts believe that as Pop Mart's consumer base becomes increasingly diversified, its "mainstreaming" reduces its risk exposure to minors in the Chinese market. At the same time, the growing overseas business (expected to contribute over half of sales by 2025) also helps hedge against regulatory risks in a single market. However, these risks may still negatively impact the company's fundamentals or trigger "headline noise" that leads to stock price volatility.

The vulnerability of "herd" trading: Dominant "crowded trades" may emerge in each cycle of the capital market. From 2016 to 2021, capital flowed into consumption blue-chip stocks represented by Moutai, which is quite similar to the current concentration of funds in the "new consumption" sector centered around Pop Mart. Changes in capital flow and positions can have a significant impact on valuations—Moutai's forward price-to-earnings ratio was close to 60 times at the beginning of 2021, while it is currently only 18-19 times. Although recent changes in capital flows have put some pressure on "new consumption" stocks like Pop Mart, the report believes that this "crowded" situation may continue for some time against the backdrop of a scarcity of quality investment targets. The real turning point may only come when meaningful inflection points appear in high-frequency data from overseas markets or when a strong recovery in the Chinese economy provides investors with more choices.