J.P. Morgan Cuts Pop Mart Target Again as IP Cycle Falters and Margin Risk Mounts Into 2027
J.P. Morgan's Asia Pacific equity research team issued a sobering pre-third-quarter note on Pop Mart on October 21, 2026, slashing its price target to HK$110 from HK$120 and reiterating an Underweight rating. The timing is significant: the report arrives as the designer toy giant's hypergrowth era appears to be giving way to a prolonged normalization, with sequential quarterly revenue declines deepening and the next viable IP catalyst nowhere clearly in sight.
From Hypergrowth to Hard Landing
The numbers tell the story bluntly. J.P. Morgan estimates Pop Mart's 3Q26 revenue will decline approximately 37% year-over-year, with 4Q26 expected to narrow but still contract by around 23%. Full-year 2026 earnings are forecast at RMB 9.3 billion (approximately US$1.3 billion), down 27% year-over-year — a dramatic reversal from FY25's RMB 12.8 billion print, which itself represented a nearly 300% jump in adjusted EPS.
The geographic split is where the structural tension becomes most apparent. China remained resilient through the first half of 2026, growing 47% year-over-year. Overseas, however, the story has inverted sharply: overseas revenue fell 11% in 1H26, with J.P. Morgan estimating a 44% year-over-year decline in 2Q26 alone. Overseas operating margins compressed 14 percentage points year-over-year to just 30%, while the company's group net margin is modeled to fall to 26%, down 9 percentage points year-over-year.
The culprit, in large part, is the hangover from "Labubu mania." The viral 2025 IP cycle set a near-impossible comparable base, and the follow-through has been underwhelming. Labubu 4.0, which launched in 3Q with a World Cup tie-in, "had all the ingredients — interactivity, 3Q timing, World Cup tie-in — but still underwhelmed, partly due to limited World Cup content and aesthetic fatigue," the analysts write. New IPs including Supertutu, Merodi, and KeyA have posted "modest first-run sales and limited resale premiums," while legacy characters continue to do the heavy lifting.
Big Stores, Bigger Stakes
Pop Mart's strategic response to decelerating demand has been to double down on physical retail — a bet that is raising eyebrows at J.P. Morgan. The company has shifted from a "small stores first" playbook to large flagships in prime global locations. New York now boasts three locations including a 430-square-meter SoHo duplex across two floors, while Paris is set to receive a 1,400–1,500 square meter flagship facing Galeries Lafayette.
Domestically, an upgraded concept store in Nanjing's Xinjiekou district signals a push toward experiential retail and ecosystem-building. The ambition is clear — but so is the financial exposure. As J.P. Morgan puts it: "'World's largest' sounds great — but it also comes with higher rents, longer leases, and less room for error." The analysts flag the critical unanswered question: "Could big stores become a burden if the next IP cycle takes longer to arrive?"
Store build-outs and upgrades quarter-to-date are tracking slightly ahead of expectations. But the mismatch between rising fixed costs and decelerating product momentum is the core margin risk heading into 2027, where J.P. Morgan sees adjusted net income recovering only modestly to RMB 10.4 billion — still well below FY25 levels.
The Product Problem Is the Real Problem
Beyond the store expansion debate, the more fundamental challenge is Pop Mart's IP pipeline. The analysts are unsparing in their diagnosis: "Super IPs take years to build and are hard to mass-produce." Restocking erodes scarcity — and scarcity has been the engine driving resale premiums and the attendant social media hype that amplifies demand.
There is also an aesthetic risk that scales with ambition. KeyA's cyber-mechanical design "faced pushback, a reminder that the broader the audience, the narrower the room for edgy design." One recent bright spot: Zsiga's Mini Action Figure, released in September, sold out across channels in mainland China and Hong Kong — a sign that individual IP hits remain possible, but not yet a trend.
What Needs to Change to Move the Stock
J.P. Morgan's base case price target of HK$110, set to June 2027 and pegged to 12x 2027 estimated P/E — in line with China consumer discretionary peers — implies further downside from current levels around HK$129.80. The stock has already de-rated sharply from a peak of 30x P/E in August 2025.
For the investment thesis to improve, the analysts argue Pop Mart must answer two questions credibly: what drives 2027 growth across content, product, and channel; and what "normalized" margins should look like. Longer term, J.P. Morgan acknowledges an intact competitive position and meaningful overseas white space — over 250 additional store opportunities — but insists the market must rebase expectations first. Until overseas execution stabilizes and a new IP cycle gains traction, the path of least resistance for the stock remains sideways to lower.
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