Motley Fool Hidden Gems Investing - The Labubu Economy

Starting point is 00:00:00 Today on Motley Fool Money, we're breaking down the collectibles economy and how businesses turn plastic into profit. I'm Emily Flippen, and today I'm joined by analysts Sanmeet Deo and Asit Sharma to discuss the latest craze in the industry of collectibles, the boo-boos. Along the way, we'll dig into how the hype cycle has helped perpetuate these fads and explore the successes and failures of previous collectible manias to help evaluate how investors should best play it. But to start, let's clarify the anatomy of what a craze is.

Starting point is 00:00:43 Saadmeet, you've lived through more than one craze, and regardless of what industry it is, you said there's always some similarities. Now, before we get into exactly what a lububu is, because I'm still not sure I know, what actually is a craze? And how is that different than just like a sustainable trend? So craze is really an intense collective impulse that burns incredibly bright, often for a very short time. Think of it like a flash fire in consumer marketplace, spreading virally before quickly burning itself out. And we've seen it time and time again with Beanie Babies in the 90s, Fidget Spenners a few years ago. And the driving force of this is really

Starting point is 00:01:16 a powerful cocktail of human psychology. You have FOMO, our desire for novelty, and the simple need to feel like part of the group. You know, today's craze has become more sophisticated as companies pull on specific levers to build the hype, such as gamification, of buying, engineer scarcity and exclusivity, community, and character and aesthetic design. When I think about what defines a craze personally

Starting point is 00:01:38 versus something that is maybe more sustainable, it's like that desire that you just mentioned that almost capitalizes on our human nature to not want to miss out on things, right? There's always these little, I don't know if to call it gamifications, but elements that are almost taking advantage of human psychology, where if you feel like you're not participating, you are actively falling behind. Absolutely. You know, they're not just

Starting point is 00:01:58 a transaction anymore. It's like you said, it's a game. They're creating a dopamine hit from like a reveal like you would in a blind box where you're like, what am I going to get? And you open it up and you're like, wow, this is what I wanted. Or wow, this isn't what I wanted. You know, the companies release limited editions and collaborations, creating like a sense of urgency to buy. And then you have social media, which is like rocket fuel, which causes even more hype. So, you know, none of this really works unless you have like an appealing product, you know, a cute, lovable toy character like Hello Kitty, or adorably ugly character like Lububu, you know, it's really about creating an emotional connection with those products.

Starting point is 00:02:39 Yeah, I always struggle with that difference between what is technically cute and what is technically ugly. And Lububu is unfortunately fall into that middle ground for me, although maybe a little bit more to the latter. Asit, speaking of things that may be a little bit cuter than a little boo-boo, but something that we all maybe fell for back in the late 1990s, that is the beanie mania. But is there really, when you look at the industry, something fundamentally different about the market for collectibles or crazes in 2025 versus even just a handful of decades ago? Emily, first, I want to protest. I never fell for beanie mania. Kidding, kidding. I actually did. For a short time, I did. Well, so when I look back through

Starting point is 00:03:16 the lens of crazes and fads, I think the entire collectible cycles has sped up over the last three decades. Consumer psychology, that's not changed one bit. For instance, if we look at the time it takes for someone to come up with an idea all the way to distribution, that time frame has shrunk dramatically due to the ease of designing a product these days, contracting with a third party to manufacture it, and marketing it. Hello, viral algorithm. Also, dropshipping has become so simple. I also note that the average length of a craze or fad is so compressed. The craze portion of the Beanie Babies fad lasted four years, Emily, from 1995 to 1999. That would count as insane longevity in today's world. Also, past decades had a really difficult playing field for creators.

Starting point is 00:04:08 It's more level now. You don't have to be PopMart. Cheap tech tools are there for the three of us to start our own fad. I hope you guys will join me. And we can facilitate these profits by employing those blind box strategies. And of course, using the phenomenon of Chinese dropshipping. Although today, now we might have to be paying a little bit of de minimis tax on that shipping. Hey, with these crazes as crazy as they are, I think a lot of people may be willing to do exactly that. But I mean, outside of just the existence of these fads, what else have you noticed? Because the world is very different today than it was in the past. I mean, the internet being one good example. Right. The internet has made a more formalized economy out of the collectibles

Starting point is 00:04:47 system. So we have these exchanges like StockX, where, Emily, you can buy me a pair of Jordan 1 OG Chicago 1985s for $45,000, right after we finish taping today. Sure. I'll take one too. Throw one in for Sunmeet. Digital collectibles, that's also a newer feature of the landscape. Although NFTs really haven't fulfilled their early hype, they're showing some staying power within a smaller group of enthusiasts, which brings us to the rise of subculture collectibles. TikTok, Reddit, Pinterest, Instagram, you name it. Every major platform facilitates a collectibles culture for small groups of like-minded enthusiasts. There is a craze for everyone, even for me. I won't name the one that has obsessed me. But the way that we buy and trade these objects we obsess over really reflects our current

Starting point is 00:05:39 plugged-in culture. And I know that a lot of our listeners are probably thinking to themselves, that's exactly what I'm doing with a little boo-boo right now. And stick with us, because up next, I will finally get to what a little boo-boo is and why so many people are interested in collecting them. We'll see you after the break. stop wasting your nights on a mattress that doesn't get you experience the most comfortable mattress in the world the sleep number smart bed at the touch of a button you can personalize your

Starting point is 00:06:09 comfort choose firmer or softer adjust cooler to warmer and right now save up to twenty five hundred dollars during our massive labor day event hurry into your local sleep number store today because we have your number. Labooboos. It's a word that perhaps means absolute nonsense to many of our listeners, but to others, I think it probably invokes excitement. In my case, I think it invokes a lot of skepticism.

Starting point is 00:06:37 Of course, that is my core personality trait. But this is a plush that has become incredibly popular, owned by a Chinese IP giant known as PopMart. Calling it cute to our earlier point, I think is being perhaps a bit generous. But regardless of what you think about how the boo-boos look, people are increasingly demanding on collecting them, whether that be for prestige, FOBO, or a potential rise in value. So I mean, when you think about the boo-boos and the parent company that owns the boo-boos and PopMart, is this a, I guess, a trend of fashion? Is it even

Starting point is 00:07:11 investable? Or is this truly just our next craze? Well, you know, PopMart, while many may think is just a toy company it's actually really an intellectual property company you know they are the ones that own uh the lububu brand they worked with the creator kasing lung you know they were traditionally a licensing they licensed ip of like known characters and then they've transitioned more into essentially acting as the whole design marketing production of of these um of these properties um so by owning the property ip like lububu molly skull panda are the ones that they have you know they aren't paying massive licensing fees you know they in 2023 their proprietary ip out accounted for over 80 of the revenue which is a huge shift from the early days

Starting point is 00:07:58 when they were just um licensing and and um products you know they have a multi-channel sales model of 500 plus stores and more than 2 000 robo shops which are basically high-tech vending machines where you could just get a lububu as if you were to get a coke um and they're planning on aggressively opening in the US, Europe, Middle East. So they're making a name for themselves. For investors who are looking to ask themselves, well, maybe I don't want to own Olabubu. I want to own shares of PopMart. This is a company that is based in China. It is listed on its main shares on the Hong Kong exchange, but it does trade over the counter here in the United States under the ticker PMRTY. Now, personally, I would hesitate against telling

Starting point is 00:08:41 anybody to buy shares of PopMart today because I see how much shares have run up. And I also can't help but think to myself that surely PopMart and Labubu's, this is just a one-hit wonder, right, Samit? I think it's just a one-hit wonder. The company actually only makes 35% of the revenue from actual Labubu's or that product line. They have three other brands, which each of them make about a billion in RMB and revenue each. And they're expanding into new categories like plush toys and other things. But their revenue has been explosive. Their growth has been explosive. Revenue has grown from 2.5 billion RMB in 2020 to over 6.3 billion RMB in 2023 to 13 billion RMB in 2024. And now they're running at a 13.9 billion run rate in 2025 for over the first half.

Starting point is 00:09:29 And they're profitable. They've grown to close to 4.7 billion in RMB over the first half of 2025. That's 363% over the last half year over year. So the stock, too, has been a rocket ship. Just over the past year to date, it's been up over 200%, resulting in a $43 billion market cap, making that eight times bigger than Mattel and four times bigger than Hasbro. Will it all last? I think they could successfully expand the world of the booboo beyond just collectible figures into storytelling, animation, games. You know, if they can do that, then they can kind of create something valuable. And I'll leave you with one brand that we know very well, Hello Kitty, and how it expanded from just being one character to a cultural phenomenon. And I didn't even know this, but it's one of the highest grossing media franchises in history with an estimated $80 to $90 billion in lifetime retail sales. Will that happen for PopMart and LeBubu's? Not sure. Can we predict it? Absolutely not. You know, Sanmeet, you've laid that out so well. And PopMart, for me, is an example of both the opportunity in this market and its craze-driven cyclical nature. PopMart was an early adopter of this blind box strategy that we talked about, so not knowing what's in the box until you buy it.

Starting point is 00:10:49 And I think out of those 500 stores you mentioned, they had maybe 300 by the 2010s. They had thousands of vending machines, the snazzy online presence in China, and that sort of mapped out for them all their sales and distributions and logistics channels. They were pre-built right in time for the first big craze that they capitalized on, which was the Mali craze of 2016. This was a concept by Hong Kong designer Kenny Wong. Now, even though it creates IP alongside designers like Kenny Wong, PopArt has a very traceable flow of ebbing, peaking, ebbing again, inventory.

Starting point is 00:11:27 At the end of the day, it's extremely hard to consistently capitalize on craze-driven collectibles, which I think is a little bit of the hesitancy I hear in Emily's voice. Both trend observers, I'll note, and ethologists, who are people who study the animal kingdom, the behavior of animals, refer to the breaking of a stampede or craze as the turnabout or the reversal. And already, I think we see some evidence that the Labubu craze, to pronounce Labubu the way Emily did, it's sort of fading. Stock price has come off of those great highs. There are many stories in the press that sales are faltering a bit. Now, I do think PopMart has a great opportunity to use this windfall from Labubu to invest in new properties. Their cash

Starting point is 00:12:13 balances have doubled in short order to about 12 billion RMB since the beginning of this craze, which is just over a year's length in time, although inventory and payables have increased also. So while the shine has faded somewhat from earlier crazes that they made good money off of, like Molly and Skull Panda, those have become reliable and evergreen brands. To me, what comes next is the question. And that's always the question with collectibles companies, the ones that are seeking to spike interest through initial scarcity and that blind box demand. Your positivity from both you, Asad, and Samit, I mean, it's reassuring to me. And I love the comparisons here to the other kind of licensed IP plays that have succeeded. And Hello Kitty,

Starting point is 00:12:58 who has created an entire brand around a single character. And I do have a tendency as an investor to let these things go and be hyper-focused on what could go wrong as opposed to what could go right. But there is still some part of me that can't help but think Funko Pop, Funko Pop, Funko Pop when I look at this business. And there's a difference there, like you mentioned, Samit, between the licensed IP versus the owned IP. But fads come and go so quickly. And I have historically done such a poor job of predicting if and when that dam will break. Up next, we're moving over to past crazes and what investors can learn from them. Stick with us. Now, when we think about collectible crazes, we've already talked a little bit about Beanie Babies, but there's countless others, right?

Starting point is 00:13:41 Pokemon, Funko Pops, which I just mentioned, and even sneakers are other good examples. But even knowing that fads are inevitably going to die out, I mean, Sami, do you really think there's an effective way for an investor to play the industry and actually make money? I mean, it's a tough industry, you know, you know, outside of buying the origin of the craze, like Pop Mart for the boo boos, which is highly risky, and possibly not recommended. There's some diversified ways, like if you're investing in Mattel or Hasbro, you know, sometimes some of their franchises start to revive think Barbie, you know, and do well, you know, they also have a portfolio brand. So you're not subject to one hit wonder risk. Obviously, there's also the picks and shovels way where you can invest in marketplaces where these things are sold in the secondary market like eBay, Etsy, I think, or other popular places. Sometimes the retailers, Target, Walmart, big retailers sell some of these products. They get a short-term bump in sales, although it may or may not have much of an impact on their massive amount of sales. So it's a difficult place to invest in, but definitely worth exploring what's out there. When I worked on our cannabis portfolio here at The Fool, when I thought about allocational,

Starting point is 00:14:57 it's kind of a similar mindset to what you just mentioned, Sami, which was I was not opposed to getting some direct exposure to these businesses that were highly risky, very fatty, could go to zero or go to 100, so to speak, but at the same time mixed it with businesses like Home Depot and others that kind of made a more diversified, safe portfolio. So I love that way of playing it. If somebody is looking to capitalize off these fads, but also maybe doesn't want to potentially overexpose themselves. But Asit, I already expressed how I feel about the pop parts of the world. It's caused me to lose out on hundreds of percentage points of return. I'm sure. Surely you have a more positive take on the industry than I do. Well, Emily, I'm going to be completely honest here. Let's avoid these types of businesses. There are much easier places to invest. I personally haven't found a lot of success playing this industry. For the companies that deal in physical goods, there's usually a lot of excess inventory to work off once a craze dies down. And this makes stock investments in collectible businesses just like a bumpy ride. And for models that lean towards licensing, remember, there's a cost to procuring intellectual property and trademarks that are going to generate revenue, especially if the deals are exclusive. Build the IP like PopMart if you can. At any rate, all these companies have to be pretty good at identifying the right brand properties. You've got to nail product and distribution, not to mention the timing to capitalize on a craze with your inventory and your sales channels. To do this consistently is just such a tall order.

Starting point is 00:16:30 And Emily, I'm having deja vu of sending you a Slack late one workday saying, man, I am so interested in this company, Funko. I think it's got the perfect formula between inventory and licensing its intellectual property. It's got a great warehouse, automated systems. This is going to be the next big collectibles thing. And I recommended that in a service and I think sold out of it maybe nine months later. You know, as Sanmeet mentioned, marketplaces may be the better place to look. You know, buy the company that gets a cut out of every collectible transaction.

Starting point is 00:17:03 Gamblers and stock traders are already familiar with this concept. The house always wins. Well, you set me up nicely here, Asit, for my kind of lightning round last question before we wrap up today's podcast. And that is, if you were going to play this trend, right, which collectible or crazed stock you would buy in order to play it? And I'm happy to start. It's in that similar vein that both of y'all mentioned, although maybe a little more out

Starting point is 00:17:27 there. This is a Chinese company known as Bilibili. The ticker is B-I-L-I. This is an old Rule Breakers recommendation that was actually sold a number of years ago. But this is a marketplace or video live streaming place, I suppose, for Gen Z consumers in China. And you can kind of imagine it like a hybrid between TikTok and YouTube. And it doesn't directly benefit. So it's much more of the picks and shovels play.

Starting point is 00:17:52 they aren't actually a marketplace in the sense of where you trade or exchange la boo-boos, so to speak. But it does benefit from having a really young audience who tend to be the people who benefit and hype up these types of crazed trades. And the stock has done incredibly well as engagement on the platform has soared. I guess I'll pop to you, Sandmeet. Are you popping in on PopMart? No, I mean, look, in honor of our rule breakerness. Pop Mart is one of those names that if you make it a small speculative position, a broader portfolio, it could be worth trying to risk it. But I wouldn't take a big, big bet on it. What I would do is picks and shovels, which I love to play. And the ultimate for this is eBay.

Starting point is 00:18:34 They are the world's marketplace. It's almost like a great secondary market for any kind of collectibles comics plush toys anything you can think of high volume deep ecosystem authenticity you know you're you're safe and secure and your payments and dispute resolution so it's a great place to go to to buy and sell these things another place is kind of another play is you know meta because lots of marketplace you know secondary markets are being done on their marketplaces section. And it's growing in volume and interest. The tickers for those are eBay, E-B-A-Y, and Meta M-E-T-A. The great tickers that match exactly their name. Asit, I'm looking at my show notes here, and I think I know the company you're going to mention

Starting point is 00:19:23 who also has a ticker that matches its name. A company that's already playing around the margins of the collectible space with its exclusive deals on high-end watches for some of its affluent members and wildly popular deals on gold bars. Yep, you guessed it. This is Costco, symbol C-O-S-T. I think management has realized that they have a very powerful new revenue stream. They can direct a lot of dollars in member interest towards sort of the exciting thing of the month. And what is that but a collectibles type of trend? Now, Costco is selling about $200 million in precious metals to its membership every month. So you can see the power of directing this purchasing power at something new in the future. I think we're going to see more of this next stop,

Starting point is 00:20:15 the famous Costco $1.99 pizza slice in plush toy format. You heard it here first, guys. Well, one of those I can eat and one of those I can't. So I think I know where I'm going to first. But I do think the value of these picks says a lot about this industry. And it's similar to how the boo-boos go crazy or whatever the fad is. And there's a feeling of missing out. And I think for investors who will look at the performance of a business like Pop Mart or other collectibles, Funko Pop during its heyday, will say to themselves, I'm missing

Starting point is 00:20:44 out. I have to get in on this. I have to jump in. And as we know from the inevitable downfall of these crazes, oftentimes there's also an inevitable downfall of the parent company who owns these craze as well. And so I love the idea that sure, that might be an interesting, risky, but small investment for the right investor. But at the same time, there's so many other more diversified, more stable ways that somebody can get a little bit of exposure and build their portfolio to benefit from this trend while not

Starting point is 00:21:10 being dependent upon the trend as well. Samit and Asit, thank you both so much for joining for today's show. Thanks a lot, Emily. Thank you, Emily. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Sami Deo, Asit Sharma, and the entire Motley Fool Money team, I'm Emily Flippen. We'll see you tomorrow.

Starting point is 00:21:45 Thank you.

Motley Fool Hidden Gems Investing - The Labubu Economy

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