Shein has spent a decade proving how many people will buy a US$5 dress, but on day one in Hong Kong, it learned that shoppers and shareholders are buying two very different things.
Shares fell as much as 10% despite only 6.6% of the company being floated, in a market that has delivered a string of successful debuts this year.
Josh Gilbert, Lead Analyst, Middle East at etoro explains that scarcity like that is supposed to flatter a listing, so falling anyway is a telltale sign.
Listing around 70% below the 2022 peak looks like a bargain only if the old price was sensible, and that number was set at the height of the pandemic e-commerce boom.
Revenue growth has since slowed from 21% to 8%, and first-quarter sales barely moved. Looking at earnings, Shein is on more than 15 times forward, roughly double PDD, and let’s not forget this is a growth story that is still being rebuilt.
A heavily discounted valuation is not the same thing as a cheap stock, and the market said as much by pricing Shein below H&M, the incumbent it was meant to be replacing.
The debut clearly hasn’t been a roaring success, and keeping customers is the next challenge, because the thing customers love most is the thing getting hardest to protect.
Daily active users in Europe have fallen around 45% since the EU scrapped its duty exemption on small parcels, and Temu has seen a similar drop.
This is less a Shein problem, but more so the end of an era for cheap cross-border shipping. The brand’s reach is unquestionable, but a large share of that loyalty has always belonged to the price tag.
For the business to grow into its valuation, the supply chain has to become a second product, rented out to other brands through the marketplace and deals like Everlane. With almost US$15 billion in cash, Shein can afford to build it.
Investors have just told the company they want to see it working before they buy in. March is the genuine test, when the lockup expires, and far more stock becomes tradable. Between now and then, Shein needs to prove there’s an engine room worth paying for behind the label.
