Shein’s aspiration for a valuation approaching $50 billion in its highly anticipated Hong Kong IPO is poised to encounter formidable skepticism from investors.
This cautious outlook is primarily driven by new tariffs on e-commerce parcels in Europe, which are expected to dampen both sales growth and profitability.
The retailer, known for its swift fashion cycles, aims for a valuation between $40 billion and $50 billion in its forthcoming IPO.
This marks a stark decline from the $100 billion valuation rumored during a funding round in 2022, at which point the company was exploring a listing in New York.
Recent reports indicate that Shein generated over $40 billion in global revenue last year while achieving nearly $2 billion in net profit, according to two unnamed sources familiar with the matter.
However, in 2024, Shein’s revenue stood at $37 billion, with a profit of $1.29 billion, based on its latest results filing in Singapore.
Compounding Shein’s challenges is the European Union’s recent implementation of a €3 fee on low-value e-commerce imports, aimed at curbing what the EU perceives as unfair competition from China.
This development is likely to hinder Shein’s growth trajectory this year. CEO Sky Xu must persuade investors that this is merely a transient setback, with prospects for recovery in 2027, according to one insider.
Notably, Europe accounts for one-third of Shein’s revenue, with most products sourced from China, as per Euromonitor data.
“If its valuation is pegged at $40 billion, it may still be viewed as somewhat overpriced. A figure closer to $30 billion might appear more inviting,” remarked Eddie Tam, chief investment officer at Central Asset Investments in Hong Kong.
He elaborated on the European fees’ substantial influence: “The issue lies in the fact that the company is currently on a downward path, as e-commerce competition remains fiercely aggressive both domestically and abroad,” Tam added.
Shein, whose final pre-IPO hearing before the Hong Kong stock exchange listing committee was scheduled for Thursday, has begun gauging investor sentiment ahead of a public filing anticipated by the end of the month.
The company is targeting a September listing. A Reuters inquiry on Thursday did not elicit an immediate response from Shein.
New Fees Dampening Demand in Europe
Once able to enter the European Union duty-free, e-commerce parcels valued below €150 ($171.96) now incur a €3 fee per customs code.
This means that a package containing five different items could attract a fee of €15. “For consumers accustomed to purchasing €3 T-shirts from Shein, the new pricing essentially doubles the cost, a significant increase even if these prices remain lower than local alternatives,” noted Juozas Kaziukenas, an e-commerce analyst.
“This change is adversely affecting conversion rates and has led to a reduction in marketing expenditures,” Kaziukenas explained.
In light of these changes, Shein has been enhancing warehouse capacity in Wroclaw, Poland, while bulk shipping top-selling products to the EU.
However, akin to competitor Temu, it has curtailed advertising spending in Europe, according to an analysis by Smarter Ecommerce, which is based on data from Google advertiser auctions, as the company awaits consumer reactions to the inflated prices.
This stands in stark contrast to May of the previous year, when both platforms ramped up marketing efforts in Europe, hoping to offset diminished growth in the US following the Trump administration’s discontinuation of its “de minimis” duty-free policy.
While Shein managed to pass higher costs onto US consumers, absorbing such increases in Europe proves more challenging due to a more price-sensitive demographic.
Investor uncertainties regarding Shein’s IPO valuation illuminate the substantial shifts within the industry since PDD Holdings, the parent company of Temu, made its public debut on the US Nasdaq in 2018.
At that time, Pinduoduo, as it was known, raised $1.63 billion in its IPO, achieving a valuation of $23.8 billion, with shares soaring 40% on their inaugural trading day, inflating its valuation to $33 billion.
Notably, PDD was operating at a loss, with revenue significantly less than Shein’s current figures. Since then, the Chinese e-commerce landscape has become markedly more contentious, with companies like Temu and Shein increasingly perceived as undermining the retail sector—a major employer—across both the US and Europe, drawing the ire of politicians and regulatory bodies alike.
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