Shein completes IPO in Hong Kong at a valuation of $26 billion

Shein has completed its initial public offering on the Hong Kong Stock Exchange at a valuation of approximately $26 billion, after raising $1.7 billion. This valuation is significantly lower than the company's previous valuation, which reached nearly $100 billion in 2022. However, for some investors, even the current valuation may be too high, given the slowdown in growth and increasing pressures on the fast-fashion giant's business model. Trading will begin on September 1.

Shein's market value was previously higher than that of the parent companies of fashion giants H&M and Zara, making the company's founder and CEO, Sky Xu, one of the richest businessmen in the world, with a personal fortune of more than $23 billion. But within just four years, the picture has changed dramatically: Shein is currently facing tariffs, political criticism, and increasing competition, and Xu is expected to see his fortune drop to about $8 billion following the Hong Kong IPO, according to the Bloomberg Billionaires Index.

The company's valuation at the IPO is expected to be just over a quarter of the $100 billion valuation it was given in 2022. The IPO gives Shein a multiple of more than 15 times projected earnings, according to Bloomberg Intelligence calculations. For comparison, PDD Holdings, the parent company of competitor Temu, trades at a multiple of only 7.4, while the Hang Seng index multiple stands at 10.7. The gaps highlight the central question surrounding Shein: can the company still justify a relatively high valuation when its growth rate is weakening?

According to Bloomberg Intelligence, Shein's annual sales are expected to grow by only 3.4% next year, reaching $44.3 billion. Net profit is expected to be $1.7 billion. The company, which was founded in China and is now based in Singapore, built its business on a data-driven supply chain that allows it to produce small quantities of clothing items quickly, identify demand, and expand production of successful items. The model allowed it to offer consumers around the world fashion at extremely low prices and grow rapidly during the COVID-19 period, when online commerce surged.

However, its competitive advantage is currently facing a series of challenges. Tariffs are hurting growth, and at the same time, Temu is increasing competition in key markets such as the USA and Europe.

"At a 15 multiple on earnings, the stock is already pricing in some of the growth recovery, even before the company has managed to deliver it," said Gary Tan, a portfolio manager at Allspring Global Investments. "Investor appetite after the IPO is expected to be cautious until management proves that the change in its business model can reignite growth."

The IPO also comes at a time when investor funds are largely being directed to companies related to artificial intelligence. Shein will need to prove that even an online commerce and fast-fashion company can justify a high multiple in such an environment. In this sense, the comparison to Alibaba is particularly interesting. Shares of the Chinese online commerce giant in Hong Kong also trade at a multiple of about 15 times projected earnings for the next 12 months, but Alibaba enjoys the status of a long-standing and established player, while simultaneously investing aggressively in the field of artificial intelligence.

"I'm not really sure what their unique advantages are that would make me think I must hold this stock in particular," said Edmund Harris, Chief Investment Officer at Guinness Global Investors. "I suppose I'm quite happy with my 10% holding in Alibaba in the China fund. They are a long-standing and established player. I know how they operate today, and they are exposed to the same competitive pressures."