Shein's slowing growth tests investor appetite ahead of Hong Kong IPO

Shein, the fast-fashion retailer, is facing investor skepticism as its IPO valuation is being questioned due to slowing growth, rising costs, and changing market conditions. Even after reducing its IPO valuation to $30 billion to $40 billion from a peak of nearly $100 billion, five investors who reviewed the company's financial statements remain unconvinced that Shein can return to its previous growth rates.

The future of the company is seen as challenging, primarily due to fierce competition and pressure on its core business model. Some investors believe that Shein's expansion into in-house brands is not a significant growth avenue. Another investor suggests that Shein is a mature e-commerce business with a valuation that should reflect a more modest growth outlook, with a price-to-earnings (P/E) ratio closer to that of PDD Holdings.

Shein's IPO is expected to launch as early as August 19, with Morgan Stanley analysts estimating a fair value range of $39 billion to $52 billion based on projected 2027 earnings. The European Union's new customs regime is also impacting Shein's business, as it has led to increased costs and reduced demand. While Shein's revenue grew by 41.1% in 2023 and 20.7% in 2024, purchase frequency has remained unchanged at roughly four orders per year.

Investors are scrutinizing Shein's customer metrics, with the company's marketing spending increasing to $1.43 billion in the first quarter from $1.09 billion a year earlier. Shein has not marketed itself as an AI company, instead viewing the technology as a tool for more efficient supply chain operations.