As we approach the end of 2024, one concept has captured the imagination of investors in China's capital market: the "Guzi Economy". This term, which is a phonetic translation of the English word "goods," broadly refers to merchandise associated with popular intellectual properties (IPs), including comics, animations, and gamesThe Guzi Economy resonates particularly with the younger generation, as it promises emotional value that transcends traditional economic fluctuations and consumer market trends.

In this booming environment, notable players like Pop Mart in Hong Kong and domestic companies such as Yao Ji Technology, Aohui Entertainment, and Tom Cat (300459.SZ) have seen stock prices soar dramaticallyInvestors who missed out on these opportunities are now left pondering: which emerging star in the Guzi Economy could be the next big winner?

On January 10, the Hong Kong market provided an exciting new contender: Blok, a leading manufacturer of character-building toys, was set to debut on the Hong Kong Stock Exchange

The story behind Blok's establishment is steeped in unique entrepreneurial spiritIn 2009, visionary Lin Qi and industry expert Zhu Weisong co-founded Youzu Interactive, which rapidly ascended the ranks of the gaming industry after going public in just five yearsHowever, Zhu envisioned a new venture, and after stepping back from Youzu, he founded Blok with an angel investment of 100 million yuan from Lin.

Blok's headquarters is conveniently located in the Caohejing area of Shanghai, close to Youzu's own officeInitially, Blok was a modest building block company until 2019, when the team recognized an opportunity in the character-building toy market and pivoted to develop related products.

Their breakthrough came in 2021 when they acquired the license for the Ultraman IPBy 2022, they released corresponding products and shifted their focus to offline sales through key distributors such as Toys “R” Us and Walmart, propelling the company onto a fast track of growth.

In contrast to major brands like LEGO, Blok has positioned itself in the value-for-money segment

• Global Monetary Policy Enters Rate Cut Cycle
• Budweiser Hikes Prices in 2024
• Honor's Public Offering Faces Multiple Challenges
• US Treasury Yields Push Toward 5% Amid Ongoing Impacts
• Fed to Cut Rates by Only 75 Basis Points in 2025

The majority of its products are priced between 9.9 yuan and 300 yuan, with a particularly popular price point around 39 yuan, and a notable portion priced at 9.9 to 19.9 yuanBetween 2021 and early 2024, the average price of Blok’s products has notably dropped from 89 yuan to 19 yuan.

This strategic pricing, coupled with a rich product array and a comprehensive sales strategy, significantly boosted sales figuresFrom 2021 to 2023, Blok's toy sales skyrocketed from 3.594 million units to 37.4 million units, with a further surge in the first half of 2024 to 56.461 million unitsIn the same period, revenues reflected an encouraging upward trajectory, increasing from 330 million yuan and 326 million yuan in the previous years to 877 million yuan, and projected revenues for the first half of 2024 soaring to 1.046 billion yuan, marking a remarkable 237.6% increase.

According to data from Frost & Sullivan, Blok has climbed to the position of the largest character-building toy manufacturer in China, capturing significant portions of the market: 5.5% of the total toy market, 14.3% of the character toy market, and an impressive 24.4% of the character-building toy segment.

At first glance, Blok’s product offerings, corporate structure, and growth trajectory echo the early days of Pop Mart

Additionally, the interactive nature and playability of character-building blocks set them apart from the collectibles typical of pop culture trends, positioning them as a fresh alternative for enthusiasts.

However, the most notable challenge lies in Blok's lack of a core IPWhere Pop Mart effectively leveraged proprietary characters such as Molly to gain significant market traction, Blok is currently heavily reliant on licensed IPs, particularly Ultraman, which accounted for a staggering 63.5% of total revenues in 2023 and 57.4% in the first half of 2024.

As the IP economy rises globally, companies like Blok face stiff competition not just from other toy manufacturers, but also from card companies and amusement parks capitalizing on these wealth-generating franchisesWhile this trend has led to a flurry of stocks tied to Ultraman and similar properties, the dependency on licensed IP undermines Blok’s business sustainability, eroding its competitive edge and presenting risks upon the expiration of these licenses in 2027.

With the pursuit of competitive pricing for their toys alongside the high costs of IP licenses, Blok is currently operating at a significant loss, with net profits declining from -507 million yuan in 2021 to -207 million yuan in 2023, and losses continuing to widen into early 2024, reaching -255 million yuan.

In a perplexing predicament, Blok finds itself stuck between a rock and a hard place: Without external IPs, product sales stagnate; with external IPs, they face both operational risks and a diminished profit margin

Despite these challenges, it seems Blok is committed to maintaining its path within the licensed IP sphereThe company’s once broad portfolio of four major IPs has unfortunately dwindled to primarily Ultraman, Transformers, and the “Hero Unlimited” series.

In recent months, Blok has actively pursued new IP licenses, securing rights to popular franchises such as Super Sentai, Mobile Ultraman, DC Comics' Superman and Batman, as well as the Harry Potter and Star Wars universesThe expansion of their IP operations reflects a calculated strategy to bolster their market presence.

The pressing question now is: Who might emerge as Blok’s next Ultraman? Will this scattershot approach to external IPs lead to a new "Guzi Miracle"? Can Blok leverage its existing assets and partnerships to tap into a moment of significance? As the company prepares for its IPO, investors and analysts alike await the market’s forthcoming judgment.