Interpretation of New US Stocks | Chagee Holdings Ltd. goes public in the US with "Bo Ya Jue Xian", can the big product model conquer Wall Street?

In 2025, the new tea beverage sector is bustling, with "entering the capital market" becoming a key industry phrase. Following the successful listings of Gu Ming and Mi Xue Bing Cheng in February and March, another new tea brand has rushed to the IPO front in April.

According to Zhitong Finance APP, on April 17, the Chinese milk tea chain brand Chagee Holdings Ltd. (CHA.US) successfully listed on NASDAQ. On its first day of trading, the company's stock price soared nearly 50% before retreating, ultimately closing up 15.86% at $32.44, with a total market capitalization of $5.95 billion.

Behind the increasingly crowded new tea beverage sector, how does Chagee, highlighted by its national style, perform?

Rapid Expansion of Sales Network and Impressive Revenue Performance

According to the prospectus, Chagee was established in 2017, focusing on high-end freshly made tea beverages, with the goal of promoting Eastern tea drinks to the world. As of 2024, the company has 6,440 stores globally, with 6,284 stores in China, accounting for over 98%, covering 32 of the 34 provincial divisions in China, and 156 overseas stores mainly distributed in Southeast Asia. According to iResearch, as of December 31, 2024, Chagee has become the largest high-end fresh tea beverage brand in China in terms of the number of stores.

Meanwhile, the company's operating data has also shown rapid growth. In 2022, 2023, and 2024, the company's net income was 492 million yuan (RMB, the same below), 4.64 billion yuan, and 12.406 billion yuan, respectively, with a compound annual growth rate of 402.15%; the company's GMV was 1.294 billion yuan, 10.792 billion yuan, and 29.458 billion yuan, with a compound annual growth rate of 377.13%.

Looking at net profit, in just three years, the company has achieved a turnaround from loss to profit. In 2022, the company recorded a loss of 907 million yuan, while in 2023, it achieved a net profit of 803 million yuan, and this figure reached 2.515 billion yuan in 2024, a year-on-year increase of over 213%.

Zhitong Finance APP noted that in recent years, the number of Chagee stores has grown rapidly. As of December 31 in 2021, 2022, 2023, and 2024, the company had 427, 1,024, 3,416, and 6,284 stores in China, as well as 35, 63, 95, and 156 overseas stores.

It is worth mentioning that Chagee has rapidly expanded its sales network through a "franchise model," with over 97% of its revenue coming from franchise stores. As of December 31, 2024, the company had 6,271 franchised stores, contributing over 90% of its revenue, while the company only owned 169 self-operated stores.

From a city distribution perspective, Chagee stores in China are mainly located in the most economically active regions, especially in new first-tier and second-tier cities. For example, in 2024, the number of Chagee stores in first-tier, new first-tier, second-tier, and other cities accounted for 11%, 50%, and 39% of the company's total stores in China, respectively, indicating strong consumer demand and continuous growth potential for Chagee in new first-tier and second-tier cities

The "Worries" Behind High Performance Growth

However, Zhitong Finance APP noticed that behind the high growth performance of Chagee Holdings Ltd. there are not without "worries."

From the prospectus, Chagee's success is inseparable from the company's big product strategy. Data shows that 91% of Chagee's GMV in the Chinese market comes from its "Original Leaf Fresh Milk Tea" product. Among them, the super single product "Bo Ya Jue Xian" has accumulated sales of over 600 million cups as of August 2024, becoming the brand's iconic product. Chagee's focus on core menu practices has not only enhanced consumer awareness of the brand but also greatly improved supply chain efficiency: inventory turnover days are only about 5.3 days, and logistics costs account for less than one percent of the global total GMV.

However, this strategy has also made the company's product barriers easily breakable. It is reported that competitors such as Chayan Yuese and Chali Yishi have launched similar products, which will disperse customer choices. In the long run, in the current context of rapidly changing consumer tastes, relying on the single category of "Original Leaf Fresh Milk Tea" to achieve sustained performance growth may not be a long-term strategy for Chagee.

At the same time, with the rapid expansion of stores, the company's growth rate shows signs of slowing down. Same-store GMV has always been an important indicator of the operational efficiency and growth of tea beverage stores. According to the prospectus, Chagee's same-store GMV growth rate reached 94.9% in 2023, but plummeted to only 2.7% in 2024, with particularly noticeable declines in the eastern and central regions of China, where the company has the most concentrated stores, reaching -27.3% and -14.7%, respectively. Some analysts pointed out that although the large increase in the number of stores in the early stage helped with the IPO, it may drag down the company's performance in the later stage. There are also concerns that Chagee's domestic growth may have already peaked.

Against this backdrop, overseas expansion has become a hope for Chagee's future development. According to the prospectus, Chagee plans to further expand and intensify its store network both in China and overseas. Globally, the company's goal is to strengthen its business influence in mature markets such as Malaysia, Singapore, and Thailand, while exploring expansion opportunities in other promising markets like the United States. The company plans to increase the total number of stores by 1,000 to 1,500 by 2025.

In addition, as the business scale continues to expand, the company's marketing expenses have also risen sharply. During the reporting period, Chagee's marketing expenditures were 73.6 million yuan, 260 million yuan, and 1.1 billion yuan, accounting for 15%, 5.6%, and 8.9% of total revenue during the same period, respectively. In just three years, the company's marketing expenses have surged nearly 11 times. Compared to the industry average of about 6% for marketing expenses, Chagee's spending on marketing is not low.

It is also important to note that the increasingly fierce industry competition has made Chagee's market prospects fraught with risks.

According to iResearch data, based on GMV measurement, the Chinese tea beverage market is rapidly growing, with a huge scale, increasing from 102.2 billion yuan in 2019 to 272.7 billion yuan in 2024, with a compound annual growth rate of 21.7%, and is expected to reach 426 billion yuan by 2028. Among them, the high-end fresh tea market with an average price per cup of 17.0 yuan and above has increased its share from 10.9% in 2019 to 25.9% in 2024 This faster growth is mainly due to consumers' demand for higher quality products, diversified consumption plans, and increased health awareness. It is expected that the total GMV of the high-end freshly brewed tea market will reach 167.1 billion yuan by 2028, accounting for 31.7% of the total fresh tea beverage market.

Globally, the growth momentum of tea beverages also holds immense potential. According to iResearch, the global tea beverage market, as the second largest non-alcoholic beverage category in the world, is expected to reach a market size of USD 467.1 billion by 2024 and USD 601.9 billion by 2028. As freshly brewed tea beverages continue to gain popularity in overseas markets, driven by rising per capita income, an expanding consumer base for tea, and the potential to attract more coffee drinkers due to the affordability and health benefits of tea, the global fresh tea market is expected to reach USD 122 billion by 2028, with a compound annual growth rate of 18.9% from 2024 to 2028.

Although the new-style tea beverage industry in China has broad development prospects, the market is currently quite fragmented, and competition in the industry is very fierce. According to iResearch, in 2024, the top three players in the high-end freshly brewed tea beverage brands in China will collectively hold about 40.5% of the market share. Among them, the Chagee Holdings Ltd. brand ranks first with approximately 20.3% market share. The company states that the competition in its industry is intense, with many fresh tea brands vying for consumers, including some established competitors. Chagee also admits that its product formulas are not patented, so the company cannot prevent competitors from copying its products and selling similar ones.

Overall, in the past few years, Chagee has achieved explosive growth in scale and performance through its unique business model of big single products and has turned losses into profits. However, on the whole, the industry in which the company operates has relatively low entry barriers, and it is difficult to establish its own moat relying solely on a single category. As competition in the industry intensifies, how to find the next key SKU like "Bo Ya Jue Xuan" is also a question that Chagee needs to actively consider