Valuation "halved" for listing, why does Shein still want to IPO despite the downturn?

According to reports from Reuters, Shein has begun roadshows for investors and may initiate its listing process in August, aiming for a valuation of $30-40 billion. This represents a nearly 60% decrease compared to the $98.2 billion valuation during its D-round funding in 2022. Thus, the IPO of this global fast fashion "dark horse" has transformed into a calculation problem. Firstly, Shein must provide cash compensation for the pre-IPO valuation reduction to its investors. According to its prospectus, Shein has completed seven rounds of financing and raised a nominal total of approximately $3.8 billion over three rounds since 2022, with pre-money valuations of $60.5 billion, $98.2 billion, and $64 billion, respectively. The agreement stipulates that if the IPO is unsuccessful or if the listing valuation declines, all investors will have redemption rights, and those from the three rounds of funding since 2022 will receive cash compensation for the decreased valuation. After the latest negotiations, investors from these three rounds since 2022 have waived their market value requirements for the IPO and will receive compensation at an annual interest rate of 8% from the date of their investment until March 5, 2026, and a rise to 12% post-March 5 until the IPO date. The total compensation at the first time point is about $1.1 billion; the total compensation at the second time point will also exceed $200 million. If the IPO valuation is $40 billion and 10% of the shares are released post-IPO, Shein's IPO financing amount will be $4.4 billion (the second-largest financing amount for Hong Kong IPOs this year), but the cash compensation prior to the IPO already exceeds $1.3 billion. Secondly, when the IPO valuation is lowered, Shein must also provide weighted or premium conversion compensation for the investors' preferred shares converting into common shares. Since its establishment in 2012, Shein has gone through seven rounds of financing, growing its valuation from $53 million to a peak of $98.2 billion before retreating to a final D+ round valuation of $64 billion. The shares issued during these financings are all preferred stocks, which will convert to common stocks after the IPO. If the IPO valuation decreases, the preferred stocks purchased at above the IPO valuation will be calculated under the conversion adjustment mechanism to receive additional shares as compensation. In addition, the D-round investors, due to the subsequent financing valuation decline, will receive a conversion ratio compensation of 1:1.5791. Private equity firm Boyu is the largest buyer in the D-round financing, accounting for $700 million of the $1.8 billion financing amount. Based on calculations, if based on a $40 billion valuation and the issuance of 10% new shares, these conversions and additional shares will result in over 3% dilution of Sheins shares. The four founders, Xu Yangtian, Miao Miao, Ren Xiaoqing, and Gu Xiaoqing, hold 33%, 7.3%, 7.3%, and 7.3% of Shein pre-IPO, respectively, and additionally, the trust held by the four founders collectively holds 10.1% of the shares. After the dilution from the IPO, Xu Yangtians holdings are expected to be diluted to 28%, but he holds Class A common stock, which has ten times the voting rights per share, so his voting rights will still maintain above 40%, ensuring control remains with him. As of May 31, 2026, Shein has $3.69 billion in cash and cash equivalents, as well as $11.59 billion in short-term investments. Shein has almost no interest-bearing debt, but it faces immense pressure from the redemption of preferred shares and cash compensation, making an IPO imperative. From IDG's initial investment of $5 million in 2014 to seven rounds of financing over a decade, the valuation went from $53 million to $98.2 billion and then back to $64 billion. Shein encapsulated the sharpest segment of the cross-border e-commerce traffic dividend era with a roller-coaster curve. Complicating the situation is Temu, a subsidiary of Pinduoduo, which landed in the U.S. at the end of 2022, engaging in close competition with Shein. Shein has had no choice but to accelerate financing and expansion, with cost growth gradually outpacing revenue growth. Adding to the challenge is policy changes. The U.S. plans to eliminate tax exemptions on small packages in 2025, causing a rapid decline in the U.S. market, which once accounted for 30% of Shein's revenue, to just 22.5% in the first quarter of this year. The EU market, which also constitutes 30% of Shein's revenue, is expected to increase tariff enforcement, and Shein has admitted that the extent of impact in the future will be similar to that in the U.S. market. In the first quarter of 2026, Shein reported a net loss of $99 million. Its revenue for 2025 was $41.85 billion, with a net profit of $2.06 billion. Shein's path to IPO has been tumultuous, shifting from initial rumors of New York, changing to London, and ultimately confirming Hong Kongunderlying this shift are multiple pressures from data security reviews, supply chain compliance doubts, and geopolitical challenges. For Shein, the IPO cannot be delayed any longer; December 31, 2026, is a hard deadline, and if it cannot complete the IPO before then, the redemption obligation will be activated. Valuation can be halved, compensation can be generous, dilution can be accepted, but if listing fails, the cost will be unbearable. As for whether it will break below the issue price, in the face of declining revenue and profit trends, a price-to-earnings ratio above 20 will be a calculation problem for new investors.