The recent trajectory of the Hong Kong IPO market suggests that Blokus, a prominent player in the toy industry, is on the verge of making a significant breakthrough with its upcoming public listingAs stated in its prospectus, Blokus ranks as the world's third-largest manufacturer of building block toys, holding a market share of 6.3%. This places it behind the giants of the industry, Bandai and LEGO, which command market shares of 39.5% and 35.9%, respectively.

Despite its impressive standing, Blokus faces fierce competition, particularly in its domestic market where numerous local brands vie for consumer attentionThis competitive landscape raises questions about whether Blokus can adapt and thrive in such a crowded spaceHowever, it has managed to carve out a niche for itself, and its growth has largely been driven by strategic shifts and leveraging popular licensed IP.

Founded in December 2014, shortly after a reverse merger that propelled its parent company Yu Zhuan Network onto the public stage, Blokus was initially ambitious, focusing on incorporating STEAM (Science, Technology, Engineering, Arts, and Mathematics) principles into its product lines

In its early days, the company attempted to develop educational toys like early childhood learning machines and AR puzzle games, but these efforts did not yield the anticipated success.

It wasn't until 2017, after the departure of co-founder Zhu Weisong from Yu Zhuan Network, that Blokus pivoted to its own intellectual property, launching a successful line known as the Transformable BlokusThis bold decision marked the beginning of its ascent within the building block sectorBy 2024, Blokus celebrates its tenth anniversary, coinciding with its second submission of an IPO prospectus to the Hong Kong Stock ExchangeAfter receiving approval for its overseas listing on December 6, Zhu Weisong is poised to potentially reap the rewards of yet another IPO project.

The financial metrics between 2021 and 2023 reveal a remarkable growth story for BlokusThe company reported revenues of 330 million yuan for both 2021 and 2022, followed by a substantial increase to 880 million yuan in 2023, culminating in a staggering compound annual growth rate of 63%. The first half of 2024 has shown a remarkable 237.6% year-on-year growth, with revenues reaching 1.05 billion yuan.

The meteoric rise in Blokus' revenue can largely be attributed to its association with the beloved Ultraman IP

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First broadcast in China in 1993, Ultraman has become an iconic character among children and adolescents, developing a loyal fan base over the past few decadesThe franchise's related merchandise—ranging from collectible cards to various toys—has created an expansive secondary distribution market.

For instance, collectible Ultraman cards range in price from 9.9 yuan to 100 yuan, with rare versions fetching as much as 10,000 yuan eachIn 2022, Blokus secured licensing rights for Ultraman and achieved sales of 5.93 million units from just 95 SKUs (Stock Keeping Units). Fast-forward to 2023, and Ultraman sales soared to 26.63 million units, representing a dramatic 4.5-fold increase in just one yearBy the first half of 2024, this number had already exceeded 29.47 million units, reflecting a burgeoning interest in the franchise.

As a testament to its commercial implications, revenue generated from the Ultraman IP was significant, contributing 34.2% of Blokus' total income in 2022 and increasing to 63.5% in 2023. The first half of 2024 saw Ultraman IP revenue reach 600 million yuan, which, although reflecting a growth of 194%, also highlighted a slight decrease in the income share, now at 57.4%.

Often dubbed the "Chinese version of LEGO," it’s crucial to note that Blokus possesses distinct differences from its Western counterparts

According to the same prospectus, Bandai and LEGO secured firm positions within the global building block toy market, claiming 39.5% and 35.9%, respectivelyWhile Blokus holds the third largest stake, the gap in market share is evident, suggesting room for growth yet to be tapped.

At a demographic level, Blokus has carved out a unique market strategy that targets a younger audience—particularly children aged 16 and under—as opposed to LEGO's focus on adult customersPrice positioning also differentiates the two brands significantly; Blokus markets its products as affordable, with price ranges from as low as 9.9 yuan to 399 yuan, with popular items typically selling around 39 yuanIn contrast, LEGO's products generally start at higher price points, frequently exceeding 100 yuan, with some exclusive figures reaching thousands.

On the operational side, Blokus's methodology appears to mirror trends seen in the popular blind box market, resembling Bubblemart's approach

A noticeable trend emerged with a significant portion of Blokus's product offerings transitioning to blind boxes, with related SKUs increasing from 43.1% in 2022 to an impressive 59.2% by early 2024. During the first half of 2024, blind box sales constituted a staggering 88.3% of total sales, illustrating a significant shift in consumer preferences.

As competition in the international licensed IP space intensifies, companies like LEGO, Bandai, and opportunities from others, such as Bubblemart, thrive by nurturing content IP that cultivates emotional connections with consumers through character relationships and narrative arcs.

The vendor of the Ultraman IP, Shanghai Xinchuanghua Cultural Development Co., Ltd, has significant implications for Blokus's strategyDespite the advantages of having such a recognizable character, concerns loom regarding the possibility of licensing rights expiring or potential competition from other toy brands allowed to sell Ultraman merchandise, creating a challenging environment.

As market dynamics shift, it becomes critical for Blokus to harness its existing IP portfolio while securing new licenses

In its pursuit for relevant partnerships, Blokus has strikingly increased its licensing fees to 91.23 million yuan in the first half of 2024, surpassing the total amount spent on IP licensing over the previous three years combined.

Among the most promising additions to its lineup is the Transformer's franchiseThe Transformer IP generated 200 million yuan in revenue during the first half of 2024—a staggering growth of 42.9 times compared to the same timeframe the previous year—with its share of revenue climbing from a humble 1.5% to 18.7%.

Despite the swelling income, Blokus faces inherent challenges, as it has yet to achieve profitability—recording losses reaching 5.1 billion yuan in 2021 and only modest improvements in subsequent yearsAs of the first half of 2024, total cumulative losses reached approximately 1.39 billion yuanNow standing with two internationally recognized IPs under its belt, alongside the promising growth of its tailor-made Blokus series, the company’s key to sustainability lies in skillfully managing current licenses and effectively storytelling around its proprietary characters to foster ongoing high growth.