**The FTC investigation adds regulatory uncertainty to a Hong Kong IPO already weighed down by a 38.7% profit decline and a valuation that has shrunk by more than half since 2022.
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Shein faces FTC probe as $99M loss clouds Hong Kong IPO
The FTC investigation adds regulatory uncertainty to a Hong Kong IPO already weighed down by a 38.7% profit decline and a valuation that has shrunk by more than half since 2022.
The Federal Trade Commission is investigating Shein's U.S. business, the fast-fashion giant disclosed in its Hong Kong IPO filing, adding regulatory risk to a listing already battered by tariffs and a $99 million quarterly loss.
"We are actively cooperating with the FTC and cannot predict the probable outcome of the investigation," Shein wrote in the prospectus filed with the Hong Kong Stock Exchange, warning that a settlement could require "significant monetary payments" with a material adverse effect on its finances.
The disclosure comes as Shein's financials show mounting pressure. The company swung to a $99 million net loss in the first quarter of 2026 from a profit a year earlier, dragged by a $328 million non-cash charge tied to convertible preferred shares. U.S. revenue fell 14.3% year-on-year to roughly $2 billion after the Trump administration removed the de minimis import exemption in May 2025, stripping the duty-free loophole that underpinned Shein's direct-to-consumer model. Full-year net profit for 2025 dropped 38.7% to about $2.06 billion, even as revenue rose 8% to $37.1 billion — a sharp deceleration from 20.7% growth in 2024.
The investigation threatens to further depress Shein's already-shrunken valuation. The company is targeting a $40 billion to $50 billion valuation for its Hong Kong listing, aiming to raise around $3 billion in a September or October IPO — well below the $98.2 billion it commanded in 2022 and the $64 billion assigned in a 2024 funding round. Some investors have pushed for a valuation as low as $30 billion, according to people familiar with the matter.
Shein received approval from China's Securities Regulatory Commission on July 10, clearing its biggest remaining regulatory hurdle for the Hong Kong listing after abandoning plans in New York and London. The company had pursued a U.S. IPO for more than two years before political scrutiny over its supply chain and labor practices forced a pivot to London, where it faced similar headwinds.
The FTC probe adds a new layer of uncertainty. The agency, which enforces consumer protection laws against deceptive or unfair business practices, has previously targeted companies over hidden fees, misleading shipping policies and privacy violations. Shein's app features countdown timers, gamified discounts and flash sales — tactics the FTC has flagged as potential "dark patterns" designed to pressure consumers into spending.
Tariffs Bite on Two Fronts
Beyond the FTC probe, Shein faces a dual tariff squeeze. The removal of the de minimis exemption in the U.S. — which allowed duty-free entry for parcels valued under $800 — directly hit the company's cost structure and contributed to its operating margin sliding to 2.9% from 3.9% a year earlier. The U.S., which represented 29.4% of Shein's annual revenue in 2023, has shrunk to 22.5% of quarterly sales.
Europe, roughly a third of Shein's annual revenue, could deliver a similar or larger blow after the European Union introduced a charge equivalent to about $3.50 on low-value e-commerce parcels this month. Shein's own filing warned that disruption in Europe could "match or exceed" what it experienced in the U.S.
Shen Meng, director at Beijing-based investment bank Chanson & Co, said he doubts Shein will achieve any meaningful uplift in valuation at its Hong Kong IPO compared with its last private fundraising round, arguing the retailer would have fared better had it completed its London or New York listing years earlier.
IPO Proceeds and the Path Forward
Shein plans to use proceeds from the listing to fund technology investment, including artificial intelligence for demand forecasting, alongside international expansion and brand-building. The company is also pressing ahead with plans to spend roughly $1.5 billion on a logistics hub in Guangdong province to improve operational efficiency at a time when cross-border shipping costs have become its single biggest expense.
Backers including Sequoia China, Tiger Global, General Atlantic and IDG Capital stand to get their first real liquidity event from the IPO, whatever the final price. But the combination of the FTC investigation, tariff headwinds and a compressed valuation means the path to market remains fraught.
This article is for informational purposes only and does not constitute investment advice.
