RLX Technology's Slide: Profit-Taking and Expansion Hurdles Weigh on Shares

On April 11, 2025, RLX Technology Inc. (NYSE: RLX), the Chinese e-cigarette giant, saw its shares drop 2.3% to close at $1.70—marking a third consecutive day of losses. This underperformance contrasted sharply with broader market optimism, as the Nasdaq, S&P 500, and Dow Jones indices surged 2.06%, 1.81%, and 1.56%, respectively. The decline was not an isolated event but the culmination of several interlinked factors, including profit-taking, regulatory risks, margin pressures, and geopolitical headwinds.

The Catalyst: Analyst Downgrade and Earnings Concerns

The immediate trigger was Citigroup’s March 17 downgrade of RLX to “Neutral” from “Buy,” accompanied by a price target cut from $2.80 to $2.50. The brokerage cited concerns over regulatory challenges, pricing pressures, and the company’s ability to sustain growth amid global trade tensions. These worries resurfaced on April 11, as investors digested RLX’s Q4 2024 earnings, which revealed a stark disconnect between revenue and profitability.

While RLX reported a 56% year-over-year revenue surge to RMB813.5 million in Q4 2024, its net income collapsed 41% to RMB127.4 million. Full-year 2024 revenue jumped 73% to RMB2.75 billion, but net income rose only 4% to RMB564.3 million. This margin erosion, driven by rising costs and regulatory compliance expenses, signaled operational inefficiencies that overshadowed top-line growth.

Global Expansion Challenges and Trade Tensions

RLX’s strategy hinges on aggressive global expansion, particularly in markets like the U.S. and Europe. However, escalating trade tensions between major economies have introduced significant risks. Tariffs, regulatory hurdles, and supply chain disruptions could derail these plans, as highlighted in the downgrade.

Analysts noted that RLX’s valuation—trading at a P/E ratio of 44.26—already reflects skepticism about its ability to navigate these challenges. Competitors like JUUL Labs and Philip Morris International (PM) have faced similar regulatory pushback, further clouding the sector’s outlook.

Market Rotation: AI Stocks Steal the Spotlight

The April 11 decline also reflected a broader shift in investor sentiment. While RLX stumbled, AI stocks soared, attracting capital due to their perceived higher growth potential. Investors increasingly view AI-driven sectors as safer bets amid macroeconomic uncertainty, leaving RLX and other traditional consumer goods firms in the dust.

Technical Indicators and Institutional Activity

RLX’s technical indicators painted a bearish picture. Its 50-day moving average ($2.18) had already dipped below the 200-day average ($1.99), signaling a downward trend. Institutional investors further fueled the sell-off: while funds like Two Sigma increased stakes in Q4 2024, others such as UBS Asset Management trimmed positions, reflecting mixed confidence.

Conclusion: A Crossroads for RLX

RLX’s April 11 decline underscores the precarious balance between revenue growth and profitability in a volatile market. While its global expansion ambitions and 73% annual revenue growth are impressive, margin pressures, regulatory risks, and trade uncertainties have dimmed investor enthusiasm. The Citigroup downgrade and market rotation toward AI stocks have amplified these concerns, pushing the stock to its lowest levels in months.

However, the fundamentals are not entirely bleak. RLX holds more cash than debt and commands a dominant position in the Chinese e-cigarette market. If the company can stabilize margins, navigate regulatory challenges, and capitalize on untapped international markets, the stock could rebound. For now, though, the path forward remains fraught with obstacles. Investors should monitor Q1 2025 earnings (due April 14) and trade policy developments closely.

In the short term, RLX’s valuation and technical indicators suggest caution. Yet its long-term potential hinges on execution—a challenge even the most promising companies struggle to master.