The company reported that more than 70% of its third-quarter revenue came from outside its challenging home China market

From $35 Billion Valuation to Rock Bottom

Kate Wang has one of the more interesting origin stories in the vaping business. The Columbia MBA and veteran of Uber China, DiDi Global, and Bain & Co. got into e-cigarettes after a colleague's father died of cancer. She saw vaping as a way to help smokers move away from traditional tobacco, and founded RLX Technology Inc. (RLX) in what turned out to be perfect timing for the global vaping craze.

When RLX went public in New York in 2021, the market valued it at nearly $35 billion. That year, the company hit peak performance with revenue of 8.5 billion yuan ($1.2 billion) and net income of 2 billion yuan. Then everything fell apart.

China started cracking down hard on vaping with new taxes and restrictions, and RLX's revenue collapsed to just 1.2 billion yuan by 2023. The company faced a powerful enemy at home: China's state-owned tobacco monopoly. Wang made a call that would define the company's future. If China wasn't going to work, she'd build the business everywhere else.

The Comeback Quarter

Quarter by quarter, that bet has been paying off. The latest evidence came in last week's third-quarter results, which showed revenue of 1.13 billion yuan ($159 million). That's still well below the glory days, but it's up nearly 50% year-over-year. More importantly, the company's gross margin improved by 4 percentage points to 31.2%, and net income rose 22% to 206.8 million yuan.

"This performance validates the scalability of our globalization strategy and the outstanding technological innovation that secures our leadership in the e-vapor sector," Wang said. She added that international markets now account for more than 70% of revenue, a stunning reversal from just a year ago when China was still a major part of the business.

A big chunk of the revenue jump came from a European vaping company RLX acquired in March, whose results showed up in the numbers for the first time. CFO Lu Chao pointed to "strong organic growth" from Asian markets as well. The company also declared a cash dividend of $0.10 per American Depository Share, and Lu noted that RLX has returned over $500 million to shareholders through repurchases and dividends through September 30.

Investors liked what they heard. RLX shares jumped 10.3% to $2.57 after the announcement, making it one of the NYSE's best performers that day. The company's current market cap sits at $3.2 billion, less than one-tenth of its peak, though its price-to-earnings ratio of 31.5 looks quite strong.

Analysts are mostly optimistic despite the heavy regulatory scrutiny the company faces in almost every major market. Four out of five rate it a "buy" according to Yahoo Finance, with only one recommending a "hold."

Beating the Competition

Compared to peers, RLX is doing relatively well. Ispire Technology (ISPR), which makes vaping cartridges, disposables and batteries, has lost 76% of its market value since listing in April 2023 and is losing money. Smoore International (6969.HK), which mostly makes vapers on a contract basis, trades at a quarter of its IPO price and carries an even higher P/E ratio of about 60.

The Great China Exit

The most remarkable part of RLX's transformation is how quickly it shifted away from China. A year ago, five Asia-Pacific countries accounted for more than half of quarterly revenue. Now China represents just 29% of the total, and Wang says the international portion keeps growing.

Beyond the European acquisition, Wang credited strong gains to the company's Asia-Pacific franchise retail model, which brings independent stores "under a cohesive brand to entail retail execution, amplify visibility, and elevate user experience."

Indonesia has become one of the biggest opportunities. RLX claims to be the leading closed-pod vape seller there, and the company has been promoting a franchise model with zero partnership fees for new members. The math is compelling: Indonesia had 67.3 million smokers and only 1.55 million vapers in 2020, according to ECigIntelligence. Vape use in Indonesia grew 110% between 2018 and 2024.

According to its advertising materials, RLX Global operates 15,000 points of sale under its RELX brand name. Europe has the largest concentration at 10,842, with Indonesia second at 6,577 points of sale.

The Big Picture for Vaping

Wang believes the vaping market will continue growing as more cigarette users make the switch to electronic products. The numbers support some optimism. The global cigarette market will generate revenue of $872.8 billion this year and is growing annually at 2.39%, according to Statista. The e-cigarette market is expected to be worth $27.2 billion this year with a higher growth rate of 3.69%.

The Regulatory Minefield

But regulation remains the industry's biggest wild card. New rules that took effect in Indonesia last year treat vaping products almost like cigarettes, with package warnings and a minimum purchase age of 21, higher than the 18 required for cigarette buyers. Thailand, Singapore, Cambodia and Laos have banned vaping products entirely. Hong Kong outlawed e-cigarettes, vapes, vape juice and heated tobacco products in 2022. Japan has similar restrictions, though Korea is more relaxed.

U.S. tariffs have added another layer of uncertainty to supply chains for raw materials and products, especially from China. RLX has its own e-liquid factory in Shenzhen. As the company expands its retail network globally to escape a difficult China market, tariffs focused on China may force it to move production offshore. Rival Ispire has already done this with its vaping hardware, which it now produces in Malaysia.

Regulation and tariffs will likely be two of RLX's biggest challenges going forward. The good news is that the worst of both factors may be in the past, which could provide better visibility as the vaping industry matures and finds its place alongside traditional tobacco products. For Kate Wang, that's probably about as good as it gets in this business.