We have come a long way from Mad Men
We have come a long way from Mad Men
The Blind Squirrel's Monday Morning Notes, 12th February 2024.
Summary
The 🐿️ has been hanging with the Kardashians. Well, sort of. We take another look at ‘challenger’ consumer brands and their impact on the public market landscape.
Don Draper’s Madison Avenue world may be long gone but for today’s consumer brands, the impact of narrative, storytelling and connection is the rising force. I wish I could say the same for equities. There it’s about physics and the machines!
Why has there a ski gondola in the cover montage? Some friends of the 🐿️ have had a Perfect Moment…
In the second section, we disappear down a mini rabbit hole on the topic of ‘return stacking’; cover our new AI ‘picks and shovels’ basket; and cover key points on our other live acorn trades. I am loving US oil refiners at the moment!
Welcome! I'm Rupert Mitchell aka The Blind Squirrel and this is my weekly newsletter on markets and investment ideas. If you've received it, then you either subscribed or someone forwarded it to you (add yourself to the list via the button below). Please also consider becoming a paid subscriber!
The audio companion to this week’s note will be uploaded to Substack on Tuesday to allow me to incorporate comments and feedback from this note. It will also be available as a podcast on Apple, Spotify and the other usual podcast apps.
We have come a long way from Mad Men
One of the great pleasures of starting to publish Blind Squirrel Macro has been the opportunity to meet a broad variety of my readers. I was delighted when one of my subscribers invited me to join a roadshow presentation last week for ‘Fund 1’ of SKKY Partners, a new private equity firm co-founded by Kim Kardashian and Jay Sammons, the former global head of consumer, media and retail at Carlyle.
Over the course of a fantastic lunch (thank you Gavin!) on the St. Kilda shorefront in Melbourne, Jay gave a masterclass explanation of how brands have been disrupted in the social media age. The world has come a long way from the days of Don Draper tapping into the desires, fears, and aspirations of the American consumer in the ‘Swinging Sixties’ via print and linear TV ads.
Brands must now connect with their consumers’ “functional and emotional” needs via the worlds of Web 2.0’s programmatic advertising algorithms, social media graphs and Brooklyn micro-influencers.
In many ways, ‘Clan Kardashian’ is the ‘patient zero’ of social media influencer markets. However, there is so much more to this market than to breathlessly wonder at KK’s ‘million-dollar’ Instagram posts. Kim Kardashian has used her staggering social reach (7 million Instagram followers) to build a highly successful consumer empire, SKIMS ($4bn valuation) and SKKN ($1bn valuation). I am pretty sure that she and Jay are going to kill it with this fund.
Back in October (The Dangers of Extrapolation) we touched on the risks facing the ‘Big Snack’ giants from anti-obesity (GLP-1) drugs and the exposure of their brand ‘moats’ to challenger, ‘influencer-led’ brands like Prime and Celsius in energy drinks and Mr. Beast’s ‘Feastables’ in candy.
Not a single participant at last week’s lunch had anything good to say about the taste of these new drinks and snacks. I guess that it was more of an Albany Oyster crowd! However, everyone confessed to having young family members that were obsessed with these brands!
Companies are expected to spend more than $7bn on influencer marketing in 2024, up from $2.4bn in 2019. Why? Because is works! 70% of consumers are likely to buy from influencers that they follow. Consumers look to guidance from influencers in order to engage with brands.
The days of blindly buying Google AdWords or Facebook Ads are long gone. Privacy legislation (CCPA and GDPR); 3rd party cookie throttling; and Apple ‘raising the rents’ with iOS 14.5 have created a world of rapidly rising customer acquisition costs (up over 222% between 2013 ($9 per add) and 2022 ($29 per add) according to BEA data). Organic customer acquisition via influencers on social platforms such as Instagram has become essential for many brands.
What does this mean for the public market investment landscape? Yes, we will no doubt see online advertising commission wallets redistributed among the big tech giants as Apple and Amazon erect walled gardens to siphon ad dollars off Google and Meta. Net, net probably nothing done. Collectively the largest platforms will continue to win, provided that they are where the consumers (and their influencers) are.
What about the established CPG giants like Hershey’s and PepsiCo? Are their ‘defensive’ characteristics impaired by challenges from the likes of Mr. Beast? Not really. They probably end up buying them out. The SKKY business model is essentially one of incubating these growth consumer brands ahead of an ultimate trade sale to one of the big brand aggregators.
These assets are often sold to ‘trade’ at seemingly impossible valuations on an EV/Sales basis (often around 10x sales). These multiples are essentially irrelevant to the acquirers. With hindsight, the 🐿️’s early days of crunching earnings accretion / dilution analysis in merger models seems quaint. The incentives for the buyers of these assets are simply defense of their category market shares. A high multiple is just a cost of doing business.
Was Diageo sweating about paying $500 for every bottle of Casamigos tequila sold by George Clooney? Was US$3bn relevant to Apple CEO Tim Cook as a multiple of Dr. Dre’s ‘Beats’ headphone sales? Of course not! The value of the business to the purchaser is the acquired brand’s revenue and profit opportunity once it is plugged into their scaled manufacturing, marketing and distribution machinery.
Occasionally, one of the challenger brands escapes into the public markets before being gobbled up by the consumer staples giants. How many people do you know that sold their MNST 0.00%↑ Monster Beverage shares too early? (🐿️ is certainly guilty as charged!).
I had already decided that I was probably going to write about ‘social growth’ consumer brands by the time I had finished last week’s delicious lunch in St. Kilda. However, for the past 10 years, the 🐿️ has been close to one social-led growth consumer brand that had a very big week last week. It absolutely merits a shout out.
The 🐿️ is a (very) small shareholder in Perfect Moment PMNT 0.00%↑ a luxury skiwear company that priced its IPO on the NYSE last week. This business effectively lives on Instagram in addition to the ski slopes of Gstaad, Megève, Aspen and Verbier. Absolutely not financial advice, but (currently!) the PM shares look great value relative to their (reassuringly priced😉) ski jackets, knitted sweaters and onesies!
In the world of consumer brands, the impact of narrative, storytelling and connection is the rising force. However, modern day financial markets have transitioned to a place of domination by passive and quantitative investment flows. Narrative storytelling barely has a place in modern equity markets. It’s mostly about systematic flows.
Last week it was David Einhorn’s turn to be the latest value investor to rage at the machines. Einhorn concludes, like many in the value world, that the focus needs to be on capital allocation: “We can’t count on other long-only investors to buy our things after us, we’re going to have to get paid by the company”.
I touched on the buyback theme last year in 'Aaa'-pple! The best bond in the world?’. Tim Cook is of course the master of the de-equitization trade. Then last week the 🐿️ had some fun riffing on the outperformance of cannibals, inspired by some great more recent work on the buyback theme from Erik at YWR, Paulo Macro and Kuppy.
A single-minded focus on share buybacks may be a little reductive for some but must surely today be a vital overlay for any single stock investment strategy.
At the index level, the AI narrative is adding rocket fuel to the dominant passive flows. Last week, the 🐿️ published another piece on how investors can join (or stay at the party) while respecting their risk management disciplines. We are happy to forego some of the upside in return for a ‘paper cut’ rather than a ‘sucker punch’ if we are wrong.
This type of strategy becomes all the more appealing in a world where your cash can earn 5% in a money market account. This interest income can finance a great deal of structured upside in equity markets. I set out a worked example in the FOMO: Part 2 note.
I was very interested to hear
’s colleague Zach Abraham announce on Friday that they were planning to harness this type of approach at their Seattle-based wealth management firm, Bulwark Capital. This sounds like a smart move to this rodent.These are not Don Draper’s equity markets! A new approach is required.
That’s it for the front section this week. In the Section Two, the 🐿️ disappears down a mini rabbit hole (am I allowed to do that!?) on the topic of ‘return stacking’; cover our new AI ‘picks and shovels’ basket (we have now opened a position - the report will be out next week); and cover key points on our other live acorn trades. I am loving US oil refiners at the moment!