💄 Kim K = Unicorn of the Day

Tuesday, June 30, 2020 by Robinhood Snacks | Disclosures

When the newly-minted billionaire sisters arrive at Thanksgiving

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Hey Snackers,

June 2020: The corona-conomy month in which plants began to enjoy a richer cultural life than humans — 2,000 potted plants were seated in the red velvet chairs of Barcelona's prestigious opera house, where a string quartet played them a private Puccini concert. Not a dry cacti in the house.

Markets jumped on Monday as investors shrugged off coronavirus surges and rollbacks of reopenings in the US.

Beautify
1. Coty doubles down on Kardashian, investing $200M in Kim at a $1B valuation

No one keeps up with the Kardashians... as well as cosmetics giant Coty. In January, the beauty company bought 51% of Kylie Cosmetics for $600M. Now, almost-billionaire Kylie Jenner has an almost-billionaire sister to contend with:

  • Unicorn Glow: Coty will dish out $200M for a 20% stake in Kim Kardashian's makeup brand KKW Beauty. The deal values KKW at a fresh-faced $1B.
  • Instagram Glow: Coty shares soared 14% on the Insta-famous partnership — but they're still down a cakey 57% for the year.

Extreme Makeover: Kardashian Edition... Coty is a 116-year-old company that wants to appeal to the new generation (see: entire website in lowercase). But its biz is a little outdated:

  • License model: Coty buys exclusive licenses to develop cosmetics for big beauty brands (like Hugo Boss perfumes and Gucci lipsticks), then gives them a wider market distribution.
  • Acquisition model: Coty acquired Procter & Gamble's beauty business for $12.5B in 2016, gaining brands like Cover Girl and perfume licenses for brands like Burberry. But now...
THE TAKEAWAY

Coty wants the "Instagram Model"... Sales of Coty's owned and licensed products have been declining. Meanwhile, it has to shell out big bucks for their marketing/distribution. Coty's Kardashian investments reduce some of that expensive grunt work, while tapping into a younger market:

  • Influencer marketing: Kim K's 177M Insta followers are an instant audience for her brand. That's less marketing spend for Coty.
  • Direct-to-consumer model: Most of KKW's sales are online, unlike Coty's 70+ other brands. This Direct-To-Consumer biz model cuts out the retail store middle man for more beautiful profits.
Boycott

Good thing there's no "dislike" button... Facebook is getting hit by a wave of corporate thumbs downs, as part of a boycott called "Stop Hate for Profit." The goal is stronger policies on Facebook to combat misinformation and hate speech from spreading on online:

  • Participants will pause advertising on FB/Instagram until at least July — BTW: ad sales make up almost 100% of FB's revenue.
  • 93 companies have joined the boycott so far, including blue-chip big shots like Verizon and Colgate-Palmolive. Unilever is boycotting both FB and Twitter for the year. Starbucks and Coke are pausing social media ads as a whole.

Heating up... While boycotters like Patagonia have a history of activism, investors were concerned to see less outspoken (and bigger) corporations involved. Case in point: FB stock plunged 8% after Unilever joined the chat. That's when FB said it'll start labeling political speech that violates its rules and banning hate speech on ads. That's a shift from the laissez faire approach it took on controversial Trump posts. Boycotters say it's not enough.

THE TAKEAWAY

Facebook might be too big to cancel... thanks to its 3B users across Facebook, Instagram, WhatsApp, and Messenger. FB platforms are so deeply ingrained in the world's social psyche that the 2018 #deleteFacebook movement barely made a blip on numbers. Since the world's population isn't dropping FB, most companies probably can't either:

  • It's a prime marketplace thanks to its hyper-targeted ads — FB has so much info on its users that it can guarantee a steakhouse ad won't be wasted on a vegan. Also...
  • The world's top 100 brands only account for 6% of FB's ad sales — for millions of smaller businesses, FB is the only effective way to reach new customers.
Cancel

The old college try... Four years after signing the biggest apparel deal in the history of college sports, Under Armour wants out. The $280M, 15-year deal gave UA the exclusive right to design all uniforms for UCLA's Varsity teams. But UA isn't feeling the team spirit anymore:

  • UA says it's allowed to back out of the contract because: “We have been paying for marketing benefits that we have not received for an extended time period."
  • UCLA doesn't buy it and says it'll do everything it can to fight UA's decision (we spy a lawsuit).

Protect this Balance Sheet... This move is more about cost-slashing than UCLA marketing. In May, UA said it was planning to cut $325M in costs for 2020. UA got hit hard in the corona-conomy:

  • Sales fell 23% and it posted a $590M loss thanks to corona-closed stores.
  • UA expects sales could fall 50%-60% this quarter — now it's trying to build an emergency fund to weather the storm.
THE TAKEAWAY

Under Armour is too much ‘ath’, not enough ‘leisure’... Consumer preference is shifting toward versatility — especially in the corona-conomy, where 1 pant can triple as a workout, Netflix, and grocery shopping outfit. UA has been highly focused on technical performance, not as much on leisure. That's why UA's stock is down 55% this year, while leisure-friendly Nike is down only 6% and leisure-obsessed Lululemon is up 25%.

What else we’re Snackin’
  • Treat: Gilead will begin charging US hospitals around $3.1K per patient for its coronavirus treatment remdesivir — it's been donating doses since May.
  • Sweat: Lululemon acquires home fitness startup Mirror for $500M — the $1.5K interactive workout screen is Black Mirror-worthy.
  • Frack: Fracking pioneer Chesapeake Energy files for bankruptcy on fallen oil and gas prices (and a hidden wine cave).
  • Takeoff: The FAA will begin recertification test flights of Boeing's 737 Max, which has been grounded since March (but could return by fall).
  • Soft: Microsoft is permanently shutting down all 83 of its physical stores, but will convert four into "experience centers."
  • Sold: Oil giant BP will sell its petrochemicals business for $5B, meeting its $15B divestment target a year ahead of schedule.

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Snacks Daily Podcast

Every day you see the news stories we carefully curate and Snack-ify. What you don't see are all the stories we considered, but decided to pass on.

Tune into our extra digestible pod to hear some of our "almost, but definitely not" headlines from today we decided not to cover, including:

  • Luckin board tries to get rid of Chairman, Chairman tries to get rid of board.
  • CAA and NEA launch VC firm for ASAP production (+4 acronyms = 90% pass probability).
Tuesday

Disclosure: Authors of this Snacks own shares of Twitter, Microsoft, Luckin, Lululemon, and Starbucks

ID: 1230199

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