Warren Buffett Would Invest In Kylie Jenner's Business?


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Seeing Snapchat’s stock ravaged by the influencer overlord Kylie Jenner made me have a think about her business and the “influencer” model…

Kylie’s business is thriving today. According to the Daily Mail (my preferred choice for equity research), Kylie’s business had sales of $420 million last year:

That figure is of course enough to make any entrepreneur drool. When I took this figure down and estimated the net margin, I realised that Kylie’s business enjoys an enormous competitive advantage:

It doesn’t pay for marketing - she is the marketing.

This direct-to-consumer marketing model will deliver enormous shareholder value over time as most other brands need to invest millions in marketing departments. And they don’t even come close to Kylie’s following…

Kylie: 105m

Chanel: 26.5

Guchi: 21m

Burberry: 11m

Kylie is absolutely crushing it (:nail_care::nail_care::nail_care:)

It’s not just the scale cost savings from direct marketing, it;s also the brand power. Influencer marketing is immensely powerful and global brands are courting all Instagram super-influencers to partner up with them. Influencers bring a level of reality and authenticity to the products which cannot be achieved by distant ad campaigns. But what is more real and authentic than an influencer promoting their own brand?

Influencer marketing also creates powerful levels of engagement. Youtube famous comedian Liza Koshy recently teamed up with Apple to promote Beats Headphones. According to Apple, her ads drove x4 the amount of clicks:

This quadrupled advertising productivity gives brands another competitive cost advantage in the marketing sphere…

Where Does Buffett Come In?

In Buffett’s early pursuit of investment gold, he came across an insurance company set for monstrous growth - Geico.

Geico was originally a small insurer, however it had a significant advantage over other insurers. as Buffett recalls the story in his investment letter:

And thus I met Lorimer Davidson, Assistant to the President, who was later to become CEO. Though my only credentials were that I was a student of Graham’s, “Davy” graciously spent four hours or so showering me with both kindness and instruction. No one has ever received a better half-day course in how the insurance industry functions nor in the factors that enable one company to excel over others. As Davy made clear, GEICO’s method of selling - direct marketing - gave it an enormous cost advantage over competitors that sold through agents, a form of distribution so ingrained in the business of these insurers that it was impossible for them to give it up. After my session with Davy, I was more excited about GEICO than I have ever been about a stock."

Influencer marketing is part of the standard marketing mix today - it’s relatively common. However, the number of consumer businesses ran by entrepreneurs with a loyal cult-like following is relatively small.

Kylie’s cosmetics’ enormous cost advantage over its high fashion competitors would make it an extremely interesting investment.

Just as Buffett invested a large portion of his net worth in Geico, in the 1950s I would do the same with Kylie Jenner cosmetics…

Now all we need is for her company to go public and to invest in the Kylie Jenner stock symbol…