#102 - Perks For "Shareholders" of AMC, Off-White Sells to LVMH, $ZM Buys Five9 and Whether to Invest In Only What You Know
In this week's episode of Reformed Millennials, Broc and Joel talk about the trend of companies encouraging their customers to be owners, starting with the new AMC investor connect program. We'll also highlight a Canadian fintech startup with a similar customers as owners strategy and lastly, cover Virgil's Off-White sale to LVMH, Bezos' trip to space, and whether Joel is buying the Traeger IPO.
Listen on Apple, Spotify, or Google Podcasts.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
“It’s not what you look at that matters, it’s what you see.“
– Henry David Thoreau
Above is a daily candlestick chart of the S&P 500 throughout 2021. The S&P 500 gapped lower to start the week yesterday, but buyers showed up at the 50-day moving average once again. Matthew points out that this is the seventh successful test of the 50-day moving average this year. Clearly, this is an important moving average to keep an eye on. Eventually, it will fail. But, it doesn't make much sense to fight the trend as long as the S&P 500 is above an upward sloping 50-day moving average. The bears had their chance to take us lower, but the bulls stepped in exactly where they needed to today.
💸Reformed Millennials - Post of The Week
A Story About THE KING of Luxury - LVMH and Bernard Arnault
The Berkshire of Fashion from Trung Phan
Bernard Arnault is the world’s 3rd richest person. Worth $158B, he built the luxury LVMH empire over a 30+ year period.
Today, the LVMH empire brings in $55B+ a year, employs 160k people, and houses 75 brands:
Fashion (LV, Celine, Fendi)
Wine & Spirits (Krug, Hennesy, Belvedere, Moet)
Perfumes (Dior, Guerian)
Watches & Jewelry (Tiffany's, Hublot, Tag Heuer)
ARNAULT’S STORY BEGINS IN 1949, BORN IN ROUBAIX, FRANCE (2HRS FROM PARIS)
His family owned a civil engineering company. After graduating from École Polytechnique (France’s top engineering school), he began work for the family firm.
By 25, he was in charge.
When socialist Francois Mitterand became president of France in 1981, Arnault moved to NY w/ambitions to grow the business beyond construction.
INSPIRATION STRUCK IN A CAB RIDE:
Arnault asked the driver if he knew who France's president was...he said
"no, but I know Christian Dior."
Arnault wanted an international empire and -- as fate would have it -- Dior came up for sale in 1984. It was part of an ailing retail conglomerate called Boussac.
In a deal with the French government, Bernault put up $15m (+$80m from Lazard) and promised to keep jobs.
Arnault took control of the firm and broke his jobs promise in true corporate raider fashion -- shedding 9k employees and unloading nearly all the assets other than Christian Dior.
By 1987, Arnault turned it around with Boussac making $112m profit on $1.9B in sales.
For much of the LVMH merger, Louis Vuitton and Moet Hennessy leaders were at odds.
Arnault played them off of each other and was invited in as an investor with the Moet team.
He floated 42% of Dior to the public to get $520m in cash and ended up buying ~20% of LVMH
During Arnault’s turnaround, fashion house Louis Vuitton merged with spirits company Moet Hennessy to form LVMH -- which happened to own Dior's perfume business.
At the time, LVMH was doing $2B in revenue and owned the world’s #1 champagne and #1 cognac.
By 1989, Arnault put up another $1B+ to buy a controlling stake in LVMH.
For France - which finds naked corporate ambition “uncouth” - Arnault was named:
“The Wolf in Cashmere”
In the decades since, Arnault has shown an incredible ability to allocate capital. Bringing in top brands and letting them operate independently.
1993: Berluti, Kenzo
1997: Marc Jacobs, Sephora
1999: Thomas Pink
2001: Fendi, DKNY
His shopping spree hit huge numbers in recent years:
2011: $5B for Italian jeweler Bulgari
2013: $2.6B for fine-wood purveyor Loro Piana
2019: $3.2B for hotel group Belmond
2020: $16B for jeweler Tiffany's (biggest deal ever)
Even when rebuffed he wins:
A failed 1999 bid to acquire GUCCI (dubbed "handbag war") netted him $700m
In the 2010s, he secretly built up a 17% stake in HERMES using cash-equity swaps but the family-owned business said "no"...still, he exited his position w/ a $ 5B gain
One Lux exec says he combines "Wall St ways" with "generational" thinking.
Many of the LMVH brands go back centuries, making their appeal near impossible to replicate.
My main lesson learned from following this story was the question Arnault would ask before investing:
"will this be desirable in 10yrs"
To stay on top of the trend:
Arnault regularly visit all of his competitor's storefronts
courts the hottest designers from Virgil Abloh to Rhianna to Stella McCartney
has 4 of his 5 kids working for LVMH (they are active VC investors inc. Uber, Slack, Airbnb, Spotify)
LVMH by the numbers: (2020)
Selective Retailing (28%)
Watches and Jewelry (8%)
Louis Vuitton is the crown jewel, responsible for ~25% of revenue, and is the world's most valuable lux brand (valued at $47B).
Its ridiculously nice flagship store is in Marina Bay Sands Singapore and is dubbed the "Louis Vuitton Island".
Brands take a long time to build (LVMH has many century-old brands)
Launching a new brand takes a huge retail footprint investment
Control (Arnault has 47% of LVMH and 63% of voting rights)
Carefully manage supply + team of 1000s enforcing copyrights
Today, LVMH is the biggest Lux house, with sales equal to its 3 biggest competitors combined: Estee Lauder, Richemont, Kering.
WHAT MAKES LVMH BRANDS WORK?
"They have 2 aspects, which may be contradictory: They are timeless and the utmost level of modernity"
Arnault's rise to the world's 3rd richest person is from a surging LVMH stock price.
Up ~4x in the past 5 years (with China sales generating a majority of the huge tailwinds).
2020 was a tough year, but LVMH is still worth $330B+
Interesting side note:
Apparently, 35 years old is the sweet spot for conglomerate building:
In 1965, Warren Buffett bought a struggling textile company called Berkshire Hathaway
In 1985, Bernard Arnault bought a near-bankrupt fashion house that owned Christian Dior, starting his path to LVMH
Metaverse Links From Benedict Evans
Netflix games: metaverse 1
Netflix has been working on streaming games for a while and made a couple of big hires this week. (Note that streaming games are banned on iOS under Apple’s rules, but I’d be surprised if those last another year, and most viewing is on smart TVs anyway.) Netflix competes for leisure time, not TV time - Coca-Cola used to talk about ‘share of throat’. That doesn’t mean games are easy, though, and the streaming games model is still a puzzle - if you still make people buy the games one at a time for $75 you limit the market, but if you offer all-you-can-eat for $10 or $20 a month then do the numbers still add up? Link ($)
Roblox music deals: metaverse 2
Roblox did another music deal, signing Sony for tracks and artist events in-game. Remember Fortnite? Link
Facebook creator payments: metaverse 3
Facebook is expanding its payments and revenue schemes for UGC, with a rather vague announcement about ‘$1bn’ of payments. (Meanwhile, Youtube pays close to $10bn a year in ‘content acquisition costs’ though much of that is for a professional content and half was for music.) Announcement, Coverage
🌊Best Links of The Week🔮
🏢Shein, the Chinese smartphone-first fast-fashion business, might have become the single largest player in the US this summer. Meanwhile, Nordstrom bought a stake in some brands owned by ASOS, a UK pioneer of web-first fast fashion.
Robinhood Expects App IPO to be valued at 33billion
Peloton plans to launch an in-app video game where you pedal to control a rolling wheel
Canada Sets Aug 9 US border opening! WERE BACK
🌊Companies & Links Mentioned🔮
John Sung Kim Five9 Founder Story - “How I Created a $350m Software Company Without Knowing Anything About Software” [article]
Tanay Jaipuria - Customers as Owners [article]
Clearco - Growth Capital For Online Businesses
Titan - The modern asset manager built from the ground up.
Project Hail Mary by Andy Weir [book]