Suddenly, investors see a direct link between brand strength, price premiums, and demand inelasticity. While personally, I’m concerned about the cost of living crises high inflation creates, from a professional point of view, it has brought brand and marketing to the forefront of investor interest for the first time in a long time. This is a direct reason Apple can charge $1200 for an iPhone, while a similarly specced commodity Android might cost a few hundred.Īs has been widely reported, one of the defining factors of the post-pandemic period is that corporations have used supply chain issues to raise prices beyond the increase in their costs, leading to record corporate profits while also contributing to increased inflation. And for the investor this translates into a competitive moat.

For the customer audience, this translates into a desirable consistency of promise you should expect. For the internal audience, the brand is what you stand for, which dictates your behavior and the experience you offer. I’ll write more on this in a future edition, but I think it’s better to define brands cyclically. Over the years, I’ve realized that the problem we have in defining what a brand is is that we try to use singular definitions based on the customer when, in truth, it’s conceptual and audience-dependent. What’s interesting about this is that brand effects often mimic monopoly effects. For example, the ‘big 7’ that dominate public valuations are all perceived to have strong, sustainable, monopolistic moats. As a result, corporations that are perceived to have sustainable moats tend to achieve significantly higher valuations than competitors in ostensibly the same market or industry. In simple terms, a moat represents a source of sustainable advantage that directly drives increased revenue, profitability, and growth. In terms of influencing valuation, I want to focus on two things:Įconomic moats have become a subject of much discussion among investors of all types. Almost certainly, the algorithms have been tweaked to boost Tesla posts in an effort to maintain Tesla’s market capitalization by appealing to its large retail investor base of Elon-stans.Īll of this is to say that while much scientific and quantitative analysis goes into finding the ‘fair value’ of a corporation, there’s also a large element of subjectivity, emotion, and greed, commonly referred to as ‘animal spirits.’ This means that in much the same way we might think about positioning a brand for a customer audience in a competitive marketplace, we can use the same skills to position a company within the competitive marketplace for ownership.

If anyone uses the platform formerly known as Twitter, this is why your timeline is now filled with Tesla boosterism, especially for its recent self-driving update. And just as heavily hyped products can move customers, investors can often be swayed by heavily hyped companies. In general terms, we can segment an investor audience through the lens of private capital ( private equity, VC) versus public (listed on the stock market) scale, which runs from individual retail investors (you and I) right up to massive institutional investors ( Fidelity, Calpers, etc.), risk tolerance, which runs from investors who are quite risk averse (retirement focused asset managers) to investors willing to take big risks (venture capital, angel investors, day traders), and time-horizon, which can run from high-frequency algorithmic traders buying and selling many times per second to long-term holders, that operate along multi-year time horizons.Īs a result, just as customers have differing needs and priorities, investors do too. And, much like a customer audience, we can view investors in aggregate or through specific segments. To understand how we might influence how investors value a company, the easiest baseline is to consider that investors are a stakeholder audience in much the same way that customers represent an audience. Older businesses with a long track record (e.g., blue chip stocks) are primarily valued based on their consistency of performance. Young companies with little or no track record (e.g., early-stage startups) are primarily valued based on the scale of their potential. Last week, I talked about how, if we oversimplify and overgeneralize, business valuation is based on some combination of two things: A track record of business performance combined with a story of future potential. Volume 172: Valuation Narratives, Part Two.Īpriul 19th, 2024 Valuation Narratives, Part Two.

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