Author Topic: RACE - Ferrari  (Read 52474 times)

LC

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Re: RACE - Ferrari
« Reply #10 on: October 10, 2015, 01:49:28 PM »
I'm actually upset they did not select ENZO as the ticker
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BG2008

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Re: RACE - Ferrari
« Reply #11 on: October 10, 2015, 02:49:23 PM »
There's a fine line between selling a few thousand more cars and diluting the brand. A few thousand more cars can be concentrated in certain urban areas and basically change the entire brand appeal.

There's a Maserati dealership nearby with a lot full of cars. I see so many new Maserati's lately that it's changed the appeal of getting one.

Ferrari is like Manchester United or a similar niche/scarce asset. You have pricing power but you have to be very careful at exploiting the brand.

I suggest that those who intend to do more market research head to their local Ferrari and Maserati dealership.  The last time I was at one for business reasons was quite a few years ago.  The spread that they put out was simply out of the world, jumbo gulf shrimps cocktail, foie gras, terrines, etc.  They were skimpy on them, it was all for the taken.  I think the Foie Gras and Terrine were like five poudn block of cheese that you cut with a cheese knife to put on your crackers.  Truly an experience and sight that you don't forget.  I gave them a business card and the guy won't stop calling me at least 2x for the next 3 months.  I simply refused to take the call. 

I think luxury product branding, pricing power, prestige, etc are quite interesting.  The entire value proposition of a luxury brand is a paradox of a sort.  You're so exclusive that "entry" into your club requires a steep fee/cost.  Being married in your 30s and living in NYC means that you've overhead the luxury bag discussions amongst your wives' friends and colleagues.  You kind of get a real time feel for what's emerging, what's hot, what's on the decline, etc

For those that just brush aside the 2,000 extra Ferrari comment as nothing should pay attention to the decline in the brand power of Louis Vuitton.  A decade ago, the trademark Louis Vuitton bag with its LV logos in brown background was the entry level into the club.  Post the great recession, LVMH ramped up the volume and availability of Louis Vuitton.  Bags were no longer sold in boutiques, but they can be purchased at store-within-stores of Macy's.  The whole point of luxury products is that you're serviced by a knowledgable staff in a high end luxury boutique setting that is very different from shopping at Macy's.  More importantly than anything else, if the everyday school teacher starts owning obnoxiously blantant LV bags, you as true luxury connesseuir probably won't want to be caught dead with your trademark LV bags.  For all intended purposes, LV has relegated themselves to the bag where women making $50,000/yr save up to buy.  Their audience includes aspirationally wealthy (perhaps one of my most hated aspirations in life, either you're wealthy or you're not, and trying to aspire to be wealthy through materials goods will drive you to the poor house) clients.  From analyzing my constant stream of luxury updates, I believe that the truly wealthy no longer wants anything to do with LV.  Hermes still has one of the largest entry into the club.  Do you want to buy a Birkin bag?  Well, there's a 6-12 months waitlist for your noobs.  But if you're welling to spend $20,000 in other merchandise during your first visit, sure the salesperson will be glad to go the back and sell you a Birkins bag on your first visit.  Hermes seems to get it.  They would rather forgo the entry level Birkins bag sale to those who merely wants entry into the club.  For those who are willing to pay $20,000 in additional purchases just to buy a Birkins, well let them in the club. 

I think that the true luxury market isn't as large as people may think.  Though, we will never know until production volume is actually increased.  You certainly run the risk that the moment that you increase supply by 20%, there is a inversely correlated damage to your brand power.  It's also important to keep in mind the last 5-10 years.  China had emerged as a huge luxury product buyer.  People loved all the luxury European products and Ferrari's, Maserati's, etc.  However, Xi JinPing is wagering a huge anti-corruption campaign in China.  Conversation with our contacts in China reveals that wealthy people in China "can't sleep well at night."  Before you brush this off as some minor comment.  Think about the wealth that was created in China in the last decade and who was it concentrated in.  People often compare the anti-corruption campaigns as the second coming of the "cultural revolution."  No one wants to be caught dead with a flashy sports car scandal that involves alcohol, escorts, drugs, and/or embarrassing companions in generals.  The other source of demand for Ferrari comes from Middle East countries that are heavily dependent on oil prices.  Last time I check, that's not doing so well.  If we go into another recession, this time it may actually be different. 

By the way, I hate the new sub $100k Maserati.  They are everywhere on the street on NYC lately.  I can say that the Maserati brand has already been cheapened.  In summary, I think luxury brands are great franchises.  But I think the urge to increase volume or go down market can often spell the doom of the franchise.           

LC

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Re: RACE - Ferrari
« Reply #12 on: October 10, 2015, 03:31:02 PM »
it depends on each brand.

before selling sub-100k cars, maserati as a brand was not in a similar position as LV was when it started selling bags in macys. i think pushing product helped get their name out there to more casual car buyers.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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compounding

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Re: RACE - Ferrari
« Reply #13 on: October 10, 2015, 03:44:32 PM »
I'm interested to know why football teams or handbag makers are more relevant comparables to Ferrari than for example Porsche. And, if I may, it would be very beneficial for the quality of the discussion if people tried to support their arguments with some actual data instead of just sharing anecdotes and/or opinions.
@JohanHjortsson

Picasso

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Re: RACE - Ferrari
« Reply #14 on: October 10, 2015, 04:32:05 PM »
I think you have to live in LA or NYC to get an idea for the brand appeal of Ferrari and Maserati. You'll also have a good idea about who's the buyer for those brands (faux rich, older males, Ferrari club personalities, certain ethnic owners who split up the car payment between four bros, etc.). Porsche is a lot different and has a wider appeal.

We can start looking at the numbers, but people own stocks like MANU or RACE not because of their economics but because of the novelty of telling your friends you own a piece of them. If RACE was as oversubscribed as media indications hinted at, I'd like to know of a stock that oversubscribed which ended up providing good long term returns. I'm not aware of more than a couple. And RACE doesn't fit into the type of business like GOOG or FB.

Anyway we could probably go into the numbers but at the current valuation, but are we really expecting RACE to be worth $20-30 billion over time?  The paradox of a status brand makes that unlikely in my eyes.

Probably something that BG didn't mention was the new mindset of new wealth. Someone who gets a big payday from Silicon Valley startup, what car do they think of buying?  Their first thought isn't Ferrari anymore, but it might be Porsche. More often than not it's become Tesla especially given the performance per dollar spent on the vehicle and what it tells other people about your purchase. You just one off like an asshole for buying a Ferrari.

This is also a company which has probably benefited tremendously from the ZIRP environment. I don't know how you handicap that.

Something else I didn't see mentioned was the problem with letting new people in the Ferrari/Maserati club. They are usually the ones that can't make their car payment or maintainace during the next economic downturn. I'm curious to see the flood of repo Maserati's during the next recession. You can't let something like that kill your brand.

Sorry, just more opinions. I'll leave this thread now.

BG2008

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Re: RACE - Ferrari
« Reply #15 on: October 10, 2015, 06:26:25 PM »
I'm interested to know why football teams or handbag makers are more relevant comparables to Ferrari than for example Porsche. And, if I may, it would be very beneficial for the quality of the discussion if people tried to support their arguments with some actual data instead of just sharing anecdotes and/or opinions.

I'll leave this thread alone after these comments. 

My anecdotes/opinions have saved my ass from the US real estate bubble, commodities selloff, recent China related implosions etc.  As I continue to learn and evolve as an investor, I realize that the qualitative analysis of businesses are very important for high multiple businesses.  I suggested the handbag analogies as a framework to think about supply vs demand and brand equity.  Good luck with the investment gents.   

karthikpm

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Re: RACE - Ferrari
« Reply #16 on: October 10, 2015, 09:01:25 PM »
can someone explain if existing Fiat shareholders ( FCAU) get shares of RACE like a spin off? Sorry ,I have not read the IPO filing documents 

muscleman

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Re: RACE - Ferrari
« Reply #17 on: October 10, 2015, 09:55:09 PM »
https://dl.dropboxusercontent.com/u/65789707/ADW%20Capital%20Management%20Fiat_Ferrari%20Investment.pdf

Why don't we start the thread with this presentation? It seems pretty bullish. Does anyone have negative thoughts about it?  :)

frommi

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Re: RACE - Ferrari
« Reply #18 on: October 10, 2015, 10:08:46 PM »
I think it was Jim Rogers who used the cocktail party test.. if it's a good conversation piece, don't buy it.

I have a new rule, anything that gets more than 10 posts on CoBF in 24hours is something to avoid.

Green King

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Re: RACE - Ferrari
« Reply #19 on: October 10, 2015, 11:10:35 PM »
Porsche used to be listed, use that as a comparable. To buy this stock you should be pretty certain about unit volume and margins going forward. If not pass.
GK