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The #1 Performing Stock on the NYSE Over the Last 5 Years

Written by: Ryan Henderson & Braden Dennis

Happy Sunday!

Let’s get right into this week’s news👇

News Roundup

  • Google & Apple Teaming Up: Apple (NASDAQ: AAPL) is reportedly in talks with Google to start using its artificial intelligence engine (Gemini) in its iPhones. Alphabet’s stock jumped 5% on the news as it helped quell investors’ concerns that the company could potentially lose its coveted position as the default search engine on iPhones.

  • Reddit Goes Public: Social media company Reddit (NYSE: RDDT) officially went public on Thursday and saw its stock soar 48% in its first trading day. The IPO helped the company and selling shareholders raise around $750 million. The current share price of $46 puts Reddit’s market cap at more than $7 billion.

  • The Birkin Bag is Too Exclusive? This week, two California residents filed a lawsuit against luxury giant Hermès (OTC: HESA.Y) over its restrictive practices around who is allowed to buy one of its famous Birkin Bags. The lawsuit claims that Hermès’ practice of making customers show sufficient purchase history before being eligible for a Birkin handbag is anticompetitive. Ironically, this might ultimately make the bags seem even more alluring among the world’s wealthy.

  • Disney’s Proxy Fight Heats Up: A little more than a year ago, activist investor Nelson Peltz took a $3 billion stake in the media giant Disney (NYSE: DIS), and this week Peltz gained some important backing. Proxy advisory firm ISS (Institutional Shareholder Services), who gets paid to vote on behalf of institutional clients, recommended that shareholders side with Peltz and help him get elected to the company’s board of directors.

  • Intel’s Chip Grant: The $180 billion semiconductor company Intel (NASDAQ: INTC) received some positive news this week. As a part of the US Chips and Science Act, Intel will receive up to $8.5 billion in grants and $11 billion in loans from the US government. The money is intended to help Intel expand its manufacturing capacity for leading edge chips and help the US bolster its semiconductor supply chain.

  • DOJ vs. Apple: The US Department of Justice sued iPhone maker Apple this week claiming that the tech giant is violating antitrust law for a number of practices. The complaint specifically claims that Apple is blocking cross-platform messaging apps, limiting 3rd party digital wallets, and blocking “Super” apps, among other things.

Join Us 🎉

In 3 days (Mar. 27th) at 12PM EST (noon), we’re hosting a free webinar and you’re invited!

We’ll be joined by Compounding Quality and the focus of the discussion will be “How to identify high-quality businesses".

There will also be an open Q&A for all attendees, so make sure to bring your questions.

Company Spotlight

E.L.F Beauty

ELF Beauty (NYSE: ELF) is the #1 performing stock on the New York Stock Exchange over the last 5 years.

Here’s how this $11 billion cosmetics company was able to win market share in the beauty category and delivered 20-fold returns since 2019:

Winning on Price:

E.L.F (short for Eyes, Lips, & Face) was founded in 2004 with the mission of selling "quality cosmetics at a cheap price".

As one of the first ever digitally native beauty brands, ELF sourced its products from China and gained notoriety for selling them for as little as $1. This was a far-cry from where legacy cosmetics companies like L'Oreal, Maybelline, and others priced similar products.

After catching some fame for its low prices, ELF won a landmark deal with Target, which is still its largest customer today.

A Masterclass in Marketing:

Over the last several years, ELF has used some increasingly popular mediums to deliver unique campaigns. Here are a few recent successes:

  • 4 million plays on its Roblox Experience.

  • 2 million YouTube views on a true crime parody documentary.

  • Billions of impressions on Tik-Tok focused brand collaborations.

  • Superbowl ad ft. Judge Judy telling the court it should be a crime to overspend on makeup when ELF exists. Boosted web traffic 10x in the 2 minutes after the ad aired.

As the ads have gained traction and ELF has seen operating leverage, its been reinvesting a greater percentage of its revenue into marketing. Since 2019, Marketing as a % of revenue has jumped from 7% (or ~$19 million) to 22% ($196 million).

Brand Loyalty: 

Within the cosmetics industry, price and brand trust are 2 of the main considerations in a purchasing decision.

For ELF, once it has proven to customers that they can provide similar quality at a fraction of the price, the customers tend to stick around and buy other ELF-branded products.

Today, ELF touts ~4.5 million members in its loyalty program known as the "Beauty Squad", which helps drive recurring spending on its mobile application and DTC website.

Not to mention, the majority of its loyalty members are under the age of 30. Within the Gen Z demographic, ELF touts 29% market share.

Meme of The Week

When you find a cash-flowing monopoly that’s flexing its pricing power

The US Department of Justice received a complaint this week urging them to look into Fair Isaac Corporation’s (FICO) recent price increases.

The complaint claims that FICO is using its monopoly position in the credit scores market to increase costs for mortgage lenders, and ultimately, homebuyers.

The complaint states:

“FICO has astronomically hiked its prices. For 2024, FICO is once again increasing the price to access its scores, including both “hard” and “soft” pulls. It did the same thing last year, bumping prices as much as 400%.”

While some may see that as unjust for consumers, if we put our investing caps on, an asset-light business with uncapped pricing power is also a recipe for great shareholder returns.