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The earnings report is more than expected. Is there a chance for ELF that soared 113% this year?
On July 27, we introduced to you in “three minutes to understand a stock”Cheap makeup brand e.l.f Beauty (NYSE: ELF)
However, just on August 1, e.l.f Beauty released a financial report, and the results once again exceeded market expectations, and the stock price jumped 14%.
This is not the first time, in fact, this is the company's third consecutive earnings since the company's share price surged, each of which is more than 14%.
Since this year (as of August 18, 2023), the company's stock growth has reached a staggering 113%.
At such a glance, you may ask, e.l.f Beauty stock has risen so high, there is no possibility to continue rushing up it? In fact, you can start from the following questions, find answers:
Why can ELF rise so much?
How do I get a new user?
Where are the future growth points?
In this article, we will combine the latest financial reports from e.l.f Beauty and the content of previous conference calls to answer these questions.
First, why ELF can rise so much?
One of the reasons e.l.f Beauty stock prices skyrocketed is that the company's performance is growing very quickly.
In FY2022, e.l.f Beauty's revenue growth rate reached 23%. In FY2023, this growth jumped to 47.6%.
In the past, the Company expects revenue growth to slow sharply in FY2024, at around 22%-24%.
However, the latest earnings report was released and found that the first quarter of 2024 revenue rose by 76% yoy.
Because the market demand is still so hot, the company decided to raise the revenue forecast growth of 37% to 39% for the entire year 2024.
This sustained growth has driven the company's share price to an extent.
Thus, e.l.f Beauty's future share price performance is the key to whether the company's performance can maintain rapid growth.
2. How does the company acquire new users?
In the previous article, we mentioned e.l.f Beauty flagshipEntry-level cosmetics and skin care products, andVia Social MediaAttracted young people and became the favorite beauty brand of Gen Z.
However, some investors believe that if e.l.f Beauty wants to be a beauty giant like NYSE:EL, companies may also need toExpand user groups of different ages, as well as launch higher priced productsSo can the current social media marketing strategy still work?
From e.l.f Beauty's earnings conference call, you can see the company's current customer acquisition strategy:
First, the company attracts price-sensitive users through social media advertising. Management said in a conference call in the second quarter of 2023 that users who were initially attracted to low-priced cosmetics would purchase the company's other higher priced products after trying on e.l.f Beauty's products for their high quality.
In addition to this, the company also acquires new users by developing new products. For example, the company's previous launch of a “Potty Putty Primer” for only $8, but its cost performance surpasses the similar high-end brand products on the market for $52, attracting a large number of new users. These “Holy Grail” products attract new user groups, including consumers of different ages. In addition to Gen Z, there are millennials and Gen X.
Finally, the company expanded the Holy Grail product into different product categories to attract more users of different age levels.
As a result, e.l.f Beauty's current strategy is to continue to offer affordable products to attract young groups, while maintaining and expanding its user base by introducing “Holy Grail” products to attract users of different ages.
This strategic initiative may further drive the company's market position and development.
Third, where is the future growth point?
From the company's conference call information, e.l.f Beauty's future growth mainly comes from three areas: more shelves, online sales, and international markets.
More Shelves
The company's sales channels are mainly distributed on online physical channels and official websites.
In terms of physical channels, the company's products have settled in well-known hypermarkets and pharmacies such as Target, Ulta, CVS, Walgreens.
The growth potential of the company's physical business depends on the company's ability to occupy more space on the shelves of these partners.
It is worth mentioning that according to the company's latest conference call disclosure, the company ranks first on Target's shelf with a market share of nearly 18%.
In future plans, the company will expand its shelf space further and more in the fall, including Ulta, CVS and Walgreens, to reach its target audience more broadly.
Sell online
Online business is becoming one of the company's major growth engines, especially in the first quarter of FY2024, where online revenue grew by more than 100%.
Why can it grow so fast? There are two reasons: First, the company's marketing campaign focuses on social media advertising, attracting more people to shop online. Second, the company launched a membership system, called “Beauty Squad Loyalty Program”, has 3.9 million members, and 25% rate of growth.
International Market
The international market is a potential growth point for e.l.f Beauty.
At present, 87.5% of the company's revenue comes from the United States, only 12.45% of its revenue comes from international markets.
According to the company's conference call, Q1 international market revenue grew by 79%, mainly driven by the UK and Canada markets, which grew 10 times and 3x respectively.
Management said currently e.l.f. has a market share of about 5% in these overseas markets, ranked sixth, and the number one brand has more than 17% share. Therefore, the management feels that there is still a lot of room for development in the international market.
Fourth, the review
e.l.f Beauty is a fast-rising beauty brand that drives soaring stock prices with rapid growth in performance.
The key to future stock prices is whether to maintain this rapid growth.
The conference call reveals the company's future growth potential, focusing mainly on three areas: expanding shelves, strengthening online sales, and expanding to international markets.
Investors should note, however, that like other fast-growing companies, the valuation of e.l.f Beauty may be higher.
According to analysts at The Motley Fool, the company's dynamic P/E ratio has risen sharply to 74 times from 20 times last year. As a result, future growth may already be well reflected in the share price.
To sum up, e.l.f Beauty has a broad outlook, but investors should consider carefully in the context of high valuations to make informed decisions.
