Riding ELF’s 1,000% growth!

TLDR;

- It’s time we get to know each other better

- Riding ELF’s 1000% Growth momentum

LBAB Community: Remote + IRL = 💪💪

I just came back from a week in Toronto with the Gorgias team, where we gathered 20 Marketers from across the world (France, Portugal, Argentina, US, CAN) for our annual retreat.

And there’s nothing like it.

Spending a week together after a year Remote created so much value in a short period of time.

I’ve been remote since 2016. AND I love it. I’ve never been a big in-office person. Commuting is a waste of time. Small talk kills my productivity, and the teams I’ve worked with for the past 7 years have been all over the world.

But there are some real gaps in remote work. It’s lonely. Communication isn’t as clear. It’s hard to quickly “hash out a problem.”

Getting in a room all together for 3 days cleans out all those pipes. Everyone spends time getting to know each other. They tackle the lingering Zoom conversations in quick sessions. Plus, there are the new conversations that wouldn’t happen without people bumping into each other.

We only do these 1x/yr at Gorgias since our team is so spread out, but our cadence at LuMee remains the best I’ve seen. Every 6-8 weeks, Leadership would fly in for 3 days.

• During the day: Status updates, Planning, and Brainstorm big new initiatives

• At night: Dinners/Team bonding activities

• Go Home: Sprint with the renewed focus

Rinse, lather, repeat in 6-8 weeks.

It was the best balance I’ve seen to align priorities and work cadences that get (and keep) the team rowing in the same direction—and giving them time to row.

If you haven’t spent time “getting out of the office” ... This is your reminder to do it before you plan for 2024.

All right. Now, it’s time to dive into why I’d love to plow my money into ELF and dissect how they’re grown 1,000%.

Let’s Examine This Biz

ELF Beauty’s 834% stock growth over the last 5 years is the poster child for consistent, disciplined growth. And a shining example of why you don’t need big numbers to put up big performances.

Trading at $125.77/share with a $6.85B Market cap, this stock has absolutely RIPPED the last 5 years. I repeat: up 834% in 5 years. If you compared it to the $8.40 price at the COVID trough, that would be 1,397% growth over the last 3 years.

They aren’t the biggest brand, but they are one of the most consistently profitable, with 3 straight years of profitable growth.

Every. Single. Quarter. 

And investors are rewarding them for that.

Their $6.85B cap is 17x their Rev. Now those are ideal comps.

They’re headed to the moon! I want to scoop this up in our portfolio and ride it up to $1B in topline and a $15B – $18B cap to double our money.

TLDR Analysis:

ELF is plugging away. They’re doing all of the unsexy things well, and it shows in their numbers.

• Sales & Gross Profits growing inline +20% YoY.

• Same period SG&A only grew 14%.

That discipline plus leveraging scale at growth unlocked a massive +252% YOY Net Income increase, which is a mind-blowing % gain in a year when brands had difficulty with profitability.

It’s only $21m in Net Income (weirdly almost the exact same as FIGS at $21.19m), but the consistently profitable narrative is propelling this stock.

Massive YoY % gains + consistent profitability makes it much easier for investors to project the up-and-to-the-right math where this biz throws off massive amounts of cash as it continues to profitably grow.

Let’s Accelerate This Biz

Here are the 3 moves to help ELF grow even faster.

1) Scaling Loss Leaders -> Profit Puppies

ELF is famous for its $3 lipstick: a high-quality product at dollar store prices. It’s virtually impossible that they make any profit on the product. Especially with inflation and their majority-retail biz.

This is the classic loss leader strategy.

Bring customers in on an insanely low-cost item to attract customers without much “marketing spend.” This is a great example of how your pricing = your marketing budget. Costco’s $1.50 hot dog is another great example.

The goal of these products isn’t to be profitable. The goal is to use them to optimize your CAC.

The eCommerce equivalent is a Tripwire, a great way to acquire more customers for cheap and liquidate slow moving inventory.

Next step: Take the old Jeff Bezos quote to heart: “Your margin is my opportunity.” Find the most popular/trending luxury products and produce the cost-effective version.

Then, just like ELF has done with Lipstick -> Concealers, Brow Appliers etc., they apply that model into:

• Moisturizers

• Mascara

• Sunscreen

• New category X.

ELF won’t ever touch the Luxury space, but they can create the cost friendly alternatives. Just as Wal-Mart and Amazon laid waste to the middle of the consumer market, ELF will continue to eat up market share under this playbook.

Now it’s about how many additional markets they can move into.

Takeaway: Launch Category Loss Leaders. Scale, Baby, Scale.

2) Triple Down on Stunt Collabs.

ELF has clearly defined their core market: Gen Z.

They’ve launched 3 news-jacking, viral collabs with

1. Dunkin’ Donuts

2. American Eagle

3. Chipotle.

I’m not going to sit here and pretend like I know why a Dunkin’ Donuts lipstick sells better than a Matte or Strawberry glossy flavor.

But it doesn’t actually matter.

These collabs capture so much earned media through Publications and Influencers talking about the crazy new thing that ELF did. It’s a CAC Hack.

The beauty of a multi-sided marketplace is that you help the service providers get initial leads, but they eventually do the Marketing (and customer support) for you.

Putting the budget into crazy, creative collaborations accomplishes 3 crucial goals:

1. Generates a ton of free marketing

2. Customers have a reason to come back and buy more

3. Gives ELF’s marketing (+ Influencers) always-fresh talking points

The product quality needs to be there. People aren’t going to buy gross, low quality lipstick, but these limited edition runs are really a product as a marketing play.

Not everyone can get Chipotle or Dunkin’ on the line, but Influencers + smaller brands with strong overlap work as well.

Takeaway: Arbitrage eyeballs through other Brands’ Clout.

3) Become the Beauty/Skincare Shein.

ELF has proven they can shift the culture with their #EyeLipsFace TikTok challenge, leveraging the 7B+ views into multiple best-selling products. Have you noticed the “gone viral” badges in TikTok’s branding?

Now, reverse the playbook and become the Viral Beauty Factory. Take the fastest-trending and most-viral products from TikTok and produce them quickly at highly affordable prices.

Similar to what Shein has done in Fast Fashion.

Gen Z is still primarily Teenagers -> Young Adults. They’re not brand loyal yet, and they’re very cost conscious. If ELF can be the always-on-trend, affordable, and in-stock beauty company, they’ll dominate the sales of products before other cosmetic companies can even get to market.

This accomplishes 2 big wins:

1. Acquire new customers before the competition can even enter the space

2. Always have “gone viral” products to sell to existing customers

ELF becomes inescapable. They’re going viral with the products they’re creating. They’re in every retail store.

Dominating customer mindshare and becoming omnipotent.

Takeaway: New product velocity increases the rate of acquisition & LTV.

Final Thought

There’s a great old question in eCommerce. “Are you a Product company, or are you a Marketing company?”

What the question is really asking:

• Are you selling innovative products where you need to Make a Market?

• Or are you selling commodities where you need to stand out?

ELF knows it’s selling commodities to young consumers. Refining their playbook around both answers. Their focus allows them to attention-jack better than anyone else and because of that, they have drastically reduced their marketing spend.

That clear playbook is what has allowed ELF to grow topline and market share for 18+ quarters.

$6B -> $20B will require more of what’s working and finding 1-2 supporting bets that have the long-term potential to be bigger than the core biz today.

This is one of those great deals where we don’t have to rip the biz to shreds and start over again. We can invest and help and let a great team continue to crush it on the way up.

I can’t believe I’m about to say this, but ELF has a thing or 2 to learn from Crocs, who are running 60+ ltd edition collabs/year with massive brands across the spectrum (Hello Kitty, Balenciaga, etc).

They need to build out a team that cranks out more of these every year.

This is one of those chase-the-founders-until-they-answer-your-call deals. But persistence never bothered us.

Let’s Buy This Biz!

🧠 The Takeaways

Own the dance between product pricing and marketing. Clearly define how the 2 interplay.

1. Loss Leaders/Tripwires work well. But you have to nail the backend offer first.

2. Stunt Marketing requires the most elbow grease, but if you know the culture, there isn’t anything that hits the same way.

3. Speed to market (especially in trendy markets) makes or breaks the biz.