In Focus: Supreme and Uber
When the Carlyle Group dropped an estimated $500 million to acquire a piece of streetwear brand Supreme there was a big question that followed the investment. Could Wall Street and Hypebeast co-exist? Would the Carlyle Group's need to grow their investment as fast as possible disrupt what Supreme had cultivated over several long years? The answer was yes, the two could co-exist.
Last week VF Corp. (VFC), home to North Face, Timberland, and other fashion apparel brands purchased Supreme for $2 billion. In the time between Carlyle's investment in Supreme and the VF Corp.'s purchase of Supreme, the Supreme brand hasn't lost much of its cache with its audience. But now, a new owner of the brand brings new concerns. Hypebeast and VF Corp. investors now have to consider how VF Corp will handle this fragile brand.
To start 2020 VF Corp.'s stock price was trending down, even before COVID-19 became an issue in the United States. The company's quarterly earnings for the quarter ending December 2019 was greeted with mixed emotions by Wall Street. Although the company reported increases in gross margin, operating margin, and revenue for the quarter, it didn't quite meet Wall Street's expectations, and big investors started to move away from the stock. Add the coronavirus pandemic to a so-so quarterly report and what we got was VFC's stock dropping from $100 per share to $56 per share in a few short months.
Fashion is Fickle
I earlier described Supreme as a fragile brand, and that was done on purpose. When it comes to streetwear or urban wear I have seen brands come and go. My pre-smartphone photo albums are filled with me in shirts made by companies that are no longer in business or aren't what they were when the photo was taken. We all have a box of stuff that we purchased when it was "in style" that we wouldn't dare wear today. Can Supreme with the help of VF Corp elevate from the space of fickle fashion and become a standard like Louis Vuitton or Burberry, but for streetwear, so it doesn't end up in that box of stuff we wouldn't dare wear?
We have to keep in mind that Supreme is a baby compared to other well known fashion labels. Hermes was founded in 1837, Louis Vuitton was founded in 1854, Burberry was founded in 1856, Gucci was founded in 1921, and Supreme was founded in 1994. For this investment to work for VF Corp. and its investors, VF Corp. needs to help Supreme maintain and grow its standing in the universe of fashion and all things related?
The collaboration has been a huge deal for Supreme in transferring money from consumer to company, very few companies have done it better. Supreme has collaborated with different companies inside and outside of its industry. There are Supreme boxing gloves thanks to a collaboration between Supreme and boxing equipment company Everlast, Supreme and Fender gave us the Supreme guitar, Clarks, Nike, Bathing Ape, and Louis Vuitton have also collaborated with Supreme in the past.
If you aren't sure about the type of clout the Supreme brand holds, here are two examples. The Hanes-Supreme collaboration produced a 3-pack of Hanes t-shirts that retailed for $28 and hit resale prices upward of $40. A regular 3-pack of Hanes t-shirts goes for $9.99 on Amazon, the Supreme logo on a Hanes t-shirt drove the price up by 180%. A pair of six inch wheat colored Timberland boots retails for $198 on the Timberland website. The Supreme and Timberland collaboration resulted in the same six inch wheat colored boots but with the Supreme logo retailing for $248, with a resale value upward of $300 a pair. S-U-P-R-E-M-E has the ability to turn a regular item into a must-have item.
VF Corp. has said it plans to leave Supreme as is and let it operate as it has been, which Hypebeast all over the world were hoping for after the news of the acquisition was made public. If that plan were to change and VF Corp. were to limit the number of Supreme collaborations and collaborators, or favor VF Corp. brands over others, this could really hurt the Supreme brand and how its fans interact with it.
Now You Can Invest in Supreme
For any investor who ins't a Carlyle Group client but who has wanted to align their money with that red box with the white lettering, then this is your chance, but buyer beware. I've said before that I believe COVID-19 will have a major financial impact on the U.S. and the rest of the world for some time. As this pandemic rolls on, it will get harder to justify the purchase of a $200 sweatshirt with a Supreme logo if your employment isn't as secure as it once was.
With that said, I believe VF Corp. is a good parent to help Supreme navigate the pandemic and come out stronger on the other side. Supreme can use VF Corp's access to capital and public markets to continue its rapid growth, and VF Corp can use Supreme's name and momentum to help boost its stock price.
Uber Selling ATG
Last week we got news that Uber (UBER) is exploring a sale of it's self driving unit, Advanced Technologies Group. Wall Street took this news better than I had expected, the stock closed up 6% on the week. Maybe Wall Street sees what I see.
Since before it's initial public offering, Uber bulls have pointed to the day when Uber vehicles would go driverless, allowing the company to keep more of the revenue it brings in. With the advances that companies like Tesla (TSLA) and Waymo were making in autonomous vehicle development, the driverless taxi investment thesis seemed like a very plausible one, and one that could likely happen by 2030, but now what?
Earlier in the year we talked about focus and how it would allow Tesla to gain an even bigger lead on its competitors in the EV space, because their competitors would be forced to focus on their money makers, gas powered vehicles in order to survive the economic slowdown caused by the pandemic; and Tesla would be able to focus on it's money maker, the electric vehicle. We also saw Amazon earlier in the year scale back on it's logistics business to focus on its primary business.
Now, the pandemic has also forced Uber to focus on its primary business, which is currently delivering food, followed by delivering people. This news of Uber exploring a sale of ATG comes out as Uber's stock price is pushing above all time highs. There's been good upward momentum in the stock following the Postmates deal, but now what?
Business Switch Up
The delivery of people, using the Uber business model was a losing business prior to the pandemic and it's gotten tougher since the pandemic. But the need for food delivery has helped offset some of the lost taxi business revenue. The shift from people delivery to food delivery was a good strategic move on Uber's part. The move to sell off AGT hints to me that the company is positioning themselves as a food delivery company first, everything else second, and I think this is an interesting move by Uber
The pandemic will not last forever, it could last for a few years, but not forever. The longer this pandemic lasts the more people will be ready to travel freely and eat freely away from home when it's over. When we get a viable vaccine for COVID-19 there will be a lot less food delivery and a lot more people traveling to restaurants, movie theaters, concerts, sporting events, and airports.
I thought this was the time for Uber to really focus on their autonomous vehicle development, to hopefully get a lot closer to making driverless transport a reality.
The autonomous taxi market will go to someone, maybe Waymo, maybe Tesla, but already having the taxi infrastructure was a big advantage for Uber, which they're in the process of losing, or are they?
Uber could leverage it's digital taxi network to an autonomous vehicle taxi company and essentially make revenue from its collected customer data without paying drivers. This may seem out there, but it's not as crazy as it seems.
Investors often forget how much data Uber has been collecting since its inception, and that's because we as investors haven't figured out what they could possibly do with the data, but licensing that data could be an option.
Aurora Innovation is rumored to be the interested party seeking to purchase Uber's autonomous vehicle assets. Aurora is led by an executive team that hails from Tesla, Google (GOOGL), and Uber. If Aurora Innovation is able to get a safe, working, approved autonomous vehicle capable of picking up and delivering people, Uber could eventually acquire Aurora or just lease all the data they've collected to Aurora.
We could see a situation where the autonomous vehicle becomes the computer, and the operating system is provided by Uber.
I remain high on Uber for the long run, this move of selling their ATG unit is about focus and survival. Uber is attempting to focus on what makes money so they can survive and reach the other side of the pandemic.