Is Kylie Jenner a Billionaire, or Even Close? Part II

A little over a year ago, I wrote a short blog post taking issue with a Forbes magazine article that had concluded that Kylie Jenner’s company, Kylie Cosmetics was worth over $1B. In light of last week’s news that Coty Inc., a publicly traded cosmetics firm, is purchasing a 51% share in Kylie Cosmetics for $600M, this would seem to confirm that Forbes was right and I was wrong. Or does it?

I’ll begin by making a few technical observations. The Forbes article had stated that Kylie’s revenue for 2017 was $400M, and pre-tax profit margins (it seemed to imply) were in the range of 40%, for pre-tax profit of around $160M.

The public disclosures so far surrounding the Coty transaction appear to indicate that in fact:

• Revenue for the last twelve months has been only $177M, which represents growth of 40% over calendar 2018. This would seem to imply that revenue in calendar 2018 was around $125M.
• EBITDA margins are “>25%”

These numbers are far different from those presented in the Forbes piece, so different in fact that the company described by Forbes bears little resemblance to the company that Coty has actually purchased. So throw the whole Forbes analysis out the window, and let’s ask the question again: Is Kylie Jenner a billionaire, or even close?

Now, Ms. Jenner stands to receive $600M in cash for the 51% of her company. $600M is worth $600M; not even I can argue otherwise. But what is her remaining 49% interest in her company worth? Ostensibly, if 51% of her company is worth $600M (which is what Coty is paying for it), then the other 49% should be worth a little bit less than $600M, which would put Ms. Jenner at around $1.2B. Or does it?
There are a few points worth considering:

• Coty is a beauty-care company with a market cap that has hovered in the range of $9B, with annual revenues of around $9B. Its business has been performing poorly and it was looking for a way to reconnect with a younger demographic. Ms. Jenner fits that bill. So a large portion of the $600M Coty paid for Ms. Jenner’s shares is likely represented in the synergistic or knock-on effects it feels that Ms. Jenner’s small company will have on Coty’s results. These are benefits that, as a shareholder of a 49% stake in Kylie Cosmetics, Ms. Jenner does not necessarily get to participate in.
• Second, the stock market’s reaction to the deal has not been particularly enthusiastic. Coty’s market capitalization has fallen by around $300M (from $9.0B to $8.7M) in the week or so since the deal was announced. So while Coty may have paid $600M for Kylie Cosmetics, it is less than clear that Coty’s investors feel that this was fair market value for the company.
• Finally, Ms. Jenner is now a minority shareholder in her company, and her ownership interest may be valued at less than her pro-rata interest in her company. The details of the deal have not been disclosed, so it is unclear how much representation Ms. Jenner will retain on the board of her own firm. But this is something that could potentially have an impact on  the value of the remaining 49% of the business.

What do I think Kylie Cosmetics is worth now? It is very difficult to say. Here is one possible model that shows a value for the entire company at $600M. This model makes some very aggressive assumptions about growth and the staying power of her brand; as I have argued previously, neither of these assumptions may prove realistic. It also ignores things such as capital investments (e.g. working capital) to accommodate the high rate of growth.