Cobalt Consumer Index (10.18.22)
The following contains our view on the market and the interesting dynamics that inform our investing in consumer technology businesses
Some quotes from public company executives below, over the last few weeks discussing consumer spend staying strong despite high inflation and concerns the U.S is nearing a recession.
Consumers continue to spend
“Consumers are financially resilient, despite high inflation and concerns the U.S. is nearing a recession. Analysts might wonder whether the talk of inflation, recession and other factors could [result] in a slower spending growth, “We just don’t see [that] here at Bank of America.” - Bank of America CEO
"In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy -- Nominal spend is still strong across both discretionary and nondiscretionary categories, with combined debit and credit spend up 13% year-on-year." - JP Morgan CEO
"Debit card spending remained significantly above pre-pandemic levels and was up 3% in the third quarter compared to a year ago, consistent with the second quarter increase -- Credit card spend remained strong in the third quarter, up 25% from a year ago, with double-digit increases coming across all spending categories” - Wells Fargo CEO
“The U.S. economy, however, remains relatively resilient. So while we are seeing signs of economic slowing, consumers and corporates remain healthy as our very low net credit losses demonstrate, supply chain constraints are easing, the labor market remains strong." - Citigroup CEO
But, consumer deposits are declining
"...with spending growing faster than income, we are seeing a continued decrease in median deposits year-on-year, particularly in the lower income segment." - JP Morgan CFO
"We've seen average balances steadily decline and are now below pre-pandemic levels, and their debit card spend continues to decline." - Wells Fargo CEO
Top 10 Companies by EV / NTM Revenue Multiple
Auto Trader continues to be the only consumer company trading above 10x on forward multiple. Mean and Median are relatively flat from the last report
Summary of All Multiples
Mean and Median have stayed relatively flat (mean of 2.4x EV/NTM and median of 1.9x EV/NTM)
We value consumer businesses on a multiple of Last Twelve Months (LTM) and Next Twelve Months (NTM) revenue. Multiples shown are calculated by taking the Enterprise Value / NTM revenue. In addition, we separated multiples by time period and by growth rate. High growth businesses are growing 40% NTM revenue; Mid-growth businesses are growing 20% NTM revenue, and Low-growth are less than 20% growth rate.
Breakdown of Historic Multiples
Multiples by Category
We have separated the multiples and outputs by subsector. On the upper end, consumer social commands the highest EV/NTM multiples, while e-commerce commands the lowest multiples.
Multiples by Growth Category
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Written by Ben Futoriansky.
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