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At RedSky Strategy, we use the term ‘valuation storytelling’ to articulate our methodology for quantifying brand value for financial stakeholders.  This is crucial for scenarios like investment bankers selling a consumer business or a consumer goods business defining brand value for fundraising and investor updates.  But what exactly does it entail?  Valuation storytelling the art of valuing your business activities within in the context of your company’s brand. 

This unique approach relies on the perceptions of actual consumers, creating a mind map of the general market. It stands apart from traditional valuation models that typically triangulate from public company comparables and discounted cash flow (DCF) analysis. 

For investors, valuation storytelling offers a head start, revealing the promise of an investment opportunity before market indicators suggest a buy. For operators seeking investors, this tool provides the hard numbers necessary to showcase brand value.

Moreover, this approach aids in navigating new or niche categories or products that are challenging to evaluate through traditional means. By utilizing valuation storytelling derived from consumer data, you can effectively navigate this data void with tangible numbers and a comprehensive understanding of the prospective business that you trust.

Overarching Questions

To delve into this approach, we need to ask the right questions. Where have emerging winners surfaced unexpectedly? Who are the brands that transformed into winners, and who remained unchanged? Where did a disparity exist between consumer sentiments – the heartbeat of the market – and how public markets valued a stock?

To illustrate this, let’s embark on a research time-travel to 1998, a year when Amazon was a burgeoning online bookstore, and compare it to Tesla today, focusing on the launch of the Cybertruck. Which brand successfully captured consumer demand before public markets acknowledged its potential? 

Case Study: Amazon vs. Tesla Cybertruck

Imagine being in 1998, participating in a survey about your shopping behaviors. Amazon, at this point, is not the colossal entity it is today but a fledgling online bookstore with ambitious aspirations. You receive questions concerning your shopping habits and thoughts on Amazon as a brand:

Shopping Experience

1. When considering purchasing books, how likely are you to choose an online platform over a traditional brick-and-mortar bookstore?
2. Amazon is aiming to be an “everything store.” How open are you to the idea of buying a variety of products online instead of from physical stores?
3. How would you describe your comfort level with the concept of shopping for books online compared to visiting a physical bookstore?
4. Amazon is experimenting with personalized book recommendations. How important do you find personalized recommendations in your online shopping experience today?

Brand Equity

1. How influential is Amazon in shaping your perception of online retail and digital commerce?
2. How much does a founder’s vision influence your trust and loyalty to a brand when shopping online?

How do you think consumers would respond to the above questions?  Do you think there would be early indicators of changing consumer preferences toward online shopping, valuing the convenience and personalization of the user experience?  Would there be any signs of the strength of Amazon’s brand among consumers, including regard for Jeff Bezos at the time? 

At the time, public markets did not foresee the tailwinds that would propel Amazon into becoming the online retail behemoth it is today. Post its IPO in 1997, Amazon’s stock, initially priced at $18, swiftly rose to $240 1,3. Internet analysts were skeptical when Henry Blodget predicted a $400 target, yet the stock eventually reached $600 at the height of the Dot Com bubble.2

How might consumer data have influenced Amazon’s valuation story at the time? Fast-forward to today, and let’s look at Tesla.

Tesla Cybertruck; source: https://www.kbb.com/tesla/cybertruck/

Analysts value the business at $758.4 billion as of 11/30/23, surpassing the entire U.S. automotive industry’s market size at $104.1 billion 4,5. Does this mirror consumer sentiment about Tesla’s cars?

Public markets typically scrutinize the number of cars and manufacturing output for Tesla to derive DCF valuations. However, a survey on the Cyber Truck’s consumer reception could provide insights into whether public markets accurately capture consumer demand.

 Conclusion 

What are your thoughts on the Cyber Truck? Would you have been excited about Amazon and online shopping in the ’90s/early 2000s? How could research like this showcase the value of your company or your investment strategy in a company? Share your opinions in the comments or reach out to discuss more! 

Are you interested in working with RedSky Strategy? We look forward to hearing from you to learn how we can help you leverage valuation storytelling to stay connected to your customers and the category.

Sources:

1. https://www.cnet.com/tech/tech-industry/blodget-and-amazon-a-long-history/

2. https://www.fool.com/investing/2019/11/24/if-you-invested-500-in-amazons-ipo-this-is-how-muc.aspx

3. https://www.benzinga.com/general/education/21/12/24645995/this-day-in-market-history-henry-blodgets-spectacular-amazon-call-1

4. https://autoleap.com/blog/analyzing-the-u-s-automotive-industry-trends-shop-owners-should-know/

5. https://finance.yahoo.com/quote/TSLA/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAK3z_ylOhOoMt–hjUVVB62TO_wJQ_NEHhg1sdMoe1ebShYnmWKyqWUofdF4MzkMolUpSj8jEQyBIfJIKnkMETAru9soNYEcz476sKuBWw2E4oOqY6L-qF_41NcVKrH7ZBVId0w5CcIhl1Nm0Y9rQwg_DMwocVkq3UjP3k-XuVmN

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