The first half of 2023 has seen the tech industry dominate attention in the US stock market due to the AI frenzy. (as of July 21, 2023)

Compared with its stellar performance, other sectors like the beauty sector, delivered more average results, with even market leaders like Estée Lauder experiencing a 26% decline in share value.

Amid this lukewarm performance, e.l.f Beauty, an affordable cosmetics brand, managed to achieve a 105% increase in its stock price on the New York Stock Exchange (NYSE: ELF), as of July 21, 2023.

In this article, we'll take a closer look at what sets e.l.f Beauty apart from its peers, including:

1. e.l.f Beauty's product positioning

2. e.l.f Beauty's marketing strategy

3. Potential reason for rising stock prices

4. Future outlook and risks

Product Positioning: Offering Affordable Makeup

e.l.f Beauty focuses on selling affordable makeup and skincare products.

On the company's official website, you'll find popular items priced from just US$7 to US$11, which is significantly cheaper than similar products in the market.

Source：e.l.f Beauty FQ3 FY23 Earnings

The company also places an emphasis on product quality, aiming to provide the best value for money in the makeup industry.

e.l.f Beauty's budget-friendly prices and high-quality products cater to young consumers who want good makeup without spending too much.

As a result, the brand has become popular among young consumers, especially millennials and Gen Z, capturing a 16% share of the market in the United States, according to Statista.

Source: Statista and Elf Case Study: TikTok Marketing Lessons to Learn

Marketing Strategy: TikTok Saves the Day

e.l.f Beauty is different from other beauty brands because it mainly relies on social media for its marketing.

Even though e.l.f Beauty was founded in 2004, it didn't grow much until around 2019 when it started to expand rapidly.

During a difficult time in 2019, the company recognized the potential of social media and teamed up with Movers+shakers to create a new song called "Eyes, Lips, Face" by remixing a popular song from 2018, "Ice Me Out." The company offered makeup as prizes to encourage people to make videos using the song.

But little did it know that this campaign became a huge hit on TikTok, with over 7 billion views and more than 5 million user-created videos.

This smart marketing move resonated with younger generations, making e.l.f Beauty their favorite brand.

Confident in its success, e.l.f Beauty expanded its reach to other platforms such as Instagram, YouTube, and BeReal.

According to a 2022 report by Kyra, e.l.f Beauty has now become the most popular makeup brand among young consumers.

Source: e.l.f. Beauty FQ4 FY23 Earnings

A Potential Reason for Rising Stock Prices

Starting in 2019, e.l.f Beauty made a big push into social media marketing, which helped its business turn around. It went from having negative revenue growth in late 2018 to positive growth for 16 quarters in a row.

Now, in FY2023, its revenue and profits are increasing exponentially. Revenue climbed by 48% compared to FY2022, reaching a total of US$579 million, and earnings per share (EPS) surged by 171%, reaching US$1.11 per share.

According to the CFO of e.l.f Beauty, the primary reason behind the stock's performance in FY2023 is the current economic cycle.

When the economy is unstable, people tend to opt for products that offer more value for their money. This trend is fueling e.l.f Beauty's success and driving its stock prices higher.

Source: moomoo. Data as of July 21, 2023.

Future Outlook and Risks

Many are wondering if e.l.f Beauty's growth can be sustainable.

BofA analysts remain optimistic and see continued potential for e.l.f Beauty's performance.

According to his report, e.l.f Beauty currently ranks 3rd among mass-market cosmetic brands, up from 5th place a year ago, with a market share of 9.5%. Looking ahead, e.l.f Beauty is expected to benefit from increased shelf space in stores like Target (12 feet), Ulta (8 feet), and Walmart (7 feet). Moreover, Ulta, CVS, and Walgreens may further boost e.l.f Beauty product sales in autumn 2023.

With this positive outlook, the analyst raised e.l.f's target stock price from US$105 to US$120.

However, rapid growth may come with risks. e.l.f's stock price surge has resulted in a high price-to-earnings (PE) ratio of 100.5x, far exceeding the industry average of 26.9x (as of July 24, 2023).

Additionally, changes in the economic cycle could impact the company's performance.

While the future appears positive, investors should be mindful of potential risks and make wise decisions. For e.l.f, the road ahead offers both opportunities and challenges. Let's keep an eye on how it will navigate these moving forward.

Source: moomoo. Data as of July 24, 2023.

Summary

This week, we learned about e.l.f Beauty, a fast-growing beauty brand.

1. The company offers affordable and quality makeup and skincare loved by young users, holding a 16% market share.

2. The company's success comes from attracting young fans on TikTok and other social media, becoming a favorite among the youth.

3. e.l.f Beauty's revenue jumped by 48%, and earnings per share increased by 171% to US$1.11 per share.

4. Future Prospects: Analysts are positive about its growth potential, but caution is needed due to high PE valuation and economic fluctuations.

e.l.f Beauty has impressed with its unique approach, successfully engaging young consumers using innovative strategies and achieving impressive financial performance. However, challenges lie ahead, and investors should remain cautious. Let's keep an eye on whether e.l.f can sustain its growth momentum.

Disclosures: This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Furthermore, there is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.