You probably think of Ferrari as a maker of cars. But Ferrari seems to be making the case that it is more of a luxury brand like Tiffany or Patek Phillipe, in documents filed with the SEC on the eve of its IPO.
The word “luxury” appears in its amended IPO filing 151 times.
There is a good financial reason for this. Although Ferrari is growing its sales and is profitable, that growth is slow. There just aren’t that many new Ferrari customers each year. For the last five years, the company has only shipped about 7,000 cars annually:
If this was a company that sold generic objects — hinges or screws, say — that would make its valuation rather low. Investors buy future growth, not today’s growth.
The word “luxury” is the reason Ferrari thinks it can command such a price. About half of Ferrari’s current assets consist of its brand value. “Goodwill” and “intangible assets” are literally that: assets that don’t exist, except as concepts (although they’re backed with powerful intellectual property and copyright claims).
Here’s what that looks like on the balance sheet:
Now compare that to the actual growth of Ferrari’s business. Its revenues are only growing at 5% per quarter:
The reason the IPO is so over-subscribed, then, is not because of the business’s current growth. It is more likely that investors can see how powerful the brand is, and how that brand might be extended into a wider luxury goods scenario: Can’t afford a Ferrari? No problem. An over-priced Ferrari leather jacket might be more within reach — and carry a greater profit margin for the company.
That’s where Ferrari’s future growth is likely to come from, as the IPO filing mentions in passing (151 times).