Ferrari, Not Your Average Car Maker
Ferrari is not an auto manufacturer. They are an ultra-luxury toy producer. Obviously they do design and produce cars, but that’s not the proper way to view the business. Ferrari has a market cap of $40 Billion. For reference, in 2018 Ferrari shipped 9,251 vehicles. Ford on the other hand, a $35 Billion business, delivered 2,497,318 vehicles. Ferrari is delivering less than .4% of Ford’s annual delivery numbers and still commands a higher valuation. So what makes Ferrari so valuable?
Margins. In 2018, Ferrari’s operating margin was 23.4%. The highest of any car producer in the world, and by a long shot. Ford’s during that time was 2.7%. In an ultra-competitive industry, Ferrari has unprecedented pricing power. The way they run their business is incredibly unique and is exactly why their stock trades at an earnings multiple of 34.
23.4% operating margins wouldn’t be possible if it weren’t for their economic moat. Often times moats can be difficult to quantify or even recognize, but that’s not the case with Ferrari. Ferrari puts a cap on how many cars they deliver to maintain exclusivity. This cap creates a waiting list for wannabe Ferrari owners. Even if someone had the money to buy one of these luxury toys, they might not be able to for some time.
Due to the luxury brand and the exclusivity Ferrari has been able to retain, purchasing one of these much desired hot rods can actually be quite difficult. Even for the basic models it’s hard to buy a Ferrari without some sort of history of ownership. Often first time owners have to turn to secondary markets to find what they’re looking for. When it comes to the more exclusive models, even prior ownership and a good rapport with a Ferrari dealership might not grant you access.
It’s pretty simple. Everyone wants one and only a few get one, so Ferrari gets to set the price. There aren’t a lot of other businesses that can pick their desired margins and automatically get it.
Aside from their exceptional business model, here’s some other impressive numbers from their latest quarter:
Unit shipments of 2,474, up 9.4%
Industrial FCF of $152M, up 45.3%
Revenues of $1 Billion, up 9%
EPS of $0.99, up 17%
For more information on Ferrari, our Chit Chat Money hosts break down the business in under 20 minutes right here.
Disclosure: The author is not a shareholder, but definitely wants to be.