Friday, Sep 25th 2020

The value of branding


Earlier this week, Peloton investors were surprised with a sudden -5% stock price decline after hours. The culprit? A competitor named Echelon announced a "Prime Bike" exercise bike developed in collaboration with Amazon.

Amazon later claimed this wasn't the case, promptly disavowed any affiliation to the product, and removed the Prime Bike from its website. It was an unusual sequence of events that had many investors scratching their heads.

We think it is a testament to the strength of Amazon's brand that competitors in completely unrelated verticals are trying to piggyback off of its branding. The question is, what is that mimicry worth?

Let's talk brand value for a moment.

There are a handful of household co's across the globe with consistently great products and a reputation for quality (think: Disney and Nike). But how much of their stock prices are attributable to that brand value? It's a tricky question. You can't look up brand value on Google Finance.

While many investors ignore seemingly fluffy concepts like these, we look for qualitative data points on their worth. Are you successful in seemingly unrelated verticals over and over again? Are competitors trying to use your brand to sell something they've built? If so, your brand is probably worth a lot.

Back to Amazon. The company is seeing rapid adoption across unrelated verticals from home products (Amazon Basics) to luxury apparel. Now an unrelated fitness company launched a "Prime Bike." Putting the Amazon label on a product is increasingly akin to Nike shoes or a Disney movie.

Imitation is the sincerest form of flattery. It's hard to estimate, but when it comes to brand value, you usually know it when you see it.

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