There is an exotic addition to upcoming IPOs—Italian performance car maker Ferrari S.p.A. The company just submitted its first filing to the Securities and Exchange Commission (SEC) about its upcoming initial public offering (IPO) in the U.S. (Source: Securities and Exchange Commission, July 23, 2015.)
Ferrari is not just an automotive icon, but also a solid company. In 2014, the company had net revenue of 2,762 million euros, and net profit of 265 millioneuros. Adjusted EBITDA was 389 million euros.
Ferrari has been pursuing a low volume production strategy in an effort to keep its cars exclusive and scarce. Last year the company only shipped 7,255 cars. Most Ferraris have long waiting lists. Some customers have to wait years before taking delivery of their new Ferrari.
It seems Ferrari is using the same “scarcity” strategy with its IPO as well. Ferrari is only offering 10% of its shares in the IPO. Fiat Chrysler Automobiles N.V. (NYSE/FCAU) is expected to own 80% of the company. Piero Ferrari, the son of founder Enzo Ferrari, has 10% of the company and plans to keep his stake.
In this SEC filling, the company did not say how many shares it would sell in the IPO, or at what price. The company also didn’t mention the date of the IPO.
According to Sergio Marchionne, CEO of Fiat Chrysler Automobiles, Ferrari would be valued at least at 10.0 billion euros ($11.0 billion) in the IPO. He said that the appeal would come from the uniqueness of the brand, and the scarcity value from the mere 10% they were selling.
The most notable competitive advantage of the Ferrari brand is, well, the brand. Ferrari owners’ loyalty to the brand is second-to-none. In 2014, approximately 60% of all new cars sold by Ferrari went to existing Ferrari owners. Moreover, 34% of Ferrari owners have more than one Ferrari car.
The rarity of the car relative to demand allows the company to charge a huge premium in the ever-competitive automotive industry. In 2014, Ferrari’s adjusted EBITDA margin was 25.1%. Its current lineup starts at around $200,000 with the Ferrari California, and goes all the way up to well over $1.0 million for a limited production LaFerrari.
Before you take out your checkbook and invest in the Ferrari IPO, let’s look at its growth potential.
In the past few years, growth has been steady for Ferrari. According to its SEC filing, both net revenue and net profit increased steadily from 2010 to 2014. However, given the company’s strategy, is there a limit to its growth?
You see, part of Ferrari’s appeal is its scarcity and exclusivity. The company’s annual production of just over seven thousand cars is extremely small compared to most other auto manufacturers.
For a car maker’s revenue to grow, it can either produce more cars, or sell them at a higher price. The pricing of its products is already at extremely high levels in the auto industry. Moreover, to maintain exclusivity, production is not likely to expand by much.
“Our low volume strategy is also an important factor in the prices that our clients are willing to pay for our cars. While important to our current marketing strategy, our focus on maintaining low volumes and exclusivity limits our potential sales growth and profitability.”
We will know more about Ferrari’s IPO when more detailed filings are submitted.