The Intrinsic Value Podcast - The Investor’s Podcast Network · The Investor's Podcast Network

TIVP028: Estée Lauder (EL): Michael Burry’s Big Bet w/ Daniel Mahncke & Shawn O’Malley

·1 hr 10 min·5 clips

Michael Burry sold all his U.S. holdings except Estee Lauder, betting on a turnaround after an 80% market value loss.

Michael Burry's sole remaining U.S. equity holding is Estée Lauder, a bet on a turnaround after the stock lost 80% of its value from its 2021 peak. Hosts Shawn O’Malley and Daniel Mahncke analyze this investment, prompted by questions from their value-investing community. The company's severe downturn is linked to major disruptions in the Chinese market, including a slower economic recovery and a government crackdown on the Daigou gray-market reselling practice. Estée Lauder's revenue in Asia declined by about 10% and in Europe by roughly 20% in recent years, with skincare—its largest segment—seeing the most notable drop. Morningstar estimates that 93% of the entire sales decline can be attributed to the Chinese market, highlighting a significant geographic concentration risk. The Daigou market, once valued around $81 billion, involved bulk buying in duty-free zones like Hainan and South Korea for resale in mainland China. Compounding its problems, Estée Lauder's long-term debt nearly quadrupled from 2016 to 2023 due to acquisitions like Tom Ford for $2.3 billion and Dr. Jart+, while cash flows stagnated. Despite these struggles, the company maintained its position as the global market leader in prestige skincare and makeup, even in China. A surprising insight is that a significant portion of Estée Lauder's European sales actually came from Chinese travelers, further tying its fortunes to that single consumer base. The hosts note the rise of celebrity beauty brands like Fenty Beauty and Kylie Cosmetics, valued in the billions, as new competition that leverages social media. In China, the growth of domestic "C-Beauty" brands focused on local preferences presents an additional challenge to Western legacy companies. Estée Lauder attempted to adapt by acquiring the Korean brand Dr. Jart+ and building an R&D center in Shanghai to tailor products for Asian consumers. The company participates aggressively in Chinese sales channels like live-streaming e-commerce, a market projected to reach over $1 trillion, and major shopping events like Singles' Day. However, the hosts suggest such discounting practices could erode the premium brand appeal in the long term. The tone is analytical and educational, blending business fundamentals with historical context and current market trends. It is conversational, with the hosts exchanging research and posing questions to explore the investment case from multiple angles. Value investors interested in distressed opportunities or turnaround stories would find this episode particularly engaging. Listeners seeking purely bullish growth narratives or those with no interest in consumer staples and geographic market risks might choose to skip it.

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