Ghost Global: Hunting for Green Flags

Whether you love him or hate him, you can’t deny the irony in the fact that DJ Khalid’s 7th studio album, titled Suffering from Success, was met with lacklustre reviews after it was released almost a decade ago.

What should have been a winning recipe, including guest appearances by big names like Nicki Minaj, Drake and Lil Wayne and collaborations with producers like Timbaland, ended up giving a so-so performance on the charts and was panned by the majority of critics.

As it turns out, 7 was not DJ Khalid’s lucky number after all. Sometimes, success is elusive, even when it seems so guaranteed that you (pre-emptively) name your whole album after it.

Perhaps it wasn’t time for Another One? If DJ Khalid references are lost on you, then don’t despair. We are moving on now.

Products and services that seem destined for triumph may do exactly the opposite. In our Magic Markets research, we often encounter businesses that appear to have all the right ingredients, but end up falling flat (or more annoyingly, sideways). 

And then sometimes, we find the bright side – a business that spots a gap in the market, addresses it with a great solution and nails the pricing. Sometimes, it just works, and as business enthusiasts, we love to see it.

Although luck undoubtedly plays a role in this, we’ve learnt enough over the years to know that there are certain markers – green flags, if you will – that go a long way towards predicting a good outcome for shareholders. 

Here are two examples from our research:

Green flag #1: A coherent ecosystem

Earlier this year, we delved into MercadoLibre, a South American eCommerce platform that looks and sounds as exciting as a Mexican wrestling match. 

Operating in a high growth region with a business model that clearly works, MercadoLibre is a bit of a unicorn: a technology-driven firm that not only makes great profits, but manages to spend those profits wisely.

The appeal of MercadoLibre lies in its seamless integration of growth engines that complement its eCommerce platform. This end-to-end approach reflects a deep understanding of the consumer journey, where every pain point is addressed with a tailored solution. Unlike some conglomerates that attempt to incorporate unrelated services under one umbrella (looking at you, Amazon), MercadoLibre’s cohesive ecosystem offers a strategic advantage that makes it stand out in the market.

By providing solutions for transactions, money transfers, credit services (Mercado Credito), and insurance, they create a comprehensive and convenient environment for users. This all-inclusive approach not only enhances customer satisfaction but also strengthens customer loyalty, as users find all their needs met within a single platform.

What does that look like in practice? Well, see for yourself:

Green flag #2: An understanding of the consumer base

More recently, we looked at Lovesac, the luxury furniture business that claims to be the bestselling couch in America. That’s a big statement to make, but after looking at the numbers, we wouldn’t be surprised if they were correct about that.

Lovesac has doubled both revenue and net income between 2021 and 2023. It’s the fast-growing furniture business most punters have never heard of, let alone looked at from a numbers perspective.

Lovesac’s exceptional ability to cater to the needs of its Millennial consumer base is rooted in a deep understanding of their preferences and lifestyle choices. By recognising the transitional phase that many Millennials find themselves in as they move to new homes and seek high-quality furnishings, Lovesac has strategically positioned itself as a brand that offers both comfort and aspirational value.

Unlike traditional luxury brands that may focus solely on exclusivity and prestige, Lovesac recognizes that its Millennial target audience values practicality. They understand that Millennials work hard for their money and expect products that can withstand the rigours of day-to-day life.

By catering to families with pets and small children, Lovesac ensures that its furniture meets the demands of real-life usage while maintaining its premium image.

Lovesac’s distribution model is perfect for today’s consumer. It’s been built as an omnichannel business from the start, with boutique showrooms and a solid online capability to back it up. By avoiding large expensive showrooms, the trading density (sales per square metre) metrics are fantastic.

The five-year story is nowhere near as exciting as the MercadoLibre performance, but a furniture manufacturer faced a different reality during lockdowns to a technology platform. We think that Lovesac is one to keep an eye on.

Spot successes in the making with our help

Nobody likes betting on a flop. That’s why it’s cardinally important that you research companies before you invest in them. 

With nearly 90 research reports on global stocks available in the library, a subscription to Magic Markets Premium for just R99/month gives you access to an exceptional knowledge base that has been built since we launched in 2021. And if you don’t feel confident enough to spot those green flags yourself just yet, we will help point them out for you. Perhaps most importantly, we also point out as many red flags as possible.

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