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Sohn: Beauty Health attractively priced for growth, says FACT Capital’s Meng

Jonathan Shapiro
AFR
 • 
Dec 3, 2021

If we’ve learnt anything over the past year and a half of Zoom calls and Instagram posts, it’s that we want to look good on camera.

“You might be wearing sweatpants, but you want your skin to glow,” New York-based FACT Capital’s Joyce Meng told Sohn Hearts & Minds attendees as she pitched Nasdaq-listed Beauty Health.

The company trades under the ticker SKIN and its core asset is a skin treatment product called Hydrafacial.

The treatment is gaining popularity among aestheticians in beauty spas and gaining traction thanks to positive feedback on social media.

“The treatment is a four-step cleanse, extract, hydrate and boost process that takes about 30 to 45 minutes and costs about $200,” Meng says.

The popularity is part of the attraction, but Meng is attracted to what she calls the razor/razor blade model, a reference to Gillette’s profitable business of selling blades that in turn generates repeatable sales of blades.

“Both the proverbial razor (ie the system device) and the razor blades (the consumables) are highly profitable. The sale of systems accounts for 52 per cent of revenues at a 70 per cent gross margin while the remaining 48 per cent are in consumables with 80 per cent gross margins.

“While the institution charges $200 per treatment on average to the patient, Hydrafacial recognises $25 to $30 in consumable revenue, or even $50-plus if special boosters are used.”

Hydrafacial sales were growing at 52 per cent compounded annual growth rate before COVID-19, and about 40 per cent if the lockdown periods are included.

“We think that the strong organic revenue growth continues, especially as the company aggressively reinvests in growth and takes advantage of secular wallet share allocation to skincare services,” says Meng. “We see a very large addressable market and the ability of Hydrafacial to tap into the retail opportunity.”

SKIN is not cheap, at 38 times normalised profits, but Meng says it is attractive relative to its growth. SKIN is also not without risks. One is a resurgence of COVID-19. The devices are used in treatment spas so require people to be out and about. There have also been some unexpected management changes with the recent departure of Clint Carnell.

“We think that this change mostly reflects the company entering into a new phase of scaling with Clint remaining an active shareholder as he considers more entrepreneurial early phase opportunities,” says Meng.


This article was originally posted by The AFR here.

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