Back in August I wrote:
The 2023 Targets have now been upgraded, as expected. Given the strong 1st half 2023 results, even the upgraded guidance doesn’t look overly ambitious. Given how Ferrari blew away its upgraded 2022 guidance, this feels a bit like another round of under promise and then over deliver. It will be interesting to see if Ferrari further revises targets upwards come Q3.
In the recent Q3 earnings call, Ferrari management raised their guidance for 2023 again. What makes this especially interesting is if you go back to the beginning of the year, Ferrari was downplaying expectations for the back half of 2023. Ferrari has made under promise and over deliver into an art form. All in, it’s the net outcome of having a clear long term strategy and then executing consistently against it. The stock price is now sitting at an all-time high and the current market cap is $61 billion.
Benedetto Vigna, the current CEO, has been in place for 2 years now and it shows. On the earnings call Vigna now comes across as confident and completely in command. Vigna is a bit more loquacious now but still reveals very little that deviates from the prepared script. The CFO, Antonio Picca Piccon, was also on the call and did his usual nice job of concisely handling the questions tossed his way. Vigna & Piccon appear to have a strong, cohesive, relationship.
Highlights from Q3 and the strategies that help deliver the results:
Probably the most impressive number here is the value (revenue) growth which continues to significantly outpace the volume growth, hammering home Ferrari’s credentials as a luxury brand. A key contributor to the revenue growth was the increase in personalizations which now account for 19% of total car and parts revenue. Ferrari’s ability to continue finding ways of extracting ever increasing sums of money from its customers it truly impressive.
In his opening comments on the earnings call, Vigna mentioned that a rich country mix was also a key driver of profitability. Ferrari’s ability to flex allocations based on both currency movements and demand is highly impressive. In 2023, it’s been the America’s that have benefited from the largest increase in allocations, but all regions are up year to date.
In terms of Ferrari’s never ending new and creative ways of extracting money out of its customers bank accounts, they recently launched the new Sport Prototipi Clienti Program initially to support owners of the 499P Modificata. I am sure it will be expanded to include more limited edition track only models overtime. Ferrari also launched the Ferrari Cavalcade Classiche. The first legacy tour under this new program was for 40 F40 owners.
In terms of the order book, on the call Vigna stated that the order book now stretches to late 2025. In Vigna’s words, “less model to offer to the clients because they eagerly took everything we offer them”. It’s a great problem to have. For the first time, Vigna did make a few more in-depth comments on the pre-owned Ferrari market. With a full order book helping to support residuals, Ferrari clearly sees the pre-owned market as another opportunity to drive additional revenue.
The 2023 Targets have been increased again, as expected. Given the strong year to date results, even the upgraded guidance doesn’t look overly ambitious. Given how Ferrari blew away its upgraded 2022 guidance, this feels a bit like another round of under promise and over deliver. It will be interesting to see by how much Ferrari beats this latest revision while managing 2024 expectations.
Ferrari continues to execute its long term strategy brilliantly and its hefty $61 billion market cap reflects this. Italy hasn’t seen a cash machine quite like this since the heydays of the Banco dei Medici. of Ferrari’s strong balance sheet allows it to continue to reward its shareholders handsomely and retire debt ahead of schedule. Vigna must lead Ferrari seamlessly through the evolution to a three powertrain platform business while managing an increasing broad and complex portfolio of models. Getting the F1 Team back to the very front of the grid doesn’t seem likely to happen anytime soon but the reality is, the F1 team performance has no impact on car sales. In 2022, Ferrari beat their guidance on every single financial metric for the 2nd year in a row. It looks like they will do the same in 2023. Ferrari continues to come up with new and creative ways of increasing revenue while driving margin and does so in a manner that is true to its ultra-luxury positioning.
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