Practical analysis for investment professionals
09 December 2014

Grumpy Cat Means Business

Posted In: Drivers of Value

The Internet is a funny place. It was reported that Grumpy Cat (also known as Tardar Sauce), a somewhat adorable feline famous for looking, well, grumpy, earned about $100 million in the last two years or so. That specific number may not be accurate, but Grumpy Cat’s owner is nonetheless generating a pretty decent income.

And it hasn’t come from running a hedge fund on the side. That income comes from the sale of branded merchandise, sponsorships, and other revenue streams associated with the Grumpy Cat brand.

For investment analysts this provides an opportunity to think about value creation in a new light. After all, this is not a start-up that raised a lot of money to create Grumpy Cat memes with a PowerPoint deck and dreams of future profitability. This is cash flow. In CFA Institute circles, that sounds like a real business — even if it doesn’t necessarily look like one.

A Grumpy New World

There have long been significant returns on novelty in the entertainment business. The Marx Brothers traded in similar irreverence. But the prominence of Internet culture (and its inbuilt distribution) is on the upswing. It turns out that Grumpy Cat is represented by Ben Lashes, who also represents feline phenomena like Keyboard Cat and Nyan Cat.

This is a big business because people want to spend time with these pop culture artifacts. “Grumpy Cat” has been searched for more often than the Oakland Raiders since November 2012, and we have no trouble recognizing an NFL franchise as valuable.

Google searches are a “pull” gesture, and a powerful indicator of user interest. This has not been a good season for the Raiders, but they still have participated in more than two dozen widely televised events and been the subject of much discussion in sports media. If Grumpy Cat ranks on par with them, we as investors need to realize something big.

Minutes of Time Are Valuable

This is what advertisers sell. Any firm in the business of “spreading the word” about things is fundamentally a market maker in customer attention spans — and that includes both technology giants like Google and traditional PR/advertising firms like Omnicom.

Though I’m not one to argue that social media companies are fairly valued or necessarily sound investments, I am frustrated that it’s not immediately apparent to many analysts that media businesses have two key goals, the second of which is contingent on the first:

  1. Generate interest
  2. Generate money

I have heard a number of comments expressing skepticism that “new media” companies like BuzzFeed will turn into established, profitable brands, but it doesn’t pay to ignore the value of entertainers with large audiences just because they come in different shapes than we’re used to seeing.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©John Minchillo /AP Images for Friskies.

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About the Author(s)
Will Ortel

Will Ortel has worked in investment management since 2006 and joined CFA Institute in 2010.

Ethics Statement

I try to see the world in its particularity and convey my curiosity clearly. I hope you think I do this in a fair and transparent way, and invite you to write me if you feel otherwise (or just want to say hello).

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