After His Wife's $200 Shopping Trip, He Declared War on Beauty Prices

oday I'm looking at e.l.f. Beauty. I like the founding story....When his wife came home with a $200 receipt for five pieces of makeup, Joey Shamah realized he could sell the same quality for $1 and still make money.

This is one of the more impressive companies I've looked at.

The basics:

• Started with $30k in 2004 selling $1 makeup when competitors charged $20+

• Now worth $6.6 billion with $1.3B in annual revenue

• Average product price: $6.50 (still)

• Gross margins: 71% (somehow)

• Revenue growth: $579M → $1.3B in 2 years

• Capital efficiency: Only $18.5M capex on $1.3B revenue

A couple of takeaways for entrepreneurs:

1. They created customers instead of stealing them

• Didn't compete for existing makeup buyers

• Found people who thought cosmetics were too expensive

• Turned non-buyers into loyal customers at $1-5 price points

• Lesson: Sometimes the best competition is no competition

2. Founders can successfully step aside

• Joey Shamah built it to $200M, then hired a pro CEO

• Stock price 10x'd after the transition

• Shamah stayed on board but let someone else drive

• Lesson: Your equity > your ego

The money shot:

• Revenue growth: $579M → $1.3B in 2 years

• Marketing spend: 25% of revenue (was 7% five years ago)

• China exposure: 75% of manufacturing (facing 55% tariffs now)

• Capital efficiency: Only $18.5M capex on $1.3B revenue

Current headwinds:

• Tariffs crushing margins (implementing third price increase ever)

• Growth slowing from 77% to single digits

This was a fun one! 70%+ gross margins with next to no capex is wild. I'll be following this one over the coming years to see how they navigate the tarrifs.

With that, I'll see you tomorrow!

Nick

TL;DR

• Core Innovation: Disrupted cosmetics by selling quality makeup at $1-5 when competitors charged $20-40+

• Growth Story: From $30,000 startup (2004) to $6.6 billion public company with $1.3B annual revenue

• Marketing Edge: First beauty brand to master TikTok, spending 25% of revenue on viral campaigns

• Key Lessons: Price disruption creates new markets; being first beats being perfect; founder transitions can accelerate growth

The 30,000-Foot View

e.l.f. operates as a digitally-native beauty brand selling prestige-quality cosmetics at mass-market prices. The company designs products based on community feedback, manufactures primarily in China (75%), and distributes through major retailers and e-commerce.

Revenue Mix:

• US Retail: 81% (~$1.06B) - Target, Walmart, Ulta, CVS

• International: 19% (~$250M) - UK, Canada, 15+ countries

• Product Mix: Cosmetics (core), Skincare (18%), acquired brands

Key Stats:

• Market Cap: $6.6 billion

• TTM Revenue: $1.31 billion

• Gross Margin: 71.0%

• EBITDA: $297M (22.6% margin)

• Employees: ~630

Company History

2004: Joey Shamah launches with $30,000 after wife spends $200 on five makeup items
2008: Target partnership begins with 700+ stores
2014: TPG Growth acquires majority stake; Tarang Amin becomes CEO
2016: IPO at $17/share, jumps 56% first day
2019: #eyeslipsface TikTok campaign generates 6+ billion views
2023: Acquire Naturium for $355M; cross $1B revenue
2025: Announce Rhode acquisition for up to $1B

Show Me the Money

Stand-out Features:

• 127% revenue CAGR from FY2023-2025

• Gross margins improved 400bps despite inflation

• Just 1.4% of sales in capex (asset-light model)

• 25% of revenue on marketing drives 25+ quarters growth

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 3/5 - Strong position with advantages in scale, branding, and distribution.

Memorable Marketing

e.l.f. treats advertising as entertainment, spending 25% of revenue on marketing versus 7% five years ago.

Key Campaigns:

• #EyesLipsFace TikTok (2019): First branded TikTok song generated 6+ billion views, became most viral US TikTok campaign

• Super Bowl with Judge Judy (2024): Put overpriced cosmetics "on trial"; created 50+ social assets from 2-day shoot

• "Cosmetic Criminals" Documentary (2024): 15-minute theater release generated 7+ billion impressions first week

• Liquid Death Collaboration (2024): Metal-inspired collection sold out in 45 minutes; 68% new customers

Tactical Takeaways:

• Community insights beat focus groups

• First beats perfect on emerging channels

• Entertainment value drives sharing

• Micro-influencers outperform celebrities

• Cross-category collaborations expand reach

AI Uses & Opportunities

Current Uses:

• IlluminateAI Shade Finder: 3x higher conversion rates

• Pinterest Color Analysis: Seasonal palettes from selfies

• Salesforce AI: Cut service tickets 50%

• Virtual try-on through Perfect Corp AR

Future Opportunities:

• Predictive inventory management (20-30% reduction potential)

• AI skin analysis for personalized routines

• Subscription service with AI-curated boxes

• B2B licensing of shade-matching technology

Bumps in the Road

• China Tariffs: 75% of products face 55% total tariffs, creating $50M annual impact

• Securities Fraud Lawsuit: Allegations of misleading investors about inventory levels

• Growth Deceleration: Sales growth slowing from 77% to single digits

• Product Lawsuits: "Oil-free" labeling, container slack-fill, biometric privacy issues

• Competitive Pressure: L'Oréal's NYX and premium brands launching affordable lines

Your Swipe File

• Bootstrap longer: Waited seven years before institutional funding, achieving better valuations and control

• Radical price disruption: $1 products didn't steal share, they created new customers who'd never bought cosmetics

• Speed beats perfection: Cut development from 18 to 6 months using TikTok as market research (reminds me of Zara)

• Successful founder transition: Joey Shamah stepping aside for Tarang Amin accelerated growth rather than killing culture

• Marketing as entertainment: If your marketing needs to trick people into viewing it, you're already losing