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JVN Hair was launched by Amyris (NASDAQ:AMRS) in 2021 and is already establishing itself as a valuable haircare brand. The combination of brand ambassador Jonathan Van Ness and the hemisqualane product formulation appears to be resonating with consumers, as early data indicates JVN Hair is growing strongly and viewed favorably by users. Amyris is building credibility as a brand factory and once their path to profitability becomes clearer, the stock is likely to move much higher. Amyris’ portfolio of brands is worth more than their stock, even without accounting for the value of their technology platform. At this point it is likely that Amyris will prefer to raise capital by divesting assets in preference to diluting shareholders further.
The global haircare market was estimated to be worth 77 billion USD in 2020 and is expected to grow at an annual rate of approximately 6% from 2020 to 2025. Although the haircare market is large, it is fragmented across a large number of different categories making it difficult for any one brand to gain significant share. Competition is also increasing, causing legacy beauty brands to lose market share to smaller brands. The top three haircare companies globally (by retail sales) have lost over 4.3% of their market share since 2015.
Part of this shift has been due to an increased focus on hair health. Olaplex (OLPX) believe that over 70% of consumers have experienced hair loss, damage, coarseness, thinness, frizz, or dryness. This has created an opportunity for companies to successfully enter the market utilizing innovative ingredients focused on hair health. It is also part of a larger movement within the haircare industry to add ingredients that are typically used in skin care products.
Haircare products can generally be broken into shampoos, conditioners, treatments and stylers. Within each category there can be a large amount of variation depending on the specific objective of the product.
Shampoo is used to clean the hair and scalp, removing dirt, oil and product buildup. There are a range of different shampoo types available:
Conditioner is used to make hair softer and more manageable. It can also help to reduce breakage and split ends. There are a number of different types of conditioners:
Haircare products contain a wide-range of ingredients that help to clean, soften and protect hair.
Silicones have been used in hair products since the 1970s. They are often found in shampoos, conditioners and heat protectors. Silicones coat the hair shaft, which locks in moisture, reduces frizz and makes hair feel soft and silky. They also prevent nourishing ingredients from penetrating into the hair follicle, which can give a dry feel and dull appearance. It can also make hair weaker and more prone to breakage. Silicones can also build up and weigh hair down, although some silicones are lighter and less prone to do this. For example, cyclomethicone is lightweight and water-soluble, making it easy to wash out.
Plant based oils and other natural ingredients are increasingly being used as a silicone replacement. Plant-based oils and other natural ingredients offer an alternative way to nourish hair and can leave it with the same shiny look. Examples of plant-based oils include:
JVN Hair was launched in 2021 based around hemisqualane as a replacement for silicones. Consumers are moving away from silicones because they are resource intensive (energy and water) to produce and do not get absorbed into the hair. Hemisqualane penetrates hair, unlike silicones that are typically used in rinse-off products. JVN Hair products are also free of sulfates, parabens, phthalates and synthetic colors and dyes, in line with Amyris’ focus on clean beauty and environmentally friendly products.
Table 1: Comparison of Hemisqualane and Silicones in Haircare Products (source: Created by author using data from Amyris)
Squalane is at the heart of many of Amyris’ products, particularly within their Biossance brand. Hemisqualane and squalane are similar, but have distinct molecular properties (squalane has 30 carbon atoms and hemisqualane has 15). Hemisqualane is a lighter oil, allowing it to be used in haircare products without weighing hair down or making it feel greasy. It is also a suitable replacement for silicones in color cosmetics and suncare products. Hemisqualane is biodegradable, providing environmental benefits over silicones.
Figure 1: Impact of Hemisqualane on Hair (source: Amyris)
JVN Hair is not the only brand using hemisqualane in haircare products though. Seen utilizes hemisqualane (likely sourced from Amyris) in products that have been formulated by a dermatologist to reduce the skin problems that traditional haircare products can cause (acne, eczema, irritation and dry scalp).
In addition to hemisqualane, JVN Hair utilizes a range of additional ingredients across their products:
In time it would be preferable to see an increased usage of fermented ingredients shared across Amyris’ brand portfolio. For example, CBG and hemisqualane in a scalp treatment product or the addition of something like sodium hyaluronate if Amyris commercializes hyaluronic acid production. As it stands Amyris produces hemisqualane and bisabolol via fermentation.
Bisabolol is a natural sesquiterpene alcohol that is a colorless viscous oil and the primary constituent of the essential oil from German chamomile. It has also been used for hundreds of years in cosmetics because of its perceived skin healing properties. Bisabolol is known to have anti-irritant, anti-inflammatory, and anti-microbial properties. Bisabolol also enhances the absorption of certain molecules.
JVN was launched with a relatively limited footprint, 9 SKUs in 62 Sephora stores. The number of SKUs and distribution is increasing, but it appears that Amyris is supply constrained as JVN products still have limited availability outside of North America. JVN products fall under shampoos, conditioners, treatments and stylers.
Nurture – hydrating shampoo, hydrating conditioner
Embody – volumizing shampoo, volumizing conditioner
Undamage – strengthening shampoo, strengthening conditioner
Air dry cream
Pre-wash scalp oil
Instant recovery serum
Nourishing shine drops
Deep moisture mask
It is unclear how much Amyris is compensating Jonathan Van Ness for his involvement in JVN Hair and whether it is a fixed payment or a risk / reward type arrangement, but Van Ness is clearly able to drive a large amount of interest in the brand. The release of Queer Eye Season 6 and Getting Curious both drove large amounts of interest in JVN Hair and have likely contributed to strong sales growth. This raises the question of whether sales growth will decelerate once the hype around these programs has died down.
Figure 2: JVN Hair Google Search Interest (source: Created by author using data from Google Trends)
In addition to Van Ness, Drew Barrymore has also endorsed JVN, and this is part of Amyris’ strategy of using influencers and digital marketing as the primary means of creating brand awareness. As a result, it will be worthwhile monitoring Amyris’ sales and marketing expenses over the next 12 months due Apple’s privacy initiatives. Many DTC brands have found their return on advertising spend declining due to the changes.
Amyris recently opened two retail pop-up stores in Miami, one for the JVN brand and the other for Biossance, with the Biossance store becoming a permanent experiential retail store. Rather than the beginning of Amyris moving into brick-and-mortar retailing, this should be viewed purely as a marketing initiative. Amyris have stated that sales conversion for the physical stores has been over 60% and that the stores have driven incremental traffic to their websites. Amyris plan on rolling out these experiential retail stores to 3-4 key markets (Miami, New York, London and Los Angeles). It is not clear whether this move was in response to decreased digital advertising effectiveness, but this is likely a good move given the size of the opportunity in front of Amyris.
JVN Hair is only approximately 6 months old and there is currently limited information about its financial performance, making an assessment of its value difficult. John Melo recently stated that he thought JVN Hair was worth approximately 500 million USD and would be worth nearly 1 billion USD by the end of 2022.
When JVN Hair was launched Melo stated that he expected revenue to exceed 20 million USD in the first 12 months, although it appears JVN Hair has exceeded expectations so far. In the most recent earnings call Melo stated that he expected Costa Brazil, JVN and Rose Inc. to add 60-70 million USD revenue in 2022. JVN is likely to be the biggest contributor of these three brands and Costa Brazil is likely significantly smaller than the other two. Based on this it would be reasonable to assume that JVN will exceed 30 million USD revenue in 2022.
Assuming JVN achieves margins similar to mature beauty brands and follows a similar growth trajectory to Biossance, a reasonable value for the brand is likely in the 500-1,000 million USD range.
The success of Biossance, JVN and Rose Inc. shows that Amyris is capable of consistently launching valuable consumer brands. If this can be repeated across the dozens of categories that Amyris will likely target long-term, the stock should appreciate significantly.
There are currently concerns around Amyris’ path to profitability and future capital needs though. Amyris likely do not want to divest any of their brands if it can be avoided, but management also realize that a capital raise at current valuations would be extremely destructive. Melo has indicated that they would be opened to divesting assets if needed to raise capital. Amyris’ efforts to strengthen their balance sheet over the last few years, along with divestments as an alternate source of financing, provides downside protection for the stock.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of AMRS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.