Ferrari N.V. (NYSE:RACE): A Favorite Among Institutional Investors

We are pleased to present an in-depth analysis of Ferrari N.V. (NYSE:RACE), a luxury performance sports car manufacturer that has captured the hearts of institutional investors worldwide. With a significant ownership stake of 37%, institutional investors have shown their confidence in Ferrari's future prospects. In this article, we will explore the reasons behind this strong institutional interest and discuss the company's recent performance, strategic initiatives, and earnings growth.

Institutional Ownership and Its Impact on Ferrari's Stock Price

Ferrari's high institutional ownership, with 37% of the business held by institutions, implies that the stock price is sensitive to their trading actions. This is because institutional investors have access to large amounts of capital, and their market moves tend to receive significant scrutiny by retail or individual investors. As a result, a good portion of institutional money invested in the company is usually a strong vote of confidence in its future. However, this also means that if multiple institutions change their view on the stock at the same time, the share price could drop rapidly. This level of institutional ownership is significantly higher than that of other luxury automakers, which typically have lower institutional ownership. For example, BMW has around 20% institutional ownership, while Mercedes-Benz has around 25%. This higher institutional ownership in Ferrari suggests that its stock price may be more volatile compared to other luxury automakers due to the increased influence of institutional investors on the stock's performance.

Ferrari's Focus on Luxury and Exclusivity

Ferrari's focus on luxury and exclusivity is a significant driver of its earnings growth. The company's strategy of producing high-end, limited-edition vehicles and maintaining a strong brand image allows it to command premium prices and generate robust revenue and operating leverage. This exclusivity is evident in the following points:

1. Limited production and high demand: Ferrari produces a limited number of vehicles each year, creating a high demand for its products. This scarcity drives up the perceived value of Ferrari cars, enabling the company to maintain high prices and strong margins. For instance, the recently unveiled F80 supercar has an initial order book of 799 vehicles, indicating the strong demand for Ferrari's exclusive products.
2. Pricing power: Ferrari's luxury positioning and strong brand allow it to maintain pricing power, even in the face of economic downturns or market fluctuations. The company's ability to raise prices without significantly impacting demand contributes to its earnings growth. For example, Ferrari's margins have consistently outperformed those of traditional automakers, as shown in the table below:

| Company | Gross Margin (2023) |
| --- | --- |
| Ferrari | 38.4% |
| BMW | 21.7% |
| Mercedes-Benz | 18.9% |
| Ford | 6.1% |

3. Brand licensing and merchandise: Ferrari's strong brand also allows it to generate revenue through licensing its brand to various producers and retailers of luxury and lifestyle goods. This diversification helps Ferrari maintain earnings growth even when vehicle sales may fluctuate.
4. Formula One success: Ferrari's involvement in Formula One racing further enhances its brand image and exclusivity. The company's success in the sport attracts more customers and reinforces its luxury positioning. For example, Ferrari's Formula One team has won the Constructors' Championship 16 times, contributing to the company's overall brand value.

Ferrari's Formula One Involvement and Its Impact on Brand Value and Earnings

Ferrari's Formula One involvement significantly impacts its brand value and earnings in several ways:

1. Brand Value Enhancement: Ferrari's Formula One team, Scuderia Ferrari, is one of the most successful and iconic teams in the history of the sport. The team's numerous wins and championships have contributed to Ferrari's reputation as a high-performance, luxury brand. This association with success and exclusivity enhances Ferrari's brand value and desirability, making its cars more appealing to customers and commanding higher prices.
2. Technological Innovation: Ferrari's Formula One involvement drives technological innovation, which trickles down to its road cars. The advanced technologies developed for Formula One, such as aerodynamics, lightweight materials, and hybrid powertrains, are eventually incorporated into Ferrari's production cars. This ensures that Ferrari's road cars remain at the forefront of automotive technology, further enhancing their appeal and value.
3. Marketing and Exposure: Formula One provides Ferrari with a global platform to showcase its brand and products. The sport reaches millions of viewers worldwide, providing Ferrari with extensive marketing opportunities. This exposure helps to build and maintain Ferrari's brand awareness and desirability, driving demand for its cars.
4. Revenue and Earnings: Ferrari's Formula One involvement contributes directly to its earnings through sponsorships, licensing fees, and other commercial agreements. For example, in December 2024, Ferrari announced a multi-year agreement with Andretti Formula Racing, which will generate additional revenue for the company. Additionally, Ferrari's Formula One success can lead to increased sales of its road cars, as customers are drawn to the brand's association with winning and innovation.
5. Talent Attraction and Retention: Ferrari's Formula One involvement helps the company attract and retain top talent in engineering, design, and other fields. Working on Formula One projects allows employees to develop and showcase their skills, contributing to Ferrari's overall competitiveness and innovation.

Ferrari's Strategic Investments in New Models and Technologies

Ferrari's strategic investments in new models and technologies have significantly contributed to its earnings growth. The company's focus on innovation and exclusivity has allowed it to maintain high demand and pricing power, ensuring robust revenue and operating leverage. For instance, Ferrari's introduction of the F80 supercar, priced at a staggering $3.9 million, has sold out its initial order book of 799 vehicles, demonstrating the company's ability to generate lucrative margins on high-end, exclusive models (Source: "This Luxury Goods Superstar Is Making a $4 Million Supercar. Is the Stock a Buy Today?").

Moreover, Ferrari's commitment to research and development (R&D) has enabled it to stay at the forefront of automotive technology. In 2023, Ferrari's R&D expenses amounted to €212.49 million, representing a significant investment in the company's future (Source: Ferrari's 2023 Annual Report). This investment has allowed Ferrari to develop cutting-edge technologies, such as hybrid and electric powertrains, which will help the company adapt to the evolving automotive landscape and maintain its competitive edge.

Additionally, Ferrari's strategic investments in Formula One have not only enhanced the company's brand and reputation but have also contributed to its earnings growth. The company's involvement in Formula One has allowed it to develop and test new technologies, which can then be incorporated into its road cars, further enhancing their performance and appeal (Source: "Ferrari has Formula One in its DNA, CEO says after Cadillac supply deal").

In conclusion, Ferrari's strategic investments in new models, technologies, and Formula One have played a crucial role in driving the company's earnings growth. By maintaining a focus on innovation, exclusivity, and high-end performance, Ferrari has been able to generate robust revenue and operating leverage, ensuring the company's continued success in the competitive automotive market.

Ferrari N.V. (NYSE:RACE) is a favorite among institutional investors, with a significant ownership stake of 37%. This high institutional ownership implies that the stock price is sensitive to their trading actions, making it more volatile compared to other luxury automakers. Ferrari's focus on luxury and exclusivity, as well as its Formula One involvement, contributes to its brand value and earnings growth. The company's strategic investments in new models and technologies have further enhanced its earnings growth, ensuring its continued success in the competitive automotive market. As an investor, considering Ferrari's strong fundamentals and growth prospects, it may be an attractive addition to your portfolio.