5 Companies That Will Be Huge in 2028 - Part 2

Welcome to another edition of “In the Minds of Our Analysts.”

At System2, we foster a culture of encouraging our team to express their thoughts, investigate, pen down, and share their perspectives on various topics. This series provides a space for our analysts to expose their insights.

All opinions expressed by System2 employees and their guests are solely their own and do not reflect the opinions of System2. This post is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of System2 may maintain positions in the securities discussed in this post.

Today’s post was written by Kevin Nutter.

This is the second piece in a three-part series dedicated to sourcing potential investment ideas by reimagining whom we think of as an “influencer.” The goal is not to use AI/ML to evaluate brands. Instead, the goal is to uncover micro-influencers, that is, individuals who’ve proven they are already elite brand evaluators through their transaction data. If you’re an early investor in private companies, stick around.

Prior Post:

Today:

  • Part 2 - Finding other micro-influencers

Future Post:

  • Part 3 - Presenting micro-influencers’ top 5 consumer-facing companies of 2028!

Takeaways

  • Tracking micro-influencers’ shopping behavior gives us a new framework to evaluate:

    • Brand’s total addressable market (TAM)

    • Brand’s trendiness relative to their competitors

    • Brand’s current position in its growth curve

    • Future unicorn brands for the next 3-5 years

  • Consistently shopping at high-growth brands before they’re popular is hard—0.16% of people we analyzed were early adopters of multiple high-growth brands every year between 2019 and 2021

Micro-influencers give us a new framework to evaluate brands

As a quick reminder from Part 1, a micro-influencer is the person in the friend group whom everyone asks for new brand recommendations. They are elite brand evaluators that adopt high-growth brands before everyone else. Finding the next great brand involves some intangible combination of product/service quality, adoption across other micro-influencers, customer base, social media presence, the executive’s/founder’s personal brand, and opinions from carefully curated professional investors.

The chart below compares a brand’s popularity with trendy people (y-axis) vs. a brand’s trendiness (x-axis). The size of the bubble shows the estimated revenue for 2022, and the color of the bubble represents the YoY change in revenue.

We define “popularity” (y-axis) as the percentage of total micro-influencers shopping at a brand. If all micro-influencers are shopping at a brand, we’d consider that brand to be very popular and vice versa.

We define “trendiness” (x-axis) as the proportion of a brand’s customers that are micro-influencers. If the brand’s customers consist mainly of trendy people, then we consider that brand to be very trendy and vice versa.

Below we’ll focus on different use cases of the chart culminating in how we can use it to lead us to the top 5 biggest brands of 2028.

Everybody loves these brands

The top left of the chart represents brands where everyone shops. High on the y-axis indicates most of our micro-influencers, aka trendy people, shop at them. Left on the x-axis indicates that a small percentage of the brand’s customers are comprised of micro-influencers. These brands also have the largest bubbles (highest revenue). It turns out that if a brand can appeal to everyone, they have the biggest TAM.

Being a “not-cool” brand isn’t a bad thing

The bottom left of the chart shows the not-cool brands. Very few of our micro-influencers shop at these brands and most of these brands’ revenue comes from non-trendy people. It’s not necessarily a bad thing to be a not-cool brand (note the size of those circles!). The TAM of the not-cool market is significant too.

Track the established brands that compete on trendiness

The next group is the established trendy brands. These have good penetration across our micro-influencers, and their revenue still skews toward trendy. This is the group to watch closely, month over month, year over year, to monitor when the perception of these brands shifts and these bubbles start moving down and to the left. Get out, if that’s the case.

Get ready for these brands to take over

The second to last group is the up-and-comers. These are the unicorn brands from 2019 coming into their own in 2022. Despite significant growth over the last few years, their customers skew very trendy. Still, they haven’t scratched the surface of the trendy market, as evidenced by the low penetration of our micro-influencers. If these brands don’t make a specialty product and there is reason to believe the TAM is as high as other established trendy apparel companies, then it’s worth spending some time doing due diligence on these brands.

Find the next generation’s unicorn

The final group is the potential unicorns. Somewhere down in those tiny dots is at least one brand our micro-influencers have identified as the next big thing, and they’ll be correct. One of those dots will be the next Tuckernuck in two years, the next Madewell in five years or maybe even the next Lululemon in 10 years.

Our micro-influencer criteria—consistent early adoption of high-growth brands

To qualify as a micro-influencer, the individual must consistently shop at high-growth brands before everyone else. It’s very difficult to be considered a micro-influencer by our standards—just 0.16% of the 1.6 million people we observed met the criteria.

Upcoming - provide 5 companies that will be huge in 2028 using our micro-influencer panel

We’ll use our micro-influencers to identify future high-growth brands by:

  • Identifying entirely new brands across all our micro-influencers in 2023

  • Evaluating changes in a brand’s penetration across our micro-influencers (e.g., are more micro-influencers becoming customers of a brand? Is that accelerating?)

  • Score a brand’s health based on the changes in the trendiness of their customers

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