| If you're finding value in our Creator Economy newsletter, I encourage you to consider subscribing to The Information. It contains exclusive reporting on the most important stories in tech. Save up to $250 on your first year of access. Hello! I'm excited to see many of you next Tuesday at our annual conference in Los Angeles, where I'll moderate panels on AI and monetization. Be sure to say hello! After explosive growth, a generation of beauty brands that blew up on TikTok over the past few years seemed at risk of stalling out. Startups selling lip gloss and body creams lined up bankers last year, hoping for sales to larger consumer product companies. Then few of those deals actually happened. That is, until Wednesday, when Elf Beauty said it was paying up to $1 billion for Hailey Bieber's Rhode beauty brand. The offer, which includes $600 million in cash, $200 million in Elf stock and another $200 million if Rhode meets certain targets in three years, has buoyed hopes that more beauty startups will find acquirers. While the $1 billion price tag seems high for a young brand—Rhode started selling its products in 2022—the valuation isn't quite as rich as other buzzy deals from a few years ago. The offer, at the closing price of $800 million, is more than three times Rhode's net sales of $212 million over the last year. That's lower than valuations of around six times annual sales for past deals such as Unilever's acquisition of hair brand K18 in 2023. The Rhode price could help reset sellers' expectations and smooth the path for more deals. "It actually doesn't seem so rich after all, especially considering the very strong margin profile of Rhode," said Manica Blain, a seed investor who has backed consumer and beauty brands like Figs, Lalo and Everist. (Rhode is profitable, Elf executives said, and analysts estimate Rhode has gross margins of around 70%, similar to Elf's.) "Hopefully this is what the industry needed to come out of deadlock," she added. Who could be next? As Ann wrote last June, at least five beauty startups that benefitted from their online popularity had hired bankers. But would-be buyers have been digesting an earlier wave of acquisitions and navigating other challenges encountered by the brands they bought. For example, Shiseido paid $845 million for skincare brand Drunk Elephant in 2019 and soon enjoyed a sales boost driven by social media popularity and new Gen Alpha shoppers. But the momentum didn't last. Earlier this month, Shiseido reported that Drunk Elephant sales for the first quarter fell 65% from a year earlier. And those startups that had raised money between 2020 and 2021 often sported valuations that were hard to live up to once the funding bubble burst. With Rhode, Elf didn't have to overcome any pandemic-era VC valuations. Model and influencer Bieber co-founded the company with entertainment and marketing executives: Lauren Ratner, formerly of Michael Kors and Reformation, and her husband Michael, who runs a film studio whose credits include "A Nonsense Christmas With Sabrina Carpenter." It hasn't announced any venture capital funding. Instead, sales flourished on the back of some products that became hits online—notably, a smartphone case that sported a holder for a Rhode lip gloss tube. And of course, those were helped by Bieber's reach on social media, where she has 55 million followers on Instagram, 15.4 million on TikTok and 2.52 million on YouTube. She also naturally benefits from the halo effect from pop star husband Justin. The question is, which acquirers could follow? Likely not Elf. The Oakland, Calif., company is taking out $600 million in debt for the Rhode acquisition, its second significant purchase in two years, after it bought beauty startup Naturium for $355 million in cash and stock in 2023. The deals also gave it more up-market brands to complement its core product, low-cost makeup sold in drugstores. Meanwhile, large cosmetics firms such as L'Oreal and Estée Lauder have cooled to large deals after shelling out billions of dollars on acquisitions in the last few years and navigating sales declines of their own. That leaves a newer generation of beauty companies, such as Oddity, which went public last year, but so far has only sold brands it's developed in-house. Another alternative we're hearing more about is private equity. Those firms have cash to spend, and many are hunting for targets to combine with other companies. For instance, TSG Consumer Partners bought influencer-founded beauty brand Summer Fridays in July, and holding company Waldencast acquired Milk Makeup and Obagi in 2021, but hasn't done other deals since. For beauty startups, there's no guarantee of a hot M&A summer. Here's what else is going on… See The Information's Creator Economy Database for an exclusive list of private companies and their investors. Whalar is buying the Business of Creativity, which hosts online courses for creators and other professionals, for $20 million, according to Business Insider. Pinterest said it was becoming an official partner of professional women's basketball team the New York Liberty, after searches for the team and related content shot up on the digital scrapbooking site. (Read Sara Germano's latest on the WBNA.) Two Amazon influencers involved in a suit over competing aesthetics and styles asked the judge to dismiss the case, reported The Verge. Instagram head Adam Mosseri said the app would now support 3:4 aspect ratio photos, the format that most phone cameras default to. Amazon said it will license editorial material from The New York Times to train its artificial intelligence models. "The reality was setting in: DOGE was more like having McKinsey volunteers embedded in agencies rather than the revolutionary force I'd imagined." —Gumroad founder Sahil Lavingia wrote about his 55 days working as an unpaid engineer at Elon Musk's government cost-cutting effort, the Department of Government Efficiency. (Musk says he's also stepping away from the administration.) Thank you for reading the Creator Economy Newsletter! I'd love your feedback, ideas and tips: kaya@theinformation.com. If you think someone else might enjoy this newsletter, please pass it forward or they can sign up here: https://www.theinformation.com/newsletters/creator-economy | 
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