If Herbalife products can be easily purchased online for a greater discount than what the company offers to distributors, then why would anyone pay to become a distributor for the purpose of self-consumption?
Other multi-level marketing firms suffer from a similar problem
The other two publicly traded multi-level marketing firms, Nu Skin Enterprises, Inc. (NYSE:NUS) and USANA Health Sciences, Inc. (NYSE:USNA), suffer from the same problem — their products are freely available online at a steep discount.
For example, Nu Skin Enterprises, Inc. (NYSE:NUS)’s ageLOC Future Serum has a suggested retail price of about $200. A distributor receives a 30% discount, but bottles of the serum are listed on eBay for around $50 — a 75% discount.
Likewise, USANA Health Sciences, Inc. (NYSE:USNA) Essentials have a “retail price” of $51 per box. The wholesale price is about $42, and there are many on eBay offering USANA Essentials at or near wholesale.
In both cases, it begs the question as to why customers would become distributors for the purpose of self-consumption. In the case of Nu Skin Enterprises, Inc. (NYSE:NUS), the products are freely available online for less than what it cost distributors to buy them from the company directly. The USANA Health Sciences, Inc. (NYSE:USNA) discounts do not appear to be as steep, but buying them from eBay avoids the hassle of having to purchase a Business Development System.
Investing in Herbalife
Hempton’s attempt to disprove Ackman’s thesis failed, and he may have actually strengthened Ackman’s case by pointing out that these products are widely available online at a discount.
Nevertheless, as long as Pershing Square remains short Herbalife Ltd. (NYSE:HLF), the controversy around the stock — and the entire MLM industry in general — is likely to persist. Yet, it hasn’t been a good year for the bears, as shares of Herbalife are up a staggering 80%, while the other MLMs — Nu Skin and USANA — have posted equally impressive gains of 68% and 159%, respectively.
Until Ackman covers, or the FTC slams the company, this stock story is far from over.
The article No, Bronte Capital Didn’t Debunk Ackman’s Herbalife Thesis originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool has the following options: long January 2014 $50 calls on Herbalife Ltd. (NYSE:HLF). Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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