Moneybox

The Word “Billionare” Has Lost All Meaning

But congratulations, Kylie Jenner, on your viral cover.

Kylie Jenner in New York City on May 7.
Kylie Jenner in New York City on May 7.
Matt Winkelmeyer/MG18/Getty Images for The Met Museum/Vogue

According to Elon Musk, the “billionaire” label, when used by members of the media, “is almost always meant to devalue & denigrate the subject.” He’s wrong. The “billionaire” label, when used by members of the media, is almost always meant to artificially boost pageviews on any given story, with Forbes magazine providing the most recent prime example.

Jenner is one of the first Shopify “billionaires”—a woman who made her fortune not by selling goods on the open web so much as by selling directly from Facebook’s Instagram platform. Forbes estimates that the Kylie Cosmetics brand, which she owns 100 percent of, has already generated an estimated $230 million in net profit. And the magazine reports that she has taken out $60 million in after-tax dividends, which is incredibly impressive for a brand that launched just two years ago selling a $29 “lip kit.”

In other words, Jenner is, undoubtedly, incredibly wealthy. She’s also symptomatic of a bizarre need to slap the label “billionaire” onto anybody who’s very rich, whether it makes any sense to do so or not. Jenner has made about $100 million in her short career, which is an astonishing achievement but isn’t enough to make her a billionaire. Jenner’s sister Kim Kardashian has made more than that, and Forbes puts her net worth at $350 million, less than half of where they peg Jenner’s.

In order to justify putting Jenner onto their cover, then, Forbes needed to look not at how much she has made in the past, but rather at how much she is going to make in the future. Most of Jenner’s income is funneled through Kylie Cosmetics, and Forbes puts a fair amount of effort into estimating the value of the company, despite Jenner’s insistence that it’s not for sale.

The rules of finance tell us that the value of Kylie Cosmetics is equal to the present value of its future profits, or to put it another way, the present value of Kylie Jenner’s future income. That’s a little bit weird. When Forbes looks at the wealth of athletes, say, it only looks at their past earnings, rather than their future earnings. And the generally understood conception of “net worth” includes present assets but not future ones.

Of course there’s a mechanism for turning future assets into present assets, which is called selling all or part of the corporate entity you own. If you take a company public, for instance, you own shares in the company, and you can sell those shares—which are claims on future earnings—in the present. Your assets then include shares that are valued by the market on a day-to-day basis, and those shares become part of your net worth.

More recently, in the age of unicorns and venture capital, entrepreneurs have found it easy to sell stakes in private companies at high valuations. When that happens, the press has no compunction in extrapolating those valuations to the founder’s own stake, even though that move is problematic for multiple reasons. For instance: Most VC-backed companies fail. Also, valuations are a high-risk bet on a low-probability future outcome, and rarely reflect the value of the company were it to be put up for sale tomorrow. It’s clear now, for instance, that Elizabeth Holmes was never a billionaire even though Forbes celebrated her as one based on Theranos’s private funding rounds.

The case of Kylie Jenner goes one step further. She has taken no outside investment at all, so there’s no valuation at which anybody has bought into her company. Forbes has slapped an $800 million valuation onto Kylie Cosmetics, without anybody doing any kind of diligence on it at all, and has declared that entire sum to be part of Jenner’s present wealth.

Forbes is aware of how fraught that decision is. The magazine describes Kylie Cosmetics as “a business tied to the fickle world of personal fame,” with lip-kit revenue already going down rather than up. Nevertheless, they declare that it could “certainly” sell for three times current revenues, which would come to a nice round $1 billion. Applying an entirely arbitrary 20 percent discount to that number, they arrive at an $800 million valuation for the company. Adding that to Jenner’s $100 million in lifetime earnings to date, they deduce that she’s worth $900 million, which makes her a billionaire.

(A quick note for the literalists: Yes, it’s true that $900 million is less than $1 billion; it’s also true that a net worth of $900 million is enough to make you a billionaire. For a full elucidation of the logic here, I refer you to this Twitter thread; suffice to say that if you can be a billionaire when you’re worth $220 million, you can certainly be a billionaire when you’re worth $900 million.)

I’m personally much less convinced than Forbes is that Jenner could find a buyer for Kylie Cosmetics at a valuation of $1 billion. She is Kylie Cosmetics, after all, and once she cashed that $1 billion check, it’s hard to see what her incentive would be to continue working intensely on the brand. Kylie Cosmetics is what you might call a pop-up brand. You can’t buy it at Sephora or Saks; its products come and go. With Kylie at the helm, it’s highly vulnerable to the caprice of its customer base; without her, it’s nothing. Any buyer would certainly attempt to place contractually binding constraints on Jenner to keep her pushing the brand, but for all that she’s proved herself to be a successful entrepreneur, it’s not easy to bet on a 20-year-old billionaire mom and celebrity becoming a particularly diligent employee.

To describe Jenner as a billionaire, then, is less descriptive than it is aspirational, a further devaluing of a term that has already become all but meaningless. “Billionaire,” at this point, has become the vaguest and most annoying of words, and basically means whatever the speaker wants it to mean. It’s the name of a cheesy Italian clothing chain, along with an even cheesier sister chain of Eurotrashy nightclubs that come complete with “Billionaire Girls.” There’s also Billionaire magazine, whose Twitter account, @billionmagazine, sends a stream of unintentionally hilarious juxtapositions to its 327,000 followers—a picture of a two Ferraris under a quotation from Leo Tolstoy, for instance, or a quote from Harriet Beecher Stowe accompanying a picture of a massive yacht. It’s also the single word that underpins almost all of Forbes’s own corporate valuation.

Not that its overuse is confined to Forbes. Here’s a chart of the number of times that the word “billionaire” has been used in the New York Times and Wall Street Journal headlines since 1984; at current rates, 2018 is on track to surpass 2017’s record.

Chart: Instances of the Word "Billionaire" in New York Times and Wall Street Journal Headlines
Slate

All of those articles aren’t about billionaires so much as they’re Billionaire Articles: The descriptor tells us mostly about the framing of the story. The term “billionaire” has long since ceased to be a value-neutral descriptor; it has become a meme, and the Forbes cover is one of those moments when memes collide. And it’s good for business—not only Forbes’ pageviews, but the Jenner brand, too. When Kim Kardiashian congratulated her sister on the cover, she wasn’t celebrating a financial milestone but rather a media event. Game recognizes game.

Amy Pollard contributed research to this article.