Apple: The market's mispricing a brand behemoth

Coke's brand value is roughly 48 percent of its market value and Google's is 31.6 percent. But the iPhone maker's brand value represents only 22.1 percent of market capitalization.

By The Fiscal Times Oct 4, 2013 3:32PM
Apple Senior Vice President of Worldwide Marketing at Phil Schiller speaks about the new iPhone 5C on September 10, 2013 in Cupertino, Calif. (© Justin Sullivan/Getty Images)By Suzanne McGeeThe Fiscal Times

Earlier this week, we got confirmation of something we already knew: Apple has a killer brand.

That was borne out by word that Coca-Cola’s (KO) 13-year winning streak atop the list of the world’s 100 most valuable brands -- as computed by consultants at Interbrand, a division of Omnicom Group -- had ended. The new leader is Apple (AAPL), with fellow technology industry titan Google (GOOG) treading on its heels, pushing the venerable Coca-Cola brand all the way back into third place.

So does Apple's share price fully reflect the value of that brand? Veteran investment manager Bill Miller of Legg Mason Capital Management (who knows something about the value of branding and about streaks), says he has viewed Apple as a consumer company with a great, high-end brand rather than a technology company for some time. As such, he argues, "they are deserving of a higher multiple."

Perhaps he's right. After all, it’s not every brand that can generate a mile-long queue along London’s Regent Street when it releases the latest product in a not-exactly-new category, as Apple did when its latest iPhones made their debut recently. (In Tokyo, the brand fanaticism was still more extreme, as Apple aficionados defied an oncoming typhoon and remained in line outdoors, waiting for the doors to open and Apple to begin selling the next-gen iPhones.)

In spite of all that enthusiasm -- or downright mania -- Apple still changes hands for less than $500 a share, well below its record high of nearly $700, and is trading at about 12 times trailing earnings. Nor has that stock price reacted much to the news of the company’s new honor. The rationale for that is – in part – the fact that Apple’s profit margins aren’t what they were at their peak in 2012. Admittedly, profit margins of 37 percent or so aren’t as enviable as the 47 percent that Apple boasted at its peak in the first quarter of 2012, but it’s still about the same level as in mid-2008, and higher than they were in the early part of the last decade.

Interbrand’s methodology factors in financial performance (as well as the ability of a brand to drive demand and consumer loyalty), so Apple’s profitability has helped lift it to the top of the list. Yet if you start contemplating Apple along those lines -- as a consumer company with an iconic brand, valued at $98.3 billion by Interbrand -- Miller is right: The current valuation doesn’t make sense.

For starters, let’s take a look at the runners-up in Interbrand’s survey. Google’s brand is valued at $93.3 billion and Coke’s at $79.2 billion. Coke trades at 19 times trailing earnings; Google at 26.5 times, in contrast to Apple’s meager price/earnings multiple.

Another interesting way to look at this is to compare the value of the brand to the company’s market capitalization. Coke’s brand value is roughly 48 percent of its market value; that of Google is 31.6 percent. At Apple, brand value represents only 22.1 percent of market capitalization. Even if you share the view of Carl Icahn and other activist investors that Apple has waaay too much cash on its books and that this is weighing on its valuation, that doesn’t explain away the discrepancy. Clearly, consumers place far more importance on Apple’s brand than investors are willing to offer.

The question of whether or not markets value brands correctly is particularly intriguing right now, and not just because of the Apple phenomenon. This week also brought news that rocked the fashion world: Designer Marc Jacobs is leaving Louis Vuitton after 16 years to launch his own brand and is planning a public offering for that brand. (Louis Vuitton ranked No. 17 on Interbrand’s survey; its estimated brand value of $24.89 billion is about 25 percent of the market capitalization of parent company LVMH Moet Hennessy Louis Vuitton, which includes an array of lesser-ranked brands.)

If companies have managed to make the overall brand more significant than any individual designer, so, too, the triumph of branding has made it possible for individual designers to transform themselves into popular brands in the same way that Coco Chanel did nearly a century ago.

That’s what another LVMH alumnus, Michael Kors, pulled off. Creating his own fashion firm, he built his brand and took the company public nearly two years ago in what remains one of the most successful recent IPOs. Michael Kors Holdings may not appear on the Interbrand rankings yet, but its 41.4 percent price gain in the last 12 months beats not only the S&P 500’s 16.3 percent advance but is more than double the gains of any of the top five brands in that Interbrand list.

Kors’ fashion empire now trades at 32.9 times earnings -- and the company announced in August that it was raising its earnings and revenue forecasts for the year, as a growing number of shoppers find the idea of being without a Michael Kors handbag as unimaginable as some find being without their iPhone.

Most great brands get to sell their products at a premium price, as those who have winced when comparing the cost of an iPhone to another smartphone or an iPad to a Kindle Fire will testify. What remains unclear is whether the market is equally willing to award a premium price to a brand. The data suggest that’s easier to do when the company in question is a venerable consumer brand or a fashion icon; more difficult when it’s a technology company. Certainly, if Apple’s experience is an example, we’re not yet at the point where we can talk about the value of a brand automatically reflected in the value of the company that owns it.

Suzanne McGee is a columnist at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

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21Comments
Oct 4, 2013 5:32PM
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apple price is not reflected in the way it should ! partly by the way CNBC portrais it .THEY ARE TOO BIAS. i dont think making  alot of money having a great product that everyone w ants and having a160 billion in cash . warrants this p/e !!!! their p/e in my  ignorrant opinion should be 18 to 22???? please show me differant
Oct 5, 2013 1:00PM
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Apple=no gaming missing out on huge market!
Oct 5, 2013 7:45PM
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At the other end of the spectrum is Amazon that has made virtually no profit ever and the stock price continues to move higher.  So, what can you say except "it is what it is".  The market moves in mysterious ways.  If picking stocks was as easy as picking the stock with the best P/E we'd all be millionaires.
Oct 5, 2013 5:00PM
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Apple products are good and have been very innovative. But because they "don't play well' with other technology companies, the "average Joe" can get an iPhone or iPad, but are getting tired of "overpaying" for what is now available for much less elsewhere. The free market system does in fact work its way out over time. The fools that wait days and days to get the "newest" are dwindling. The android OS is good and believe it or now, the Windows based phones are gaining as well (much faster in Europe). The computer market/laptop market is also dominated by "non apple" products because you get more bang for the buck with other companies. Sure, Apple has their niche with Macbooks and Mac computers. But in the end, when technology changes so often and so fast, why pay almost double for something that will be obsolete in less than five years?
Oct 5, 2013 1:25PM
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apple is not worth more because its business now is highly competitive same as triniton and lcd tv was for sony and everyday competitors will come with better and less expensive smartphones,And for the ipad I can say the same thing,so profits now will be lower every quarter and apple doesn't have the lead in innovation now is Samsung and nokia,both of them have to improve the looks of their smartphones to take apple customers.Samsung is integrated company that does all kinds of electronics poducts and parts and their cost is low and pays to executives is 20% of cost of us executives
Oct 7, 2013 7:27AM
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"At the other end of the spectrum is Amazon that has made virtually no profit ever and the stock price continues to move higher."

 I would put them both the same trend-line. Amazon was a scam on Day One and continues to be one. Ignorant people buy on Amazon to avoid paying taxes that fund government. They cry into their Starbuck coffee that their job sucks and pay is dismal, but see nothing wrong with supporting Amazon-- giant warehouses of imported goods with fulfillers that make nothing wages stuffing the junk in bags and boxes with shipping labels on them. If it worked- USPS would have oodles of cash. If it WAS work there would be a fundamental benefit for America. Apple, Google, Amazon, Facebook, Twitter, Linked In, etc... these are not going to replace genuine industry without compromising the nation. There is a government shutdown BECAUSE techno-short cuts are failing us. No other reason. There is no such thing as a push button economy. It can help but it can also hinder-- it's truly compromising recovery right now.

Oct 6, 2013 1:53PM
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So does Apple's share price fully reflect the value of that brand?

 

Brand values have nothing to do with stock values unless you mortgage or sell the brand like Ford did.

 

Oct 5, 2013 10:55AM
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The Apple brand is just that... just another brand. For years I've laughed at all of the people who held up Steve Jobs as the first coming of the god of electronics. He was the hero who was going to challenge that big bad greedy Bill with a completely different business model. Funny thing is that Apple is just as if not more greedy than it's competition. They have always maintained their proprietary technology and charged substantially more money. Big deal that I-thingy can do all sorts of things, can I load software that isn't puchased through the Apple store? How big of a selection of competing softwares are available on that OS? How many OS updates cause your users major headaches? From what I understand, Apple is just overpriced and overhyped junk. I'll stick with my PC. At least then I protect my PC instead of doing nothing to protect my Apple because everyone knows hackers don't go after Apple products.
Oct 5, 2013 1:45PM
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Apple had better use their billions to diversify their company or ifade into history as a one trick pony.  They rely way too much on one source of revenue, and that source of revenue is becoming obsolete with the fickle people who follow trends.  If your grandmother is carrying an iphone, and the company is offering nothing new in the realm of innovation, it's time to sell.
Oct 5, 2013 3:14PM
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Customers are fleeing the brand for better and less overpriced competitor products. Everyone knows this so Apple is hoarding cash to keep its stock value from plummeting. Investors are hoping this cash hoard will be paid out as a dividend payment. This will never happen because it's the only thing propping the company up.
Oct 5, 2013 7:11AM
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Looks like we've touched on sensitivity here... Apple has NO CHANCE of growing. It lost it's source of creativity, ingenuity and innovation-- replacing those with a business mentality on a billionaire's leash. Go ahead and invest-- you'll never see it again Kool Aid fans!
Oct 5, 2013 4:57PM
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Fleeing the brand?  Really?  They just sold 9 million phones in one day.  And they make money from their istore, not from the devices alone.  Do people with iphones buy music, content and everything else via their iphone?  YES!  So they have more than one source of revenue with sticky customers and a new pending deal with the largest Chinese Telco carrier.  This means 30 million more people entering the Apple world!

 

I own no Apple devices but I own Apple stock and it is paying huge rewards.  Rock on Apple, please release an internet & cable TV alternative to VZ and Comcast and I will jump over to the dark side.

Oct 6, 2013 9:26PM
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Apple has been getting some bad reviews lately.
Oct 4, 2013 3:42PM
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Because people realize it is really a Mandarine Orange now and only disguised as an Apple.
Oct 5, 2013 6:59PM
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Save your money for Twitter.It`s a moonshot.
Oct 4, 2013 9:04PM
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They replaced innovation with a cheap knock-off and fad color. They'll be out of business in less than 5 years.
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