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Just Saying...You Can't Compare Coke to Pepsi

Bristol Voss

Sometimes what you assume to be true can be wrong. In evaluating stocks as investments, being wrong about what a company is, or how it makes its money, could be catastrophic. In the words of my father, “Never assume.”

Most investors already research companies they know little about in one way or another, but with ones that “everyone already knows,” that step is often skipped. After all, why bother?

In taking a fresh look as some big-name companies recently, I noticed a few things that proved some of my old assumptions were wrong, either about what they were or how they earned their revenues.

So everything would be on the same playing field, I used Trefis Research data throughout. [Editor’s note: Trefis analysts use traditional discounted cash flow to create a baseline intrinsic valuation for each company further broken down into divisions and cash minus debt. The divisions are then measured as a percentage of stock price. In short, it provides a way to understand how a company’s products affect its stock price.

Perhaps you already knew the following morsels, but in case you didn’t, I’m sharing here. Just saying…


You can’t compare Coke and Pepsi. Being a Coca Cola (KO) drinker I am wedded to my choice and wouldn’t even consider a Pepsi (PEP). However, I did always think of the two parent companies as being roughly the same. Not so. Coca-Cola is entirely a beverage company while PepsiCo is a mix. At Pepsi, the snack foods division (Frito-Lay) represents 45% of the value of the company while the eponymous drink (regular and diet versions) are only about 10% of the company. By contrast, the Coke-branded franchise is close to 50% of the value of its parent. Coke, with its Sprite, Powerade, and other divisions, is a pure non-alcoholic beverage play. In my view, Pepsi may be sub-optimizing its beverage sector, and I wouldn’t be surprised to hear about pressure to break the company in two.


Apple is a phone company. When I think Apple (AAPL), I think of the Mac. Which just shows you how off I was since Apple gets only 1.6% of its value from the old desktop of yore. Throw in notebooks and software and the entire Macintosh division reaches only 12% of Apple’s value. Moreover, all of those product lines are trending down, so basically the next time I blink the Mac division will be even less valuable to the company. The portion of the company’s value attributable to iPhone, on the other hand, is 52.4%, which makes me realize Apple is a phone company. If it’s not a phone company, then more broadly it is a gadget company. In fact, two-thirds of the value of the company is made up of premium electronic devices that didn’t exist five years ago. Of course, Apple’s cash (net of debt) is over 18% of the value of the company, so it has quite a bankroll if it wants to go shopping.


GM is not a US car company. General Motors (GM) was always an “American” car company to me. I mean, I know car parts are manufactured, assembled, and sold all over the world, but I was somewhat startled to see that GM’s biggest markets are nowhere near the Western hemisphere. Over 63% of the company’s revenues are from international operations. By far the largest component of that is GM China, which represents nearly 38% of the company’s value. In terms of total number of vehicles sold and net equity per vehicle, China is trending up, so, barring any nationalization issues, GM will continue to have more of a footprint in the People’s Republic than the US Republic (about 24%). Although it might not be a “US” company anymore in terms of where it makes its money, it did reclaim the title of world’s largest automaker (in terms of sales volume) from Toyota (TM) earlier this year, according to Trefis.


The majority of LinkedIn’s revenue is not from ads or subscriptions. In a meeting with LinkedIn (LNKD) at its lovely Empire State Building offices last week, I learned that the majority of LinkedIn’s revenues come from recruiting companies. That was news to me as I had just “assumed” it was from advertising and subscription upgrades. Looking at the data, however, I saw recruiting services represent over 45% of the company’s price estimate, according to Trefis. Advertising, along with marketing, represent about 28% of the value of the company and the premium subscription revenues just over 14%. Interestingly, fees paid by companies for the privilege of recruiting on LinkedIn are somewhere north of $20,000/company with about 10,000 businesses being customers. Some (non-Trefis) analysts I’ve spoken with recently think that revenue line could triple through a combination of more recruiting clients and increased fees. Coincidentally, just yesterday my boss was captivated by the new CardMunch iPhone app from LinkedIn, giddily snapping pictures of all the business cards on his desk to see who he was linked to via his LinkedIn profile. So, if I don’t keep my eye on it, LinkedIn could morph into a mobile tech company. Just saying…

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