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Thursday, August 03, 2006

Widely Traded Stocks: Brand Value And Market Cap


Interbrands has been doing an annual brand valuation survey for years. When I was at Financial World in the 1990s, we worked with them on setting values and published the results. Now, BusinessWeek runs that annual tables.

The methodology for setting the values is complex, almost beyond belief. Brands must get a third of their earnings outside their home market. Airlines are not included. Parent companies who do not put their name on brands are not included (e.g. Altria, Procter & Gamble). For the brands that are included, the company uses reports from JPMorgan, Citigroup, and Morgan Stanley to set annual earnings and sales for each brand. Operating costs and taxes are deducted so that intangible earnings can be derived. Interbrand also looks at each brands "risk profile" based on future earnings projections, global reach, and market leadership.

Some of the results are odd, to say the least. Some important brands are worth a small fraction of their parent's market cap. Google is an example. The brand is worth a little over $12 billion and the company's cap is $111 billion. The McDonald's brand is worth $26 billion, but the market cap of the fast food giant is $44 billion. Toyota's brand is worth $28 billion, but its market cap is $104 billion. Microsoft's brand is worth $57 billion against a market cap of $244 billion. For Intel, the brand value is $32 billion and the market cap is $103 billion.

I suppose that investors could quarrel with the result for these companies, but having a brand that is worth less than the company as a whole seems to make intuitive and financial sense.

But, what about when the brand is the same as the value of the entire company? In other words, the rest of the company is, by implication, worth nothing. In the case of the Interbrand survey, this is the case with Ford. The brand is valued at over $11 billion. On a good day, Ford is under $13 billion in market cap. And, then there is Xerox. The brand is worth $6 billion and the company has a total market value of $6.7 billion. At Kodak, the brand is worth $4.5 billion and the company's market cap is $5.6 billion. For Tiffany, the market cap is $4.4 billion and the brand is worth $3.8 billion.

It is difficult to understand how a brand can have the same value as an entire company. It is certainly well beyond easy explanation, but, if accurate, the companies in this situation are probably in a great deal of trouble.

A few more examples of the delta between brand and market cap:

Company Market Cap Brand Value

Coke $103 billion $67 billion
IBM $116 billion $56 billion
GE $337 billion $48 billion
Intel $103 billion $32 billion
Disney $65 billion $28 billion
Cisco $107 billion $18 billion
Dell $49 billion $12 billion
Apple $58 billion $9 billion
Kellogg's $18 billion $8 billion
eBay $32 billion $7 billion
Yahoo! $37 billion $6 billion
Avon $12 billion $5 billion

Sources: Yahoo!Finance, Interbrand, BusinessWeek

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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