The Value of Brands: GOOG, MSFT and WMT

As the world continues to shrink through technology advancements, and all of the products that consumers demand become commoditized, a company’s brand can be a valuable competitive advantage. It’s no coincidence then that the four top brands in the world, as measured by their brand value, are also among the largest in terms of capitalization and revenue. It’s also not surprising that three of the four (and nine of the top ten) are technology companies. Companies are learning that personalization increases brand loyalty and technology products easily lend themselves to personalization whether it’s through cell phone programming or personalized settings in your Google profile. Here we look at how the most recognized brands in the world are able to parlay their investment in branding into profits.


Google (GOOG, Financial)


For the fourth year in a row, Google reigns supreme with a brand value estimated at $44.3 billion. Google has rewritten the book on branding through its vast network effect. Having captured the global search engine space by giving it away, it has managed to spread its tentacles into the technological lives of hundreds of millions of people to the point where its brand has become a common verb. With the continuing success of Android and its positively received foray back into social networking with Google+, it is demonstrating that it is far from being a “mature” company which has kept it off the buy lists. Google continues to invest its capital in a wide variety of ventures, and it’s healthy 17% ROIC (trending upward in the last three years) is an indication that it hasn’t lost its touch in creating shareholder value. Google still looks promising for the long term, but could hit some bumps in the near term if it gets bogged down with congressional anti-trust investigations.


Microsoft (MSFT, Financial)


Most investors had left Microsoft for dead, or so would its flat-lined stock performance would indicate. But, apparently the world hasn’t given up on it as indicated by its standing as the No. 2 brand name valued at $42 billion. As it readies itself for the release of its most far reaching Windows operating system and continues its dominance in the gaming/entertainment arena with the ever popular Xbox, Microsoft is riding a wave of consecutive years of impressive ROIC north of 32%. With its stock trading at a meager forward P/E of 8, while spinning off a healthy 3.2% dividend, it’s looking more like a solid value investment than the walking dead.


Walmart (WMT, Financial)


Google unseated Walmart as the leading brand dropping it to third with an estimated brand value of $36 billion. But sure and steady Walmart continues to increase its global reach and in doing so has turned a perennially declining ROIC positive for the last five years. At 14.9%, its ROIC is well above its five year average and the average of the sector which, by any account, is a strong indication that it is undervalued and poised for a strong performance over the long term. Few companies can claim huge economic efficiencies as the basis for their wide moat, but that is why Walmart can lay claim to king of the entire retail world. With its dividend yield of 2.6% and expected earnings of 9.5% investors can expect the stock to outperform the market as it typically does.


The most recently published list from Interbrand of “2010 Ranking of the Top 100 Brands” resulted in the following top 10 list:





Conclusion:


Given the competitive advantage that a strong brand can provide, these companies should be on every value investors watch list.


Reference: Data obtained from Brand Finance at , http://brandirectory.com/league_tables/table/global_500_2011