NEW YORK (TheStreet) --Coca-Cola(KO) - Get Report is tapping into the $90 billion crowdfunding market, not to raise corporate funds, but as a powerful tool to reap the social media and branding benefits.
In doing this the beverage giant, which releases second-quarter 2014 financial results Tuesday before the market opens, joins Proctor & Gamble(PG) - Get Report, American Express(AXP) - Get Report and other companies tapping into crowds to drive innovation, increase sales and improve results for investors.
At the Monday close of $42.40, Coke stock is up 2.6% for the year to date compared with the S&P 500, up 6.8% for the same period.
Richard Swart, director of research on crowdfinance at the UC Berkeley and author of the World Bank's Report On Global Crowdfunding, said engagement techniques like crowdfunding can be "the deepest form of social engagement," allowing companies to learn more about what customers, distributors and employees are socially passionate about.
Most companies want to be perceived as socially responsible and caring. By giving seed money to crowdfunding projects that focus on what Coke lovers care about, the company forges both a stronger rapport while advertising to the world that it's a company with a conscience.
As Swart explained, "Brand loyalty is increased with a social media marketing effort than with most other forms of marketing. Crowdfunding creates collaboration and cohesiveness with a company's customers and the general public, and that's worth a fortune."
For example, Coca-Cola sponsored a crowdfunding effort in Mexico to provide more clean water sources in rural areas. This project fit well with the World Bank's enthusiasm for crowdfunding as a means to promote economic growth in developing countries and gives positive publicity for the sponsoring company.
Crowdfunding is just one of the smart ways Coke has been leveraging its image around the world. It helps explain why nearly 80% of the beverage behemoth's operating profits derive from international markets as well as the success of its stock price as illustrated in the chart below.
The nearly 15% share price boost since the Feb. 19 low of $37.05 reflects anticipation that KO will find ways to increase both its quarterly diluted EPS and revenue. I'm expecting second-quarter earnings to be flat and revenue to be slightly more than 1%.
Coca-Cola's $1.22 annual dividend offers close to a 2.9% yield. The dividend dominant company is likely to increase its payout before the end of the year, and that should help support the share price.
Using crowdfunding is a smart way for Coca-Cola to polish its image and instill deeper loyalty worldwide. Social media is exploding in the most populous nations like China, India, Brazil and Russia where the company's sales are still growing.
With one of the world's most valuable and recognizable brands, Coca-Cola's social media efforts can target a very wide audience. The company reports that consumers in more than 200 countries enjoy its beverages at a rate of 1.9 billion servings a day.
The "crowd" can be fickle about what it eats and drinks. Yet, smart companies like Coke know that if crowdfunding helps consumers feel by buying its products they're also indirectly helping the world become a better place, they'll be more likely to believe "things go better with Coke."
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates COCA-COLA CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate COCA-COLA CO (KO) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins, good cash flow from operations, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for COCA-COLA CO is rather high; currently it is at 65.87%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.30% is above that of the industry average.
- Net operating cash flow has significantly increased by 123.01% to $1,066.00 million when compared to the same quarter last year. In addition, COCA-COLA CO has also vastly surpassed the industry average cash flow growth rate of -6.56%.
- COCA-COLA CO's earnings per share declined by 7.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, COCA-COLA CO reported lower earnings of $1.90 versus $1.96 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus $1.90).
- KO, with its decline in revenue, slightly underperformed the industry average of 2.9%. Since the same quarter one year prior, revenues slightly dropped by 4.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: KO Ratings Report
Marc Courtenay is a financial research analyst and the founder of Advanced Investor Technologies LLC as well as the publisher and editor of www.ChecktheMarkets.com.