Catchy Ads Could Help Lift These Two Companies

Chris Lau, KAPITALL Contributor: When Samsung reports quarterly results by April 26, 2013, investors should expect another set of strong quarterly profits. Samsung has a market capitalization of around $220 billion, compared to around $397 billion for Apple, Inc. (AAPL). The gap in size shrunk considerably as Apple shares dropped more than 30% over the last 6 months  [More Analysis by Chris Lau:  Profitable Ways to Invest in Cloud Computing ]:

Sales for Samsung are dependent on less expensive smartphone devices, although the company has more than 30 models on the market.

Another reason that sales for Samsung is growing strongly is that the company spends far more than its competitors. According to Asymco, marketing expenditures was $4.335 billion in 2012. By comparison, the dollar spending by other U.S. giants were:

Company/ Advertising Spend in $:

1)     Dell (DELL): 800 million

2)     Apple  (AAPL): 1 billion

3)     HP (HPQ): 1 billion

4)     Microsoft (MSFT): 1.6 billion

5)     Coca Cola (KO): 3.342 billion
 

Kapitall’s compar-o-matic tool may be used to visualize the effectiveness of marketing spend, by plotting Price of Profit (“POP”) against quarterly sales:

Investors will notice that HP once generated the highest level of sales, but fell behind Apple as sales for mobile devices grew to support sales of more than $50 billion. On the far right of the interactive chart, Coca Cola generated much lower quarterly revenue. Even as a consumer goods company the company has the highest POP compared to the technology companies.

Investors should not be surprised that Coca Cola has a high POP: the company spends a significant amount in advertising. Of course, Samsung spends more than Coca Cola.

Conclusion

A high advertising spend could correlate with higher revenue, but does not necessitate higher profits. Coca Cola and Samsung are two companies in completely different sectors that have effective marketing campaigns. Investors should expect these two companies to perform well. Coca Cola is a recognized brand, so advertising spending is likely to be more effective than that of Samsung. Since the release of the Galaxy line-up by Samsung, the smartphone giant is gaining brand recognition from consumers. A risk for Samsung investors is what will happen if Apple boosts its ad spending. The company spent four times less than Samsung on advertising, but was still more profitable than Samsung. 

Written by Chris Lau, KAPITALL Contributor

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