SXSW brings over 300,000 people and hundreds of millions of dollars to Austin, Texas each March, and with so many trends and setters in one place, even established brands hit the streets and panels to pitch products. Every one of SXSW’s 5,000-plus events is sponsored by at least one company, many if not most of which clearly did their market research wrong. Most investors simply ignore marketing costs, which are bundled into the operating expenses line on a company’s income statement. However, a company’s marketing presence at top industry events like SXSW can give investors a telling look at how employees handle cash and image.
Monster Beverage Corp (NASDAQ:MNST) excelled as a SXSW sponsor. The company was one of the festival’s main sponsors and used its marketing dollars well: it had a prominent and highly-coveted VIP viewing deck at the festival’s biggest venue and its vehicles were some of the only ones on the festival’s main thoroughfare, giving Monster extra advertising and an edge on other street teams. Of course, Monster is hitting its core demographic in a good environment: people want cold energy drinks at a multiday music and technology festival in Texas. As an investment, Monster Beverage Corp (NASDAQ:MNST) doesn’t have much cash flow, but what it does have it manages well: with a price-to-free-cash-flow ratio of 33, it has a profit margin of 16.5% and a return on assets of 32.6%, both above industry averages. Monster’s share price has tumbled nearly 50% in the last six months, but with a P/E of 25 the stock is still a tad pricey. However, with 20% revenue growth in the last year and 17% in the last five, investors may have a good entry point for Monster Beverage Corp (NASDAQ:MNST).
Miller Lite starred as SXSW’s official beer for the 13th year, giving parent company Molson Coors Brewing Company (NYSE:TAP) plenty of exposure. Like Monster, Molson Coors hit a key demographic in a great environment: everyone wants a cold light beer while watching music in the Texas sun. While tens of thousands of attendees held Miller Lite cans and pints over the week, many of them jumped for higher quality light beer when available, like craft IPAs and hefeweizens. Molson Coors Brewing Company (NYSE:TAP) could have taken advantage of the trend by pushing its Blue Moon brand, but it didn’t. As an investment, Molson Coors looks an awful lot like Miller Lite: cheap, but hardly reassuring. The company’s P/E is a tad high at 19, but it sells at 1.10 price-to-book and 1.57 price-to-sales. However, the company has negative free cash flow and the debt that comes with it: debt-to-equity stands at .59. Likewise, Molson Coors Brewing Company (NYSE:TAP) has slim margins, with net margins at 7%, and a return on assets of only 2.7%. For patient true believers, though, shares carry a 2.6% dividend yield.
Turning to the technology side of SXSW, Yahoo! Inc. (NASDAQ:YHOO) was a main SXSW sponsor. SXSW attendees reported that the Yahoo! headquarters at Brazos Hall had an excellent set-up but was often poorly attended, as it was two blocks off the main street and not well-advertised. As Tim Beyers and Allison Southwick suggest, Yahoo!’s SXSW presence seemed upstaged by competitors, particularly Google, that didn’t even enjoy preferential placement as sponsors. As an investment, Yahoo! is cheap but far from solid. Yahoo!’s P/E of 6 and price-to-book of 1.67 makes it extremely cheap, particularly for a technology stock, and it has cash, with a price-to-free-cash-flow ratio of 4.5. However, the company is cheap because it is losing ground: it has had declining revenue growth for the last five years – though increasing earnings per share growth – and cannot seem to grab market share from Google.
Finally, PepsiCo, Inc. (NYSE:PEP)’s Doritos sponsorship floundered. Pepsi aggressively pushed a product that seemed out of place and the sponsorship came off as both literally and figuratively cheesy. Dorito’s partnership with Yum! Brands, Inc. (NYSE:YUM)’s Taco Bell also failed to make a good impression: after receiving free Doritos Tacos Locos, one attendee tweeted, “The Taco Bell Doritos taco is bad. But the Cool Ranch Doritos Taco is a hate crime against taste.” Pepsi may have wasted a chunk of money on its SXSW marketing, but it looks like a single misstep and not part of a pattern. First, Doritos Locos Tacos are clearly popular with consumers outside trendsetting SXSW. Second, the blue chip is solidly profitable and has plenty of staying power. As a potential investment, however, Pepsi looks pricey and a little inefficient. The company has a P/E of 19 and a high price-to-free-cash-flow ratio of 55 – in other words, it’s expensive relative to both earnings and the money it has on hand. Its net margin is 9.5% and its return on assets is 8.5%, making it about as efficient as the industry average but less so than competitor The Coca-Cola Company (NYSE:KO). The company continues to reliably grow revenues, but with marketing missteps and mediocre metrics, potential investors should watch efficiency and wait for a pullback.
Most investors do not look at a company’s marketing because it is only one component of the operating expenses line. However, paying attention to a company’s marketing moves is a great way to see how employees handle a company’s cash and image. Furthermore, marketing tells an investor how the company is positioning its products now and what trends it is on top of. In this quick comparison of SXSW companies, Monster Beverage Corp (NASDAQ:MNST) comes out as the surprising winner, with a good sponsorship strategy on the ground and bigger picture efficiency metrics to back it up.
The article Who’s Profiting from SXSW? originally appeared on Fool.com and is written by Calla Hummel.
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