It's commonly said by marketers that the average human holds around 7 brands at the top of their mind while making purchasing decisions. Companies spend billions of dollars on advertising and marketing to gain a dominant position in what Warren Buffett calls a person’s “share of mind”. Brands such as Google, Apple, McDonalds, and GEICO quickly pop to the top of our heads when we think of their respective industries, which is by no means a coincidence. Perhaps no other company has been so successful at gaining share of mind as The Coca-Cola Company which has, since 1886, been bringing joy to consumers through soft drink beverages.
134 years later The Coca-Cola Company now dominates the soft drink industry as the world's largest non-alcoholic beverage company. In 2018 alone Coca-Cola sold over 29.6 billion unit cases of beverages and on average consumers drink 1.9 billion servings of Coca-Cola products every single day. Through acquisition and competition The Coca-Cola Company now owns 4 out of the top 5 soft drink brands sold worldwide including Coca-Cola, Diet Coke, Sprite, and Fanta.
To improve efficiency and increase profitability Coca-Cola has started to derive more of its revenue from its beverage concentrates segment which brings in much higher profit margins compared to its finished beverage segment. From 2016 to 2018 beverage concentrates have gone from 40% of revenue to 64% of revenue which has allowed Coca-Cola to average a 21% operating margin over the past 3 years. These higher margins have meant that Coca-Cola has been able to continue its earnings growth despite a fall in demand for carbonated soft drinks over the past 10 years.
A valuation of Coca-Cola depends on its future volume prospects for unit cases and unit case equivalents such as syrups and concentrates. While past earnings growth most likely won’t continue into the future an investor could very easily value The Coca-Cola company at over $140 billion, especially given current rates for long-term government bonds. However, even with long-term bonds at under 2% The Coca-Cola Company remains largely overvalued at its current market cap of $200 billion.