Analyzing Pepsi‘s Net Worth and Valuation
The Origins of an Iconic Brand
Pepsi has become one of the most recognizable consumer brands in the world, but its origins date back over 130 years. Pepsi was first created in the late 1890s by Caleb Bradham, a pharmacist in New Bern, North Carolina. Bradham formulated a carbonated soft drink recipe that he hoped could aid digestion, dubbing it "Brad‘s Drink".
In 1898, Bradham renamed his drink "Pepsi-Cola" and began selling it from his pharmacy. The name was derived from the key ingredients – "pep" from pepsin, an enzyme that aids digestion, and "cola" from the kola nuts used to provide caffeine.
Despite strong initial sales and expansion into franchise bottling, Pepsi went bankrupt in 1923 due to sugar rationing and rising costs during World War I. It was acquired by the Loft Candy Company in 1931.
The Rollercoaster Journey to Global Icon Status
Under Loft‘s ownership in the 1930s, Pepsi prospered after introducing a 12oz bottle for 5 cents at a time competitors charged 6 cents for 6oz. This cemented Pepsi as an affordable option during the Great Depression.
Pepsi had theighest US soft drink market share by the late 1930s, but was still a distant second to Coca-Cola globally. After nearly going bankrupt twice more in the ensuing decades, Pepsi began to gain ground through innovation and smart marketing.
Some major milestones include:
- 1959 – Pepsi debuts swirl logo and jingle "Now It‘s Pepsi, for Those Who Think Young"
- 1964 – Launches nationwide "Pepsi Generation" ad campaign targeting baby boomers
- 1970s – Introduces industry-changing 2-liter bottles and plastic bottles; signs deals to sell concentrate in USSR
- 1983 – Launches Diet Pepsi to compete with Diet Coke
- 2001 – Acquires Quaker Oats and Gatorade brand for $13.4 billion
Through continued focus on youth culture and acquisition of blockbuster brands like Gatorade, Pepsi slowly closed the gap on Coca-Cola in market share and brand value. As of 2022, Pepsi remains Coke‘s #1 rival.
Estimating Pepsi‘s Net Worth
As a publicly traded company, analysts can value PepsiCo‘s overall business based on financial metrics to estimate net worth.
For 2021, PepsiCo reported:
- $79.5 billion in revenue, up 12.9% year-on-year
- $10.5 billion in annual operating profit
- 278,000 employees worldwide
- Portfolio of 20 brands each generating over $1 billion in revenue
Based on stock price and total shares outstanding, PepsiCo‘s market capitalization as of February 2022 sits at approximately $263 billion. With strong underlying financial performance and global brand recognition across the portfolio, this reflects an approximate net worth north of $250 billion.
Pepsi accounts for over 50% of PepsiCo‘s revenues, so a proportionate and conservative estimate of Pepsi‘s solo net worth could be placed at $125-150 billion.
Evaluating PepsiCo‘s Valuation Metrics
As a food and beverage conglomerate, PepsiCo trades at valuation multiples that reflect its sector. Key metrics based on 2021‘s results and 2022 stock prices include:
- P/E Ratio: 29x earnings
- P/S Ratio: 3.3x sales
- P/B Ratio: 12.7x book value
- PEG Ratio: 3.74x 5-year expected growth rate
The above suggest PepsiCo is valued higher than sector peers (Coca-Cola P/E of 26x) owing to slightly faster forecast revenue expansion. The multiples indicate strong intangible assets (brand, IP) and investors expect resilient long-term earnings.
PepsiCo pays a 2.8% dividend yield – below 10-year average of 2.95%. Its share price has compounded at 11.4% annually over the past decade.
SWOT Analysis
Analyzing PepsiCo‘s strengths, weaknesses, opportunities and threats provides additional context on strategic positioning.
Strengths:
- Iconic brand with very high global awareness
- Massive distribution network and economies of scale
- Diversified product portfolio including leading brands like Gatorade
Weaknesses:
- Still #2 behind Coca-Cola in market share
- Higher debt load relative to arch-rival Coke
Opportunities:
- Growing premium/health-conscious beverage segments
- Untapped growth potential in developing markets like India
Threats:
- Obesity/health concerns around sugary drinks
- Private label/low-cost soda offering cheaper alternatives
Pepsi boasts globally cherished brands and scale, but faces pressure to adapt to changing consumer tastes and preference for perceived healthier or artisanal options versus mainstream soda. Expansion in emerging markets and new product innovation provide counterbalancing opportunities.
Recent Strategic Initiatives
Under new CEO Ramon Laguarta who assumed the helm in 2018, Pepsi has pursued double-digit percentage gains in advertising outlays to compete with surging brands like Bang Energy and LaCroix.
Recent initiatives reflect a strategy pivoting health trends:
- Bubly: Launched line of fruit-flavored sparkling waters in 2018
- LIFEWTR: Focused brand targeting premium/artisanal mineral water segment
- SodaStream: Acquired maker of countertop soda machines for $3.2 billion in 2018 to participate in customization trend
Overseas, Pepsi is continuing efforts to capture growth in developing markets like parts of Asia, Africa and South America where rising incomes offer billions in potential emerging middle class consumers.
Credit Suisse analysts forecast PepsiCo‘s revenues climbing 25% through 2025 if the company maintains momentum across its portfolio, implying upside to current net worth valuations.
Final Thoughts
From its humble origins over a century ago, Pepsi has grown into a ubiquitous global brand and one of the most valuable companies worldwide. Through savvy marketing, innovation and strategic acquisitions, PepsiCo has built a diversified food and beverage empire with a current net valuation exceeding $250 billion by most estimates.
Though eternally #2 behind Coca-Cola in soda market share, Pepsi continues to incrementally close the gap while diversifying into faster-growth segments like sparkling water and energy drinks under new leadership. Its iconography in pop culture and aspirational branding amongst youth should support strong earnings and brand value well into the future.
