It's been a rough year for those in the branding business at big corporations. SEC investigations, massive product recalls and oil spills (among more traditional factors like competition and slowing sales) have taken a toll on the reputations, as well as the stock prices, of some of America's most well-known companies.
Calculating the value of a company's brand is as much an art as a science because it requires looking at an array of factors. The two largest brand valuations firm -- BrandZ and Interbrand -- come up with radically different numbers for the same companies or products. Each of the brand valuation operations give general descriptions of their methodologies, but keep many details of their calculations secret.
Using the firms' data as a reference, 24/7 Wall St. chose 10 big-name brands operating in the U.S. that have lost substantial chunks of their brand valuations in the first half of this year. We then examined a whole host of other criteria, including the value the brand has to its parent company's market capitalization, the change in stock price over the first six months of the year compared to both the S&P 500 and firms in its peer group (each of these company's stocks underperformed the broader market during the time) and the company's earnings for the 2009 calendar year and the first quarter of 2010. Of course, another consideration was whether the company had a major negative event that made headlines. Toyota's recalls certainly qualified, as well as BP's massive oil spill.
Intangibles also play into 24/7 Wall St.'s calculations just as they do in other brand valuations. Numbers alone may show that BP's brand value dropped 60% in the first half. But there's a powerful case that BP has zero or even negative brand value because of the lasting impact the rig explosion and oil spill in the Gulf will have on the company's financial health and reputation.
In total, the 10 companies on our list have lost well over $100 billion in brand value since Jan. 1. Here they are:
1. BP (BP)
Brand value Jan. 1, 2010: $20 billion.
Brand value June 30, 2010: $0.
BP has the distinct honor of being the only brand to lose virtually all of its value in less than a year. (The only recent comparable case is AIG.) BP's management is reviled by nearly everyone, and its gas stations have lost plenty of customers.
The firm has put $20 billion into escrow to cover cleanup and liability costs from its Gulf oil spill, but that the amount could be far below BP's eventual liabilities. It's in the process of selling some assets to raise money. Chapter 11 bankruptcy protection is always a possibility however remote in most experts' opinion. Even if BP recovers financially, its brand will suffer for years, perhaps decades. Ironically, the U.K.-based company was rated as the No. 1 oil company brand just last year by BrandZ because of its reputation for being environmentally responsible.
2. Dell (DELL)
Brand value Jan. 1, 2010: $16 billion.
Brand value June 30, 2010: $9 billion.
Since founder Michael Dell returned as CEO in early 2007, Dell has been sliding. Revenue for the fiscal year ended Feb. 1, 2008 was $61.1 billion versus fiscal 2010's $52.9 billion. Net income has been cut in half to $1.4 billion between the two periods.
But a sales decline may be the least of the problems. In 2007, after a year-long investigation, Dell disclosed an accounting scandal aimed at inflating its financial performance. As a result, it was forced it to restate financial results for fiscal years 2003 through 2006 and for the first quarter of 2007.
Unbelievably, Dell didn't seem to learn its lesson. In 2008, government investigators found that it had a relationship with Intel (INTC) that federal, European Union and New York State authorities claimed helped the chipmaker maintain an unfair advantage in the PC market and artificially inflated Dell's earnings performance. Dell admitted to these transactions with Intel and recorded a $100 million liability in its first quarter of fiscal 2011 to establish a reserve for a potential settlement with the Securities & Exchange Commission. The settlement would involve a civil injunction against Dell for alleged violations of federal securities laws. Michael Dell is currently in settlement talks with the SEC.
That's not Dell's only legal woe. Another lawsuit, which has been ongoing for three years, claims Dell shipped as many as 12 million computers containing faulty electrical components. Some of the e-mails disclosed in the case indicate that Dell employees were aware of the problems. It's always tough to calculate the toll suits like these take on a company's reputation, but it's pretty clear that Dell's standing has sunk.
3. Adobe (ADBE)
Brand value Jan. 1, 2010: $7 billion.
Brand value June 30, 2010: $4 billion.
Apple has damaged the prospects of several of the companies on this list, but none more than Adobe. Its Flash player has been the dominant multimedia software on the PC, a position it took from Microsoft and RealNetworks (RNWK) years ago. But Flash needs to migrate to mobile devices, where Apple has very effectively blocked a portion of that migration by refusing to allow Flash software onto its iPhones, iPods and iPads.
In April, Jobs wrote: "Flash was created during the PC era for PCs and mice. The mobile era is about low power devices, touch interfaces and open Web standards, all areas where Flash falls short." Ouch.
Adobe's stock dropped from $35 the day that Jobs wrote the statement to $32.50 five trading days later. Apple's App store, which has over 200,000 applications and claims in excess of 3 billion downloads, allows Jobs's company to almost entirely control what kind of software and multimedia technology runs on its products. Apple also forbids Adobe's Creative Suite software to run on its devices. Google's Android, however, runs Flash -- so all is not lost in mobile devices.
Adobe recently posted strong sales, but concerns about its mobile future still dog the company
4. Sony (SNE)
Brand value Jan. 1, 2010: $12 billion.
Brand value June 30, 2010: $7 billion.
Once the consumer electronics darling of the 1990s, Sony has lost its footing, and it doesn't look like it'll regain its premier position anytime soon. In its fiscal 2010 (ending in March), it recorded major losses, and revenue fell for the third year in a row as sales of TVs and digital cameras continued to decline.
Sony's leading edge in the video-game market has also evaporated. Competition from Microsoft and Nintendo has been so successful that, according to BrandZ, the PS3 has a brand valuation of $426 million compared to the Wii's $10 billion and the Xbox 360's $4.6 billion.
5. Goldman Sachs (GS)
Brand value Jan. 1, 2010: $16 billion.
Brand value June 30, 2010: $10 billion.
Goldman may be the only brand on this list to have regained some of its value recently. Many regard its $550 million settlement with the SEC as a victory that will lift a black cloud from the company (even though that settlement took quite a toll on the investment bank's latest earnings). Others argue that the SEC essentially got Goldman to admit wrongdoing by forcing it to pay such a large fine. The SEC investigation and settlement may put off some current and potential customers, but Goldman also has other challenges to deal with. It may still face legal charges from authorities other than the SEC, including the New York State attorney general.
Goldman's actions are also part of the government's review of AIG's collapse. The bank will also remain under fire for its compensation practices, although it's not clear what actions, if any, the federal government will take.
More serious is the wave of financial reform that has swept across Europe and the U.S. In Europe, Goldman may have to reserve pay for some of its bankers, and it may face direct levies to cover the costs of future financial firm failures. Goldman's investors are particularly nervous about provisions in the U.S. financial reform bill that will restrict proprietary trading -- the most critical engine of Goldman's profits -- and new regulations of derivatives. Analysts believe that new regulations could cut $1.5 billion from Goldman's profits. In its second-quarter earnings report on July 20, Goldman reported that revenue from investments and trading had plunged 40% year over year.
6. Research In Motion (RIMM)
Brand value Jan. 1, 2010: $25 billion.
Brand value June 30, 2010: $16 billion.
RIM's BlackBerry dominated the smartphone market from 2002 until 2009. But then it began losing its grip thanks largely to the Apple's (AAPL) iPhone. Google's Android-based phones, as well as smartphones from LG, Motorola and Samsung have also helped erode RIM's lead. Recent data from Changewave, a well-regarded wireless research firm, showed that in June, 52% of people polled said they planned to buy an iPhone (up from 31% in March), 19% planned to buy an Android-powered HTC phone (up from 12%) and only 6% planned to buy a BlackBerry (down from 14%). Recent data from research company Comscore show a similar shift but not nearly as dramatic.
RIM has also struggled to expand into the consumer market, but new handsets like the Curve have mostly fallen flat. And while revenue keeps growing -- up 24% in it most recent quarter year over year to $4.24 billion -- analysts remain concerned about RIM's prospects.
7. Nokia (NOK)
Brand value Jan. 1, 2010: $40 billion.
Brand value June 30, 2010: $27 billion.
Even though Nokia reins as the largest manufacturer of mobile handsets in the world and claims up to 37% of the global market, it has failed to gain traction in high-end smartphones. Its shares have plummeted 67% in the three years since Apple started selling the iPhone, and now it's rumored that Nokia's board is shopping around for a new CEO to replace current chief Olli-Pekka Kallasvuo.
Nokia has virtually surrendered the high-end smartphone market to the iPhone, BlackBerry and Android-powered handsets. The loss in market share is beginning to take a toll on Nokia's financial performance. In June, it projected that second-quarter revenue for its mobile devices and services division will be below its previous forecast of $8.2 billion to $8.8 billion. Nokia attributed the change to lower-than-expected average unit prices.
As a result of its failure to penetrate the most lucrative and fastest-growing portion of the handset sector, Nokias shares are down 32% this year to a 12-year low. S&P recently revised downward its credit rating on Nokia's debt because the rating agency doesn't expect "a material improvement in profitability over the near term."
8. Johnson & Johnson (JNJ)
Brand value Jan. 1, 2010: $45 billion.
Brand value June 30, 2010: $33 billion.
Percent change: -27%.
Johnson & Johnson has been in the top 10 of Fortune's Most Admired Companies list since 2006 (it was No. 4 in 2010), but that standing may not hold following a series of recalls of some of the most popular medications from J&J's McNeil Consumer Healthcare division. Since May, McNeil has recalled more than 135 million bottles of medicine for children and infants, including, Tylenol, Motrin and Benadryl.
McNeil has shut down its Fort Washington, Pa., manufacturing plant, where the drugs were made and where conditions have been described as "deplorable." The plant's problems have caused mean that drugs like Tylenol and Benadryl could be in short supply well into next year. On Monday, the Food & Drug Administration cited yet another plant for poor conditions, this one in Lancaster, Pa.
Making matters worse, FDA documents presented at a congressional investigation of the recalls indicated that J&J may have covered up some of its knowledge of the problems. Describing what FDA investigators found, House Oversight and Government Reform Committee Representative Edolphus Towns said in a statement: "These documents are extremely troubling. We can't tell where the spin ends and the truth begins."
Earlier on July 20, J&J announced second-quarter earnings, in which it saw a very slight bump in sales year over year. More troubling to J&J investors, however, was the company's outlook. To reflect the recalls and the Fort Washington plant shutdown, J&J lowered its earnings guidance range to $4.65 to $4.75 a share for the full year, down from $4.80 to $4.90.
J&J not only faces plunging sales in one of its largest divisions -- and a potentially huge number of liability suits -- but it will also certainly lose its position as the country's most well-regarded health-care product and drug provider.
9. Google (GOOG)
Brand value Jan. 1, 2010: $100 billion.
Brand value June 30, 2010: $74 Billion.
Google's decision to largely abandon China, the fastest-growing Internet market in the world, and slowing growth in its search engine business have taken a toll on the company's brand value this year.
After disputes with the Chinese government over censorship and Google's accusations that its servers were broken into by a government-supported group, the search giant decided to move its presence to Hong Kong. While ethically defensible, Google's choice has the potential to cost the company billions of dollars in future revenue. Google has lost its competitive advantage in Chinese search to local search company Baidu and to Microsoft's Bing. China has reapproved Google's license to operate in the country, but the relationship remains testy.
As if losing ground in the fastest-growing market in the world weren't enough, Google's core search engine business has also started to slow. The company has been adding costs in order to buttress the business and to work on diversifying its revenue streams. So even though revenue rose from $5.5 billion in the second quarter of 2009 to $6.8 billion in its most recent quarter, expenses have increased even more sharply, from $3.6 billion to $4.5 billion during those periods.
10. Toyota (TM)
Brand value Jan. 1, 2010: $30 billion.
Brand value June 30, 2010: $24 billion.
A series of major recalls has severely damaged the world's largest automaker's reputation for quality, safety and customer focus. Toyota has flagged defects in nearly 10 million cars worldwide since the beginning of the year. That news was bad enough, but then allegations surfaced that top executives knew about many of the problems and either failed to report them in a timely manner or attempted to cover them up. As a result, Toyota has agreed to pay the National Highway Traffic Safety Administration $16.4 million, the maximum fine the agency can levy. But Toyota also faces hundreds of liability suits that could eventually cost billions of dollars. On June 19, Toyota received its second grand jury subpeona regarding the recalls, this time related to steering problems.
Once ranked near or at the top of J.D. Power & Associates' rankings, Toyota fell to the next to last spot in the firm's recently released annual Initial Quality Survey. Toyota's 2010 story has one surprising twist: U.S. vehicle sales haven't fallen. In fact, they were up 9.9% during the first six months of 2010.
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