Ronaldo and the Coca Cola Meltdown-Misreporting and Misunderstandings

On June 14, Ronaldo attended a Pre-Match Interview before the Portugal V Hungary Group F Clash in the Euro 2021 Season. It was at this event that he noticed two Coca-Cola Bottles in front of him and summarily proceeded to remove them from the table, and also gesture "Agua" to Journalists to signal to them to drink water instead. This event coincided with a fall of USD 4 Billion on the NYSE for Coca-Cola (registered under the ticker KO). Many established news journals noticed these two events and declared that Ronaldo had knocked off the loss for Coca-Cola. Many news articles have since been written, and many have added their own opinions on the morality of Brand Ambassadors getting sponsorships from these companies. While the argument for Morality will not fall under the ambit of our blog today, let us analyze the market trends that have led to this supposed 'loss' of 4 Billion USD for Coca-Cola, with a look at their Annual Financial Reports from Q1 2021, and what we know about trends in the stock markets to conclude.

As of the time of publishing this blog, June 23, 2021, is the latest date on which trading was done on the NYSE, with Coca-Cola have a Share Price of 54.12 USD per share from a high of 56.12 USD per share on June 11, 2021. (Source: Yahoo! Finance)

Now that we have the facts on the table, let us have a brief primer on the basic stock terminologies. (A brief mention of some of these was already covered in my earlier blog, click here to check it out!)

INTRINSIC VALUE:

Intrinsic value is a measure of what an asset is worth. This measure is arrived at using an objective calculation or complex financial model, rather than using the current trading market price of that asset. On the one hand, value can be created or dissolved with the change in a stock's implicit value, which is determined by the personal perceptions and research of investors and?analysts.?Depending on investors' perceptions and expectations for the stock, implicit value is based on revenues and?earnings forecasts. If the implicit value undergoes a change—which, really, is generated by abstract things like faith and emotion—the stock price follows.?

EXTRINSIC VALUE:

Referred to as the accounting value (or sometimes?book value), the explicit value is calculated by adding up all?assets?and subtracting?liabilities. So, this represents the amount of money that would be leftover if a company were to sell all of its assets at?fair market value?and then pay off all of the liabilities, such as bills and debts.

However, without explicit value, the implicit value of the company would not exist. Investors' interpretation of how well a company will make use of its explicit value is the force behind the company's implicit value.

EX-DIVIDEND:

Ex-dividend describes a?stock?that is trading without the value of the next?dividend?payment. The ex-dividend date or "ex-date" is the day the stock starts trading without the value of its next dividend payment.

Typically, the ex-dividend date for a stock is one business day before the record date, meaning that an investor who buys the stock on its ex-dividend date or later will not be eligible to receive the declared dividend. Rather, the dividend payment is made to whoever owned the stock the day before the ex-dividend date.

DELAYED STOCK QUOTES:

Stock quotes reflect the results of actual trading on stock market exchanges, such as the?New York Stock Exchange or NASDAQ. Investors and?traders can get?quotes on the?Dow Jones Industrial Average, other indices, or individual stocks from several financial news sources. However, some financial news services don’t report real-time information and?instead?delay stock quotes for 15 or 20 minutes.?

In a rapidly rising or falling market, also known as a fast market, even real-time quotes can have a hard time keeping up. In that market scenario, a quote that’s delayed 15 or 20 minutes is virtually useless, as a stock's price could have moved by a significant percentage in that time frame.

Now that we have an understanding of these 4 basis terminologies with us, let us once again analyze what happened on June 14, 2021.

Ronaldo had a Press Conference where he moved two Coca-Cola bottles, simultaneously Coca-Cola shares on the NYSE lost 4 Billion USD.

Let us now analyze the Coca-Cola Q1 2021 Annual Financial Report. As per the report, the Average Share Outstanding (with Dilutions) is 4307 Million or 4.3 Billion. When we take into account the share price of Coca-Cola on June 11, 2021, it was at a high of 56.16 USD per share.

Now let us look at the NYSE index for KO in real-time and compare it with the delayed stock quote of up to 20 mins, which means that an actual change in the stock price takes up to 20 mins to reflect on the Free Ticker sites like Yahoo Finance or other financial services.

As there is a lot of data in the chart, let us start from the very top. The KO Stock opened at 55.690 USD on June 14, and not the 56.10 USD on June 11. This was because Coca-Cola had already announced an Ex-Dividend date of June 14, 2021.

Once this Ex-Dividend is announced, the stock price gets adjusted as a portion of the profits is transferred to the Coca-Cola Investors. (Of which retail investors are 30.45 %). As per the analysis from Yahoo! Finance, the total Institutional Investors are 68.81%, and 0.64% of shares are held by insiders.

The NYSE starts trading from 9:30 AM EST, and the UEFA had confirmed that the Euro 2021 Pre-Match Interview happened at 3:45 PM Central European Time, which is 9:45 AM EST. From the chart above we have seen that the KO Stock Price has already fallen 0.9% between 9:30 AM and 9:44 AM. Coke had also closed the trading on Friday, June 11, on 55.74 USD and opened on Monday lower. By 9:44 AM, Coke's share price had already fallen to 54.25$, which is a loss of USD 2.1 Billion.

Now we have to mention that this supposed 'loss' is merely an Intrinsic Value that has been reduced.

If we once again look at the KO Chart value today, we can see that such rise and fall are par for the course in Day-Trading, even for Coca-Cola.

Above is the KO Share price adjusted for the last 1 Year, to reflect how much the price had actually valued, all the price here is Intrinsic value only. The extrinsic value of the Coca-Cola share has remained unaffected.

Had Ronaldo's gesture of removing the Coke bottle had any impact on the stock price, it would not have been apparent immediately, but it would take 20 minutes to get reflected on the NYSE. If anything, there was a noticeable jump at 10:15 am in the KO Stock Price of 0.30 USD per share, which led to an increase of 1.2 Billion USD.

We are calculating these intrinsic values by simply multiplying the Coca-Cola shares stated in their Financial Report with the change in the Price of the share.

The appreciable momentary rise in the KO stock could be attributed to the Water Bottle that Ronaldo had gestured to, which was also a Coca-Cola sub-brand. However, as with everything in Intrenstic values of Stocks, this could be hard to prove as well.

CONCLUSION:

As a result of most people having a fundamental misunderstanding of how the stock market works, and how far removed from real-time events it is, many reputed news websites had been quick to publish unverified news articles about 4.1 Billion USD being wiped off from Coca Cola's valuation from a simple gesture from Ronaldo. Some of these reputed news journals did issue clarifications a few days after publishing their story, like The Guardian

However, the damage was already done for the Coca-Cola stock in the short term. Many Institutional Investors who short-sold the KO stock made a killing, while those who had invested in Inverse ETF would also have benefitted. While the price has fallen further for KO still owing to the misreporting earlier, it is likely to correct itself going ahead. The only ones to suffer were those who merely glanced at the article and came up to the conclusion that the Equity Markets are always volatile. Here's hoping this blog helped some in understanding the complexities of the Equity market.

-BasuDeo Dubey