After the 2009 rollercoaster of layoffs, store closures, and Via instant coffee, Starbucks (SBUX) turned in a stunning first quarter earnings that now seem ripe for contrarian action. At the end of January, 18.81M shares were shorted.
Cynical investors might call this move less contrarian wisdom and more quick-profit bounce. After all, while December’s quarterly gross profits jumped to $241.5M from the previous year’s $64.3M earnings, history still indicates the company has some climbing left to do before matching the almost $5.8B earnings reported in September, 2008. Long-term holders might also be tempted to follow the shorts after glancing at a $22 share price and a $29.96 P/E ratio.
It’s certainly reasonable to ask whether this stock can continue its yearly upward run from a $9.41 share price past its current $22.59 price as of February 11, 2010. Shall we ignore the contrarians or leap onto the haymaking wagon as it trundles by?
Perhaps. But before jumping, consider whether this short bounce might actually be an ill-conceived bet against an inevitable ascent.
Last month, The Next Web reported on the company’s social media efforts to gain and retain an even greater customer base. The numbers are quite imposing.
• Almost 777,000 followers on Twitter
• Over 5.7 million fans on Facebook
• Over 5,000 subscribers to Starbucks YouTube
What’s more impressive is how this 16.8B market cap giant effectively uses these tools to create a individualized fan experience. Twitter answers questions, retweets comments, announces free drink samples, and new iPhone apps while Facebook is used for video uploads, blog posts, event invites, and fan forum discussions. For the geek enthusiasts, Starbucks YouTube has videos on anything from coffee blends to the company’s history to various charity work, including the recent Haiti relief effort.
There’s even a My Starbucks Idea forum where customers can suggest and vote on new ideas while the Ideas in Action Starbucks blog, tells customers what the company’s actually doing with the winning proposals.
Time will tell whether all the social media hype and pizzazz will convert these statistics into actual cash sales. But before writing all of it off as a cynical effort to further push over-priced, burnt coffee on clueless customers, consider one last point.
Not too long ago, hitting the local Starbucks was one of the easiest luxuries to dump for financially-pressed consumers. Now it’s roared back in true contrarian fashion, as one of the few affordable perks in a continued recessionary grind.
Short at your own risk.
