Starbucks’ Float

It’s Christmas time. A good time for Starbucks. Not because they will sell more hot drinks. They will. It’s because of all those Starbucks gift cards given out. You know you will receive at least one.

Any funds loaded onto these cards are counted as a liability on Starbucks’ balance sheet. It’s classified as Unearned Revenue. but Starbucks labels it as Stored Value Card Liability.

The liability is big. The 2016 10K listed the Stored Value Card Liability at $1.17 billion.

Starbucks Total Balance outstanding on Cards

FRom 2016 10K. Click image to enlarge.

That’s enough customer cash on Starbucks’ balance sheet to make it the size of a mid-sized bank..

While the card balances are treated as a liability, it’s more like an asset. It is revenue that Starbucks will recognize when the card is used or after enough time has passed. While the cash sits there Starbucks can earn interest income on it.

It’s Starbucks’ float.

Starbucks earned $21 million in interest on the Stored Value Card Liability last fiscal year.

Interest income and other, net increased $65 million , primarily due to higher income recognized on unredeemed stored value card balances ($21 million), net favorable foreign exchange fluctuations ($11 million) and gains on our trading securities portfolio ($8 million). – SBUX 10K released 11-18-16

This is a 1.79% interest rate on the cash.

While it’s nothing compared to an insurance company’s float, $21 million in interest income adds up to $0.01 EPS. The Stored Value Card Liability will grow as more customers use the app to order, pay for their drinks, and leave an outstanding balance.

Also, if short-term interest rates rise then Starbucks will earn more on the unearned revenue.

Some back of the napkin calculations:

If Starbucks earns 2% on the Stored Value Card Liability and the balance grows another 20% year-over-year and keeping shares outstanding at current levels then Starbucks will earn $0.02 in EPS next year.

Earning 3% interest with 20% year-over-year balance growth and keeping shares outstanding unchanged then the EPS contribution increases to $0.029.


Starbucks Cards Hold So Much Money The Company Could Be A Midsize Bank (Huffington Post)

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