Please ensure Javascript is enabled for purposes of website accessibility

Investors Are Underestimating Starbucks' Unicorn Frappuccino

By Jeremy Bowman – Updated May 4, 2017 at 2:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The coffee giant's latest sensation could have a lasting effect. Here's why.

Starbucks Corporation (SBUX -0.07%) shares sold off following last week's earnings report, falling as much as 4% in the aftermath of the release.

It's hard to blame the market. Starbucks lowered its full-year earnings guidance, and comparable sales slowed from where they were a year ago, coming in at 3%. While that's a solid number, it's a sign that the company's struggling to recapture the magic that led to more than 20 straight quarters of 5% comparable sales growth following the recession.

There was one piece of good news investors may be overlooking, though.  The Unicorn Frappucino -- the drink baristas love to hate -- unlocked a response to the Starbucks brand like no other drink has in years, and it could lead to a whole new seasonal revenue stream to match other beverages like the Pumpkin Spice Latte and Christmas-themed drinks.

The Starbucks Unicorn Frappuccino

Image source: Starbucks.

The limited-time offer, which was introduced after the close of Starbucks' just-reported quarter, caught fire on social media like few other fast-food items have. The drink was available for just five days, but generated about 180,000 posts on Instagram, according to UBS research, which was exactly what the pink-and-blue-colored special was designed to do. What was so special about the beverage made from a creme Frappucino with mango syrup, sour blue drizzle, and pink powder is that it changes color and flavor as you drink it. It starts out as a purple beverage with swirls of blue, but changes to pink as you stir it, with the flavor going from sweet and fruity to tangy and tart.

UBS also found that the drink was incremental to sales, and it expected that it and other limited-time cold drinks would boost sales in the current quarter. The drink was so popular that many stores sold out of it before the promotion was over. 

Management took notice as well on the earnings call. Howard Schultz called the drink, "Probably the most stunning example of our understanding of digital and social media and Instagram. What happened with Unicorn drove significant traffic, incrementality, awareness, brand affinity."

Keeping up the magic

While the Unicorn Frappucino promotion is officially over as of April 23, the offer has inspired customers to order their own magic-themed, off-menu creations such as the Dragon, Mermaid, and Narwhal Frappucinos.

In the run-up to the Frappuccino happy hour promotion going from May 5 to May 14, Starbucks also introduced a new permanent addition to its drink menu, the Midnight Mint Mocha Frappuccino. With the momentum from the Unicorn Frappuccino, this year's Frappuccino happy hour could be the biggest yet. CEO Kevin Johnson said the promotion was going to be a "huge home run this year" thanks to the Unicorn and because the company is no longer distracted by the transition in its rewards program as it was a year ago.

A seasonal sensation

One of the strengths of Starbucks' brand has been its ability to innovate alongside different seasons of the year. The company's Pumpkin Spice Latte and holiday-themed beverages such as the gingerbread and peppermint mocha lattes stand out as the best examples, but Starbucks has lacked a signature spring beverage, a key time of the year when temperature and tastes change. That's why the Unicorn Frappucicno is likely to become a recurring seasonal feature on the Starbucks menu. The company needs a way to get customers excited about cold beverages in the same way the Pumpkin Spice Latte portends colder weather and the hot drinks that come with it. The Unicorn Frappuccino has proven it's more than capable of that.

The drink is yet another reminder of Starbucks' ability as an innovator. The company that pioneered the coffee shop phenomenon a generation ago remains at the forefront with new drinks like the Unicorn and better ways of providing service like Mobile Order & Pay.

At a time when investors seem concerned about slowing sales growth, the Unicorn Frappuccino shows that the java giant still has plenty of tricks up its sleeve.

Jeremy Bowman owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.