SodaStream (SODA) continues to gain mainstream media attention based on the outsized move in the stock price over the last two months and the recent advertising campaign which has been declined by CBS. SodaStream was originally scheduled to a Super Bowl commercial during the 4th quarter of the Super Bowl but on Friday January 25th the plug was pulled. CBS declined the SodaStream ad as it seemingly poked fun or denigrated two leading beverage producers, Coca-Cola (KO) and Pepsi (PEP). As of Wednesday January 30th, the originally scheduled commercial which was declined by CBS has been moved to other media formats such as Youtube and here.
For the Super Bowl, SodaStream hoped to up the ante with a spot depicting truck drivers clad in clothing with Coca-Cola and Pepsi marks on them, according to Ilan Nacasch, SodaStream's chief marketing officer. Mr. Nacasch said, "We really tried to comply with the standards" set by CBS, he said. At the same time, he added, "We were taking it to a new level, and that's the level where they apparently judged to be going too far."
The ad was originally speculated to cost SodaStream between $3-$3.5 million for the prime time spot, but instead the company will be looking to revise the would-be Super Bowl ad and have it air in other media venues earlier than the Super Bowl. The company will still run a Super Bowl ad, but it will be a revised version of a 2012 spot that ran in the United States and 25 other countries. SodaStream is trying to get its message across in the United States where it has seen near triple digit growth in sales over the last two years. Early in 2012, the company landed its biggest deal yet by inking a deal with Wal-Mart. SodaStream now sells products in more than 45 countries and 60,000 retail locations around the world.
SodaStream's Chief Corporate Development and Communications Officer, Yonah Lloyd, made a cameo on the hit CNBC show Fast Money on January 29th. The shows host, Melissa Lee made a point to ask Mr. Lloyd if the recent analyst report written by Oppenheimer's Joseph Altobello was accurate when the analyst pointed to strong holiday sales data. Mr. Lloyd verified the analysis by the Oppenheimer analyst and in the after hours session shares of SODA climbed by nearly 2 percent.
The increased spotlight on SodaStream has fed through to the share price in recent months as the stock has climbed from November through January by nearly 55% over that time period. Shares closed at a 52 week high on Friday January 25th after languishing for much of 2012. Record sell-outs at retailers in the U.S. brought with it greater analyst coverage by way of Barclay's and Citigroup who each rated shares of SODA as a Buy with $55 and $60 price targets respectively.
So what is next for SodaStream? Well, earnings will be out in mid-late February (TBA) and in between time, the good folks at captialladders.com will be monitoring channel checks to see if the company can maintain YOY sales strength. Sell-outs at retailers through the holiday have resulted in some restocking delays, but our most recent discussion with management indicates this is not at the fault of SodaStream. Retailers are finding themselves understaffed since coming out of a slower than expected holiday sales season and in many cases they have resumed leaner scheduling across all aspects of daily business operations, including logistics.
Logistic operations are the processes whereby the retailer loads trucks at the distribution center and ships the loaded truck out to the retail stores and the stores unload the trucks and stock the merchandise as needed. In many cases, this is taking longer than expected. However, in the back half of January, most retailers have been fully restocked with SodaStream products. It is important for the average investor to understand that the same thing happened in 2011, so this is nothing new. But, SodaStream is moving forward with their strategy to ensure that even if the retailer's logistic processes are delayed, SodaStream products will be restocked with less lag time in the future. I have outlined this strategy for clients in the capitalladders.com Q4 preview.
So what else? Well in my very own backyard of sunny Florida, SodaStream began the CO2 exchange program with Best Buy (BBY). The test program began in South Florida earlier in January and will hopefully roll-out nationwide later in the year. Speaking of the CO2 exchange program, Wal-Mart (WMT), by our latest channel checks, surpassed sales for the CO2 exchange at Bed Bath and Beyond (BBBY) for the first time during the month of January; so much for SodaStream not being a "Wal-Mart-type customer product". I heard the same thing for those who said Keurig products would not sell at Wal-Mart because they are too expensive for the Wal-Mart shopper, yet hear we are 4 years later and Wal-Mart is selling both Keurig and SodaStream products by the tens of thousands.
In a most recent article I authored, "The SODA Boom", I spoke about the two-pronged approach of SodaStream's latest commercial advertising campaign slotted for the Super Bowl. "Superbowl commercials, in many cases, prove to force retailers to purchase advanced and outsized orders of products due to the anticipatory sales the retailer will forecast as an effect of the commercial campaign. More simply stated, a Superbowl ad usually produces greater sales for the wholesaler (SodaStream) thus the retailer anticipates this effect and orders more products from the wholesaler to meet the anticipated demand". So the only way to gauge if I was right or wrong with this analysis is to of course have the data suggesting increased orders from retailers to SodaStream right? Well not everyone has this kind of data to work from so we can take a look and see what retailers are now selling between the time SodaStream announced its Super Bowl ad and today.
Our first retailer which placed an advanced order was Target (TGT). Since adopting the SodaStream product line, the company has only sold the Jet and Genesis soda maker machines. Low and behold, as of two weeks ago you can now find some Target locations selling the Source machine as well as find it at target.com. Naturally, the Super Bowl is going to feature the Source soda maker which is the latest and more advanced model of soda maker offered by SodaStream. Retailers likely knew about this ahead of time so the orders came rushing in as expected. If we move along the retail food chain, Crate & Barrel, Best Buy, Sears (SHLD) and William Sonoma (WSM) also recently started selling the Source machine in the last week. It is funny the effect that a Super Bowl ad can have on retailers.
Shares of SODA have now begun to moderate and settle into a comfortable $50 price range, slightly higher and slightly lower on some days. Interestingly enough, the short interest which has come down mightily over the last few months, took a turn upward as of the latest short interest report. So why with all of this great publicity and share price momentum did the short interest increase so dramatically? Believe it or not some people still believe the product category is a fad, in spite of a strong performance over the last 5 years and 2 year performance in the United States.
"It's a fad" they cry out on message boards, in e-mails to capitalladders.com and even some analysts believe it to be so. But what exactly is a fad? Typically, a fad is something that comes and goes in a relatively short period of time. The one key identifying factor that signals or separates a fad from a new and potentially long-lasting trend/product is how many aspects of the human sensibility a new product touches. I tend to think of the term "fad" in a broader sense. Fads are actually more commonly associated with fashion, toys, and consumer electronics. You might even throw diets in there. However, proven diets become popular and have long-lasting staying power, but I digress.
A "fad" tends to play on a singular human sensibility such as fashion plays on our sensibility of aesthetics. Look at what happened to Hot Topic (HOTT) and Crocs (CROC). Electronics also tend to be fads as they are so closely tied to technology and at the rate technology advances, the smart phone in your hand today could be gone tomorrow as the makers of Palm, Nextel and Ericson found out. Lastly, consumables tend to lag way behind in the fad label category. Food and beverages are something which we all ingest and in this process there is usually careful consideration in terms of taste, smell, ingredient composition etc. For all these sensibilities which food and beverages activate in our bodies, this is why consumables tend to not be fads. So having said all of that, and why I don't consider Soda Stream to be a fad at all is because it plays on multiple human sensibilities such as health, taste, economics, convenience, fun and the sensibility of being eco-friendly. Last I checked health, taste, economics, convenience, fun and eco-friendly weren't fads, but then again what do I know! That was a rhetorical question.