One day after the IPO, The Focused Stock Trader recommended SodaStream (SODA) to our subscribers at $24, and was picked as our stock of the year for 2011. In 2013, SODA has been gaining momentum and is poised to break out from its trading zone of $45 to $55. This recent uptrend may be attributed to the company's strong business growth as well as future business potential expressed in its 4Q earnings on February 20, as well as its new partnerships. With these factors in mind, I believe 52-week highs will be broken leading SODA to break out to new highs. With expansion into global markets and existing products beginning to take hold of the drink market, the share price growth that investors saw in 2011 when SODA reached over $75 will soon once again be realized. See chart breakdown here.
SODA Products and Potential Markets
The focus of SODA is to provide environmentally friendly, cost effective, healthy alternatives to already popular drinks. The added convenience of the products makes the SodaStream a popular product. This at-home drink creation product seems to be the future of soft drink and energy drink consumption. Estimating that it already has 5 million customers, SODA has taken a large foothold in the overall drink market. SodaStream up until now has been based around its simple design of creating sodas from mixing carbonation and flavors to create popular drinks.
The global drink market is projected to be $1.6 trillion in 2013 with soft drinks owning a large share of the market. The soft drink market shows huge room for expansion as it is forecast to be worth $193 billion in 2013. Most of this market is dominated by Coca-Cola (KO) and PepsiCo (PEP), which would generally create a problem for a smaller company such as SODA. However, the market growth constraints have been attributed to the economic recession globally, and SODA being the cost effective solution for this market seems to be the answer to consumer consumption issues.
A market SODA has recently announced its expansion into is the energy drink market. The energy drink market has grown 60% from 2008-2012, and is expected to be worth over $79.2 billion by 2016. The growth of this industry is taking into account that energy drink makers will find a way to meet the demand for healthier products that consumers are demanding. SODA has placed itself at the front of this market by a partnership with an energy drink company focused on developing healthier products.
SodaStream's 2013 Partnership Announcements
SODA announced a partnership on February 27, with Ocean Spray to bring Ocean Spray flavors to its customers by the second half of 2013. Ocean Spray reports that 30% of its customers are already mixing their drinks at home, and with the simplicity and ease of SodaStream, it is reasonable to assume many of these customers will switch over to using SODA's products.
Additionally, SODA has partnered with EBOOST in order to reach into the fast-growing energy drink market. It wishes to add the availability of energy drinks to its consumers, and this news unlocks another huge market for SODA to benefit from. EBOOST also "encourages a healthy lifestyle" according to the Febuary 28, press release announcing the partnership. This is exciting news, implying that SODA may simultaneously jump into the health-drink market as well as the energy drink market. These products are projected to be developed and released by the second half of 2013 allowing the impact on sales growth of the new products to be reflected before the end of 2013.
On March 12, Soda announced a partnership with Cott Beverages (COT) in order to meet the "increasingly high demand" for SodaStream flavors. Cott Beverages brings "State of the art production, combined with years of expertise in flavor creation." This relationship with a well-known manufacturer shows the recent and long-term growth SODA has seen in its products' popularity. COT is the world's largest producer of beverages and operates in the U.S., Canada, UK, Mexico, and over 50 countries globally.
SODA 4Q Financials
SODA reported its 4Q financials on February 20. The news was exciting to investors as SODA revealed a 55.2% increase in total revenue to $132.9 million compared with 4Q 2011 revenue of $85.7 million. Net income increased 41.6% in the same period to $7.5 million as well. Diluted earnings per share also increased 38.5% to $0.36 and adjusted earnings per share increased to $0.45.
For the year, SODA's total revenue increased 51.0% to 436.3% and saw a diluted earnings growth of 56% to $2.09. CEO Daniel Birnbaum reported that SODA experienced its first quarter of over 1 million soda makers sold adding up to 3.5 million sold on the year. He also reported that U.S. sales "exceeded expectations, continuing growth in the world's biggest soda market."
Growth by region showed international promise as sales revenue in the Americas was up 96%, Western Europe up 31%, Asia up 31% and Africa up 28% on the year. Additionally, Soda maker starter kits were up 62% and consumables were up 54% year over year.
The growth in the fourth quarter for these products was even more impressive seeing a 2012 4Q growth of 45% for starter kits and 60% increase in sales for consumables compared with 4Q 2011. Gross margin decreased 4.3% in the 4Q compared with 2011, which actually was a very good sign. This decrease was due to the need for rapid manufacturing expansion SODA had based on the increase in popularity of its products.
SODA's total cash was down $12.2 million to $62.1 million compared with 4Q 2011, largely due to the acquisitions of the Nordic and Canadian distributions it made in 2012. Inventories increased by 47.1% compared with 4Q 2011, indicating that SODA is preparing for even greater future growth.
SODA, according to its February 20 earnings call, expects revenue to increase 25% in 2013 to $436.3 million and net income to increase 18%, signaling another growth year for sales and also for production efficiency.
SODA CEO Daniel Birnbaum
Daniel Birnbaum, CEO of SODA has a history of successfully developing start-up companies in the technology highlighting his strong resume. He was one of the founders for Nuvisio Corporation, established Pillsbury Israel, and managed Nike (NIKE) Israel. In addition he also holds an MBA from Harvard Business School. His experience and leadership were fundamental to SODA's initial success.
SODA's new outlook equates to $3.24 cash per diluted share in 2013 up from $2.09 in 2012. Considering this projected 56% growth, the overall growth in international markets, and the expansion into healthy energy drinks, SODA looks like it will see even more great earnings reports in 2013. Even valued as a $1.08 billion company, SODA is a growth stock that has proven financials to justify its recent price action. It is not often that a company with such high growth potential has such low risk. Trading in the low to mid $50s SODA is poised to breakout past its $57 resistance to not only 52-week highs, but I believe all-time highs in the near to mid-term future. Only time will tell whether SODA reaches its full potential.
Additional disclosure: Business relationship disclosure: The Focused Stock Trader(Powered by Contextuall.com) is a team of investment researchers focusing on the production of TheFocusedStockTrader.com newsletter which is currently under construction. This article was written by Kyle Coker, our Associate Editor. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.