SodaStream's (NASDAQ:SODA) price movement has been extremely disappointing over the last twelve months - despite a gain over the last two weeks, the stock is still down over 48% during the period.
There have been a number of reasons for the fall in the stock price; however, one of the chief reasons was a decline shown by the company's U.S. segment. The U.S. is one of the most important regions for the company, and it is understandable why the market is taking a decline in this segment so negatively. As of the last quarter, it made up for roughly 30% of the total revenues of the company. Unfortunately, the company is experiencing weaker demand from this particular segment. A year ago, this segment accounted for over 35% of the total revenues. The revenues from this region have been falling for the company over the last two years - last year, the U.S. segment recorded a year-over-year fall of over 6%. In the quarter, U.S. revenues fell 14% as compared to the last year.
(Source: SEC Filings)
The reason for the decrease is mainly due to the stronger market position of Coca-Cola (NYSE:KO) in the U.S. - the company is having a trouble in competing with established players in the market. Consumers are showing less inclination towards switching from Coke, which is much easier to get and dispose, and there is no need for preparing the drinks as well.
To revive itself in the U.S. market, SodaStream has taken an aggressive marketing approach, which may solve its problems. Families try to keep children away from coffee due to the presence of high amount of caffeine, as the growth cycle of a child may get affected by its consumption. On the other hand, a bottle of cola has double the amount of caffeine than a cup of coffee. Furthermore, a large number of people fight obesity in the U.S., and would give anything to get thinner without having to leave their drinks and normal food.
Studies suggest that Coke and similar drinks contain 39 grams of sugar in a regular can. More or less the same amount applies to all the drinks of its kind, which also includes energy drinks. People who reach for diet versions of their beverages are welcoming even more trouble, studies suggest. The artificial sweeteners are associated with disruption of sleep patterns, cancer, lupus, MS, diabetes and sexual dysfunction.
SodaStream realized this, and it is now using health as a selling proposition for its products. SodaStream products contain half as much sugar as compared to regular beverages. This strategy might prove to be a turning point for the company, as the focus on health has increased over the last few years, and people might be more willing to switch from their favorite brands if they are offered health benefits with a better taste. If the strategy works for SodaStream, we will see some support from one of the largest segments of the company.
The company's product, however, is highly appreciated in areas where people do not like to have disposable bottles. German consumers like the product, as it is more convenient. Finland, on the other hand, has welcomed the product with open arms. The revenue growth in Finland is over 20% due to the household penetration, while the German segment has been showing the same level of growth for four consecutive quarters.
SodaStream's efforts to use health benefits as its main marketing strategy will likely result in halting the decline in the U.S. However, this will be damage control, and the growth areas for the company are in the European and Asian markets. The European segment is showing strong growth, and we are optimistic about this segment in the future due to its convenience and health benefits. There are still many markets for the company to capture in the Middle-East and Asia-Pacific. At the moment, all the focus is on the U.S. segment due to its massive contribution towards the total revenues of the company. SodaStream will need to diversify its revenue mix geographically in order to achieve stability. The Asian markets are still open to the company, and it needs to increase its penetration in the European as well as Asian markets. Nonetheless, the current marketing strategy in the U.S. will stop the fall in the short term and allow the stock price to be stable. In the long term, we maintain that SodaStream's prospects are bright, as there are a number of growth opportunities.
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