SodaStream: Time to Take a Sip?

SodaStream (NASDAQ:SODA) manufactures home beverage carbonation systems allowing consumers to turn tap water into carbonated beverages of all kinds in the comfort of their own home. The system consists of the soda maker itself, a CO2 cannister, a reusable proprietary bottle and a unique cap that can keep the liquid “fizzy” for up to two weeks, and flavoring syrup, which comes in over 100 varieties. The company’s products are sold in more than 40,000 retail outlets in 41 different countries. The SodaStream system is marketed as being environmentally conscious as bottles are reused and not discarded when empty.

From a consumer’s perspective, there are many selling points. First in the eyes of many a soccer mom is the fact that they will no longer have to drag bottles of cola, sparkling water and bar mixers home from the market. Perhaps as importantly, SodaStream beverages contain far less calories than leading international brands, and diet syrups use Splenda instead of the more potentially dangerous aspartame. Especially in current economic times is the cost factor. Although the initial system purchase runs from $75-199, additional bottles from $8-15 and flavoring syrup $5-10 (makes 12 liters or 33 cans of beverage), providing a potential savings of 20-30% per liter (all pricing taken from Amazon.com). The system also allows users to personalize their creations, whether they prefer more or less carbonation, sweeter or lighter, or even creation of an original flavor.

This Israeli company has been in existence since 1903 (originally as a subsidiary of W & A Gilbey, Ltd.) and has been a familiar sight in homes all over Europe for years. In fact, one of every five Swedish households has a SodaStream system. The SodaStream website states that its systems provide 600 million liters of beverages all over the world. The company has garnered excitement for its recent push into the Americas, where it has very low penetration. The systems are now available in retailers as diverse as Bloomingdales, Macy’s (NYSE:M) and some Ace Hardware (OTC:ACEHF) stores.

Most interesting, however, is its business model. It follows a hardware/consumable model similar to that of Green Mountain Coffee (NASDAQ:GMCR). In other words, it sells the hardware (beverage system) and creates continuous future revenue in the consumables (CO2 cartridges, syrup and bottles). The essential difference is that SodaStream is creating an entirely new market, homemade soda. The Keurig brewer, although novel in its approach to homemade coffee, did not invent the category; it just did it better.

SodaStream will have to alter consumer behavior on a more fundamental scale. The biggest question is whether people in the United States will adopt the idea of making their own soda.

While no one yet knows the answer to that question, initial results are promising. For the first quarter of 2011 (ended March 31) American results were as follows: Soda maker sales increased 271% and consumable sales increased 216%. The company also raised guidance for 2011 revenue from a 25% increase to a 30% increase over 2010, and an increase in net income of 60% YOY against previous guidance of a 40% YOY increase. The near future (one to two years) of the company rests in the company’s Americas strategy as it represents its largest untapped market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.