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Copperfield Research is the pseudonym of a research team focusing on publicly traded equities. As of the publication date of our articles, we may have long or short equity positions in the companies covered. We do not discuss unpublished reports, or provide any advanced warning of future reports... More
  • SodaStream (SODA) - Sorry SodaStream Traders, Pepsi ALREADY Has A Partner 12 comments
    Feb 7, 2014 1:16 PM | about stocks: SODA

    In the wake of Coke's (NYSE:KO) notable endorsement of Green Mountain (NASDAQ:GMCR) as the in-home vending machine of the future, SodaStream's stock has jumped by 20% from its after hour lows Tuesday night. As is typically the case, investors/traders have shot first with the prudent questions and facts to follow later. This actually includes other short sellers whom we have a great level of respect for that are simply off the mark believing it is a fait accompli that Pepsi will partner with SODA. The linear assumption Pepsi must partner with somebody or risk falling behind in the home soft drink market is somewhat correct. While we certainly cannot rule out that Pepsi will partner with SodaStream, we believe anybody that has bought, or promoted, SODA stock in the last 48 hours has missed a critical fact that we have not seen in any sellside reports thus far. PEPSICO ALREADY HAS A PARTNER IN THE HOME BEVERAGE MARKET.

    It has come to our attention that Pepsi has quietly partnered with the European multi-drink in-home company Bevyz.

    (click to enlarge)

    It is somewhat understandable how investors have missed Pepsi's choice of partners, Bevyz is after all private and European, a combo that can often fall off the radar of most stock market speculators. And if you are buying SODA, you are speculating. The Bevyz dispensers (4 different models in total) provide cold drinks, hot drinks, as well as still and SPARKLING filtered water. Like the future Green Mountain Cold system, Bevyz uses a patented packaging technology that creates a consistent consumer experience. How committed is Pepsi to Bevyz? They have already made several of their most important brands available on the Bevyz system, including Pepsi, 7 UP, and Lipton Ice Tea. We would expect much more visibility into this partnership as Bevyz begins to commercialize their machines domestically.

    (click to enlarge)

    We cannot rule out the possibility that Pepsi will partner with more than one machine manufacturer. It would not seem logical that Pepsi and Coke will ultimately view in-home dispensers agnostically, the same way they view vending machines. They would still compete viciously for consumer mindshare, but the likelihood of consumers having separate dispensers for separate brands seems completely unreasonable. Green Mountain's CEO, Brian Kelley, seemed to understand this obvious dilemma and his remarks suggest there is a high probability Pepsi partners with Green Mountain as well. On its earnings call from February 5th, Brian Kelley was asked about Coke exclusivity, "So to me that tells me that they're [Coke] being exclusive to you, but you can sign on other brands. Is that the right way to think about it?" To this question Kelley seemed to unequivocally state Pepsi is in the works as well, "It is [exclusive]. Although, we're going to bring on the best brands. There are many, many cold brands in North America and in the system. And obviously, we can't bring on every brand at once. We want to bring on the biggest and the best brands, and that'll take a little bit of time as we cycle through it. But what you stated is accurate. And that's the way the platform has worked in hot. And that's the way the platform will work in cold. And it's because that's what the consumer wants." As a reminder in hot, Starbucks, Peets, as well as Dunkin Donuts sell K-Cups for Keurig, despite vicious competition among brands.

    While it appears to us that Green Mountain is aiming to serve all beverage brands with the vending machine analogy, it would also seem SodaStream has further removed any possibility of relevance with Coke and Pepsi. SodaStream has proudly taken every opportunity to incessantly insult and alienate the two beverage giants. Its own website explicitly antagonizes Coke and Pepsi with the slogan "Sorry, Coke and Pepsi." This was also a jab that was used in their unedited Super Bowl add which can be found on YouTube. Really, Scarlet Johanssen and a Super Bowl commercial? Levying insults and attacking Pepsi's business model would clearly be an odd way to treat a potential partner. Finally, as the Wall Street Journal pointed out yesterday in an article titled, "Secret to homemade Coke: Instant Cold, No Canisters", Coke is adamant that the key to the home market will be a system that is easy - meaning no dangerous and clumsy CO2 canisters.

    It seems the assumption Pepsi must rush to buy SodaStream is completely irresponsible given the facts in the market place. It was indeed Pepsi's CEO herself, Indra Nooyi who called rumors that Pepsi was interested in buying SodaStream, "completely untrue" the last time this rumor surfaced.

    If there is in fact no white knight, not only do SodaStream investors own a business with aggressive accounting, horrific forensic attributes, waning machine usage, a depressing Q4 preannouncement, but also now looming competition from Green Mountain and Coke. As we highlighted on two separate occasions when SODA was in the mid-50's and mid-60's, we think the model is in grave danger. With A&P up 41% in Q3 ahead of the Holidays, a big Q4 disappointment speaks volumes about the ROI on that spend. We believe SODA is in the unvirtuous cycle of slackening demand that can only be stimulated by more and more spending, which will have deleterious effects on profitability. America's growth, once the key to the bull story, has declined from 88% in 2012 to 65% in 1H'13, and likely under 20% in 2H'13.

    Based on the implied Q4'13 guidance and awful sell-through data, investors must hope any white knight shows up quickly before SodaStream is forced to share their Q4'13 results, discuss 2014, and file their 20F replete with details about their acquired distributors. With inventory out of control (43% inventory growth & DSO's at 86) in the last quarter, and negative cash flow from operations despite reporting adjusted profits, we believe SODA will be starting behind the 8-ball in 2014. Even if Pepsi had interest, given their shrewd reputation and existing bet on Bevyz, it would seem likely they let SODA bleed for a while - again if there was ever a scintilla of sincere interest in SodaStream. Whether SODA management actually confesses when discussing 2014 guidance remains to be seen, but there appears to be a two week window of hope before the proverbial rubber meets the road.

    Disclosure: I am short SODA.

    Themes: PEP, GMCR, KO Stocks: SODA
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Comments (12)
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  • O. Barlev
    , contributor
    Comments (35) | Send Message
     
    Definitely a nice article. You seem to be completely ignoring this was a horrific quarter for a lot of retailers such as amazon, bed bath, best buy and many more.

     

    Roughly 20% homes in Sweden and Finland actively use Sodastream, is it indicitive of something ? , what makes you so sure other market will not follow ?

     

    pep and ko are ~ 300B$ business, sodastream does offer healtiher alternative, is it so crazy to assume they will have their niche of 2%-3% ? (which means they have a hugh upside)

     

    Would be great if you could share your "aggressive accounting" thesis.

     

    All the best.
    7 Feb, 02:11 PM Reply Like
  • tripoley
    , contributor
    Comments (23) | Send Message
     
    Bevyz is a plumbed in machine and uses CO2 bottles. The simple fact that Pepsi or 7-UP would sell syrup to them tells me they could do this with SODA as well. Those flavor packs just fit into the machine and are premeasured like Sodacaps. Thanks for the heads up!
    7 Feb, 02:16 PM Reply Like
  • O. Barlev
    , contributor
    Comments (35) | Send Message
     
    Please help me figure this out.

     

    While GMCR is x100 times bigger in the US, more people in the US visit SODA rather than GMCR website, does it make sense ?

     

    http://bit.ly/1fFb23I

     

    http://bit.ly/1fFb23K

     

    7 Feb, 02:59 PM Reply Like
  • donzoamania
    , contributor
    Comments (175) | Send Message
     
    Typical piece from a short seller. out late in the day on a Friday.
    Oh well, at least the author admits he is short and shaking in his boots. PEP could buy several of these vendors to push multiple platforms for consumers. So could Coke by the way.
    This game is in the very first inning. Keep shorting. I think you will find that SODA will one day grow to a MUCH bigger company if they remain independent.
    7 Feb, 04:32 PM Reply Like
  • geo.kid
    , contributor
    Comments (7) | Send Message
     
    Looks like a office type product , that is very expensive. , not the same market. I will say this. If yu have kids in your household or entertain you DO NOT want a single serve device . You want the flexibility of bottles. The ease of use per serving. You cannot compare the occasional switch of a co2 tank vs ever time make a cup which takes time. . In addition all systems open up taste issue. . The single serve by the amount of water used per serving. Sodastream by the amount of carbonation and flavor added. , if using soda caps only carbonation can differ.
    7 Feb, 05:22 PM Reply Like
  • houston3000
    , contributor
    Comments (3) | Send Message
     
    If you go to Amazon and look up Bevyz, you get nothing. If Pepsi is collaborating with this company, why are Bevyz's products not available in North America?
    9 Feb, 03:14 PM Reply Like
  • lovedrinks
    , contributor
    Comments (3) | Send Message
     
    I saw the Bevyz commercial unit at the NAMA show and its pretty cool. it combines hot, cold and carbonated beverages all from one machine and the taste was way better than from other systems which i tasted.
    I heard that they are soon launching a home version in the US.
    10 Feb, 07:49 AM Reply Like
  • lovedrinks
    , contributor
    Comments (3) | Send Message
     
    I saw the Bevyz office machine at the NAMA show, its pretty cool as it combines the hot, cold and carbonated in one system. I heard that they are soon launching a home version in the US.
    10 Feb, 07:50 AM Reply Like
  • Welt
    , contributor
    Comments (111) | Send Message
     
    Unfortunately lovedrinks, unless you have some sort of evidence, I don't really believe the fact that Bevyz is going to launch a home version in the US here soon. You have 2 comments, your name is lovedrinks, and your 2 comments are pretty much the same thing.

     

    If I am wrong I sincerely apologize, but I am skeptical of your accounts.
    10 Feb, 11:00 AM Reply Like
  • lovedrinks
    , contributor
    Comments (3) | Send Message
     
    Welt,

     

    i pressed enter by the first comment too early and do not know how to remove the comment.

     

    i have seen pictures of what seems to be their home machine on the bevyz facebook page
    10 Feb, 08:30 PM Reply Like
  • gmanwicksy
    , contributor
    Comments (127) | Send Message
     
    CITRON RESEARCH SAYS it is time to pull up your shorts quickly and make way to the buying back exits. Last one out is a rotten short. Lots of news lately putting this in the limelight exactly where a short doesn't want it to be seen. New spokeswoman will forgive you, all she wants is for people to be happy with their soda products.
    http://bit.ly/1odI8O4
    11 Feb, 01:18 AM Reply Like
  • User 20650021
    , contributor
    Comments (2) | Send Message
     
    They claim to be coming to the US soon with a home unit. I tasted a Pepsi product produced with this machine two years ago while in Italy, and it was quite good.

     

    http://bit.ly/N5Sbqx
    27 Feb, 01:29 AM Reply Like
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