Sodastream International Ltd (NASDAQ:SODA), the world’s leading manufacturer and distributor of home beverage-carbonation systems, reported record first quarter sales that provided it with a strong start to the year. The company enjoys a first mover advantage in this segment by providing a legitimate alternative to traditional soda. Now, the company is looking at ways to pull off a similar or better performance in the coming quarter as well. Soda Stream’s primary focus is winning new customers through advertisements, public relations endeavors, and staying at the top of potential customers’ minds through social media engagement. The company even plans to roll out new soda caps in selected markets during the summer, and new diet flavors as well.
Is this going to be enough for SodaStream to turn the beverage industry upside-down and take on the biggies of the industry such as The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP)? Let’s take a look.
SODA vs. KO and PEP
Costs
One bottle of cola syrup from Sodastream International Ltd (NASDAQ:SODA) costs $4.99, and that bottle produces 12 liters of cola (or around 33 cans.) That’s about $0.15 per can, compared to the average $1.00 to $1.50 for PepsiCo, Inc. (NYSE:PEP) or Coca-Cola products that have similar flavors, but are tagged with a well-known brand image. If one makes an initial investment of $100-$200 for the SodaStream machine, one will save money in the long run by making his own soda at home.
Customer response
In a survey conducted by the company, it was found that unaided brand awareness for Sodastream International Ltd (NASDAQ:SODA) increased from 25% to 38% since last July. More than 70% of the consumers surveyed are still using their SodaStream machines after one year and 80% of the users are using it at least once per week. The numbers are clear indicators that users are sticking with the product once it’s purchased.
The Wall Street perspective
Now let’s talk about numbers. Since the beginning of 2013, SodaStream’s stock has increased around 21.81% to reach $53.11 per share as of May 8. The company has shown a stellar performance with an 81% increase in stock value since May 9, 2012, whereas in the same time frame Pepsi and Coca-Cola have only increased by a little over 25% and 10%, respectively.
(Source: Google Finance, May 8, 2013)
Earnings analysis
Sodastream International Ltd (NASDAQ:SODA) released its quarterly earnings report on May 8. The company showed a rattling performance in terms of earnings-per-share increases and revenue which were the result of increased brand awareness and increasing marketing activities such as a Super Bowl ad campaign.
Total revenue increased 33.9% to $117.6 million, up from $87.9 million in the first quarter 2012. Western Europe contributed the largest share of the revenue increase with revenue increasing by 45% despite the concerns of recession; this was followed by America at 41%. The US is the blood-line of the company, where household penetration and consumer usage continued as evidenced by an 89% increase in revenue in America only. The company expects further growth as it approaches the summer season.
The company is also growing in mature markets such as Germany as well as in new markets like France. Sodastream International Ltd (NASDAQ:SODA) plans go bullish about the long-term opportunities in Italy as it’s in active discussions to resolve the distribution problem that is prevalent there. The only region in which it saw a decrease in revenue was Asia-Pacific. Strong gains in Australia and Korea were offset by problems in Japan where the company faced distribution permit problems. The company still expects full-year 2013 revenue to rise 27% over its 2012 revenue of $436.3 million.
In comparison, Coca-Cola’s 3% growth in America shows the saturation level of the market. Developing economies such as Thailand and India, along with mature markets like Latin America, showed the company’s highest growth percentages. Currency devaluation has affected the revenue figures of both Coca-Cola and Pepsi, as each saw just a 1% growth.
Sodastream International Ltd (NASDAQ:SODA)’s homemade soda machines require CO2 tanks to convert water into soda water. Like propane, CO2 tanks need to be refilled—and close to 40% of the company’s revenue comes from refill sales. If customers don’t continuously refill their tanks, overall sales could suffer along with their share price. The gas exchange has become less of a problem for US in the last quarter, however. “Consistency” is the key word here as Soda Stream has continuously meets the expectations of its stakeholders for the past few years, as implied by the company’s increasing earnings-per-share figures. In a short time span it has been able to match up with the giants of the highly concentrated beverage industry.
Distribution and marketing
Soda Stream’s products are now available at more than 60,000 retail stores in 45 countries around the world, including 15,000 retail stores in the United States. The company looks to further develop its presence in the retail network in the remainder of the year by expanding its association with Wal-Mart Stores, Inc. (NYSE:WMT) and plans to launch campaigns on both QVC and the Home Shopping Network as well. The recent partnership with Samsung to incorporate carbonation technology into high-end refrigerators could also help to drive growth for consumers who don’t want a separate appliance in their kitchens. Samsung has already launched its new refrigerators at Best Buy Co., Inc. (NYSE:BBY) and will widen its launch in coming days. This will allow SodaStream to extend its shelf space in a country where almost 70% of the market is occupied by Coca-Cola and Pepsi.
Unique and creative marketing will be guiding the company’s revenues in the current year, including having celebrities talk about their passion for the product and partnering with companies like Kraft Foods Group Inc (NASDAQ:KRFT). Strong sales were seen during the Super Bowl and the company intends to create further awareness during the holiday season. Competing with this, Coca-Cola has adopted a worldwide “Crazy for Good” campaign as well as promotions centred on “Coke with Meals.”
Parting thoughts
Sodastream International Ltd (NASDAQ:SODA) is looking at the long run and aims to replace the drinkers of Coca-Cola and Pepsi with its soda brands. It looks forward to selling more soda machines even though the product has less gross margin than the company’s competitors. Nothing can stop it from penetrating a once-impenetrable market and set its stock soaring high.
The simple carbonation technology, natural soda, two-thirds fewer calories and an extensive marketing campaign offer an intriguing opportunity for growth that could very well disrupt the soda industry. This is a game changing company that is here to stay!
The article How Much Fizz Is There in SodaStream? originally appeared on Fool.com and is written by Rahul Chattaraj.
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