Even though Sodastream International Ltd (NASDAQ:SODA) operates in the same industry as PepsiCo and The Coca-Cola Company (NYSE:KO), it’s quite different as it sells soda makers, CO2 canisters, syrups and operates under a “razor and blades” model. Not only are these soda makers eco-friendly, the company also claims its sodas are more nutritious.
Both Pepsi and Coca Cola have been leaders in this industry for decades. Their strong grip on the market, first mover advantage, and brand image contribute to their strong market share. While other soda manufacturers might not be able to break the hold of Pepsi and Coca Cola, Sodastream International Ltd (NASDAQ:SODA) could pose a long-term threat.
Valuation
With a market cap of around $1.45 billion, SodaStream is currently trading around $70. SodaStream has showed impressive growth and the stock has jumped over 75% in a year. The company’s latest earnings report showed revenue of over $117 million, with a profit of over $63 million.
In terms of growth, Sodastream International Ltd (NASDAQ:SODA)’s American revenue rose by nearly 90% vs. about 17% in Western Europe. The revenue increase from the America’s doesn’t mean SodaStream is finally going forward in capturing a good chunk of the largest soda market in the world. But it does indicate the company and its products may not be a fad.
Pepsi
PepsiCo, Inc. (NYSE:PEP), on the other hand, is currently trading between $78 to $79 with a market cap of over $122 billion. It first quarter earnings showed relatively weaker growth as revenues came out at $12.5 billion.
Factors, including re-franchising in China, did slow Pepsi’s revenue growth, but its snack division still managed to grow by 4%. On the other hand, the company’s beverage division in the America’s continued to decline and fell 1% year-over-year. That’s surprising because there was a time when most of the its revenue came from its beverage division.
Coke
The Coca-Cola Company (NYSE:KO), with a market cap of over $174 billion, is currently trading between $39 to $40. The stock has been relatively stable, trading in the range between $37 to $43. Coca Cola’s latest earnings report showed a decline in revenue to $11.04 billion.
Also, its operating profit in North America fell by around 24%, mainly due to restructuring and investments. Even though it was not able to beat all analyst estimates, it did have a solid year as it was able to achieve deeper penetration into newer and emerging markets.
After Sodastream International Ltd (NASDAQ:SODA)’s success, there have been a lot of rumors, including a buyout plan from PepsiCo, Inc. (NYSE:PEP). Still these rumors lack any concrete evidence and it’s possible it will remain independent for quite some time.
Strengths
Possibly, Sodastream International Ltd (NASDAQ:SODA)’s key strength is its popularity and impressive market share in the European market, particularly Sweden. If it can tighten its grip on the European market, then it will have plenty of time to methodically grow in newer, more emerging markets.
Another strength is its brand image. If you want to make soda at home, there aren’t many other options. Aside from that, the soda makers being eco friendly could be another long term advantage. More and more people are adapting to green technology.
SodaStream is known for its partnerships with some of the leading companies in the world, including Samsung. After unveiling a new appliance with Samsung, the company announced a partnership with Ocean Spray for newer flavors.
Weaknesses
Probably, the biggest weakness for the company is the flavoring of its sodas. Even though there are numerous types of syrups, critics say the sodas just don’t taste as good as those in the market. However, with partnerships like Kraft, SodaStream could soon take its flavorings to another level.
Another weakness would be the company’s type of market. Not many people would want to purchase a soda maker for their house, especially if they’re not regular drinkers. PepsiCo is able to get product into the mouths of salty snack eaters. SodaStream, on the other hand, can only people who drink soda’s regularly.
Sodastream International Ltd (NASDAQ:SODA) CO2 canisters are not available in all retail stores. While it has improved distribution, this remains a major hangup.
Ops and threats
SodaStream is still a relatively new company and, therefore, has numerous opportunities going forward. Emerging markets and BRIC nations have yet to be effectively tapped.
SodaStream will continue to move towards new and profitable partnerships. SodaStream’s recent deal with Whirlpool Corporation (NYSE:WHR) for KitchenAid soda makers shows its potential.
SodaStream will continue to face threats from the industry giants. While unlikely, if either PepsiCo or Coca Cola develop a soda making device, then that could spell trouble for Sodastream International Ltd (NASDAQ:SODA). Further, it’s possible an upstart company could develop a better device and enter that the market.
Conclusion
While SodaStream is still a new company trying to figure its way into the global soda industry, it has potential and is showing some signs of success. Its already branching out in emerging markets and is likely to gain a presence in countries where it doesn’t yet exist. SodaStream’s products are doing well in the American market and where it’s clearly picking up steam.
The article Where Does SodaStream Stand? originally appeared on Fool.com and is written by Yasir Idrees.
Yasir Idrees has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. Yasir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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