The competitors
The company’s leading competitors in the U.S are The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP). These companies haven’t had as good of a quarter as SodaStream has: The Coca-Cola Company (NYSE:KO)’s revenue slipped in the first quarter of 2013 by 1%, while PepsiCo, Inc. (NYSE:PEP)’s revenue grew by 1.2%.
Moreover, Coca-Cola and PepsiCo’s operating profitability slightly declined in Q1 2013 to reach 22% and 13.2%, respectively. In the U.S, these companies haven’t performed well in the first quarter: Coca Cola (NYSE:KO)’s unit case volume slightly rose by 1%; revenue slipped by 1% and operating income sharply fell by 24%.
PepsiCo America beverages volume fell by 5%, while the company’s operating profit grew by 4% due to “favorable effective net pricing and productivity gains.” Nonetheless, comparing these two well-established companies to a growing company such as SodaStream is unfair. Moreover, for now, SodaStream has yet to put much of a dent in the revenue of these companies.
At the same time, I can’t imagine these companies will stand idly by while SodaStream increases its market share in the U.S. I guess it eventually means one of two scenarios: one of the companies or other big soft- drink company will try to buy SodaStream; or these companies will bring a full-on attack at SodaStream’s core business by coming up with a similar product. These two scenarios will lead to very different outcomes for SodaStream and investors should be taken into account.
The main drawbacks that SodaStream may be facing are:
- The company is putting all its eggs in one basket with its soda maker. This could put SodaStream at risk if its product and service faces strong competition from the big companies. In comparison, Coca-Cola and PepsiCo have a much more diversified line of products.
- SodaStream’s growth was mainly in the U.S in the first quarter of 2013. The Americas accounted for 41% of its revenue. In the same quarter of 2012, it was 29%. This ratio isn’t high compared with other beverage companies: Coca-Cola’s revenue from North America account for 44% of its total revenue; PepsiCo’s revenue from the region were 41% of total revenue. But if SodaStream’s growth in the U.S will persist, the America’s share out of revenue could become much higher; this could mean the company will be less diversified in terms of geography.
The Foolish bottom line
I think SodaStream is a great company with lots of room to grow; it’s financially stable, and it has a great business model that will serve the company well. On the other hand, I’m a bit worried about its diversification. Finally, the company is currently outperforming the big soft-drink companies; however, once it reaches a high enough volume, it might need to face stronger competition from the big boys that could impede its progress.
The article Will SodaStream Continue Fizzing? originally appeared on Fool.com.
Lior Cohen 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. Lior 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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