Shares of Sodastream International Ltd (NASDAQ:SODA) had a volatile morning on Thursday as rumors said that PepsiCo, Inc. (NYSE:PEP) was in negotiations to buy the company for a price of $2 billion. PepsiCo´s CEO Indra Noyi has since debunked those rumors, however, SodaStream would be a great candidate for an acquisition by a bigger company, either PepsiCo, Inc. (NYSE:PEP) or The Coca-Cola Company (NYSE:KO).
A disruptive company
Sodastream International Ltd (NASDAQ:SODA) is trying to change the way we consume sodas via its innovative home beverage carbonation systems. This is no easy task at all, and the company is competing against much bigger players like Coke and Pepsi, but SodaStream has many advantages over traditional soft drinks companies.
SodaStream offers a convenient alternative for those who don´t want to carry and store many bottles of soda. This is not only about personal comfort, bottles and cans produce considerable environmental damage, and Sodastream International Ltd (NASDAQ:SODA) has been promoting the environmental benefits of its products in its marketing campaigns, targeting the environmental conscience of consumers around the world seems to be the way to go these days.
Besides, SodaStream offers much lower costs and more flexibility when it comes to flavors and calories than traditional soda alternatives. The company has been quite provocative in its marketing campaigns versus Coke and Pepsi, this has generated some controversy – including banned ads in the US and in the UK – but things have turned out quite well for SodaStream, since those banned ads produced a lot of buzz about Sodastream International Ltd (NASDAQ:SODA) as a challenger to those giant corporations.
Consumers have been embracing the product and generating big profits for SodaStream, both sales and earnings have been growing rapidly over the last years.
The company operates under the razor and blade mode, it sells the machines – the razors – for a low cost and it makes most of its profitability with the consumables – the blades. The fact that customers are effectively using the machines and buying consumables is also quite reassuring when it comes to measuring the company’s financial prospects and acceptance among customers.
Source: SodaStream investor day presentation
Even if the company has been doing amazingly well over the last years, we are barely seeing the tip of the iceberg when it comes to long-term potential. Management estimates that the company owns a market share of only 0.2% in the global carbonated soft drinks market, and it plans to reach sales above $1 billion per year by 2016. This is a big increase versus $436 million in 2012, but it sounds quite reasonable considering recent performance.