Sodastream International Ltd (NASDAQ:SODA)’s story has always been appealing. But the fact that the stock avoided most of the volatility of the last few days is clear indication of the strong positive sentiment surrounding the company.
The stock had seen some fast action in the first part of the month as the Israeli press reported speculations about possible buyouts from both The Coca-Cola Company (NYSE:KO) and PepsiCo. However, the former has refused to comment while the latter has denied the rumors.
Irrespective of whether a buyout happens or does not, Sodastream International Ltd (NASDAQ:SODA) has fantastic prospects, which should be very attractive to long-term investors.
Compelling growth numbers
Between 2009 and 2012, Sodastream International Ltd (NASDAQ:SODA) has more than tripled its revenue, growing at a CAGR of 47%, while net income surged at a CAGR of 71%.
During this period, the company has expanded its global reach to 45 countries and some 60,000 retail stores across the globe. It has made the US its single largest market, with SodaStream products sold in over 15,000 stores.
It has also struck co-branding deals with reputable companies for bringing new flavors into the market. These include alliances with Ocean Spray, EBoost, Kraft, Breville, and Campbell’s. Sodastream International Ltd (NASDAQ:SODA) offers around 160 flavor syrups.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), which makes single serve coffee brewers and has a similar business model to SodaStream, has already shown the benefits of strategic partnerships. It has alliances with big companies like Starbucks Corporation (NASDAQ:SBUX) and Unilever plc (ADR) (NYSE:UL) for selling the former’s coffee flavors and the latter’s tea flavors for its K-cups and Vue-packs.
But this is just the icing on the cake. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has similar agreements with 30 more brands. Analysts are expecting 12.8% revenue growth this year and another 12% next year.
Biggest growth driver
But for Sodastream International Ltd (NASDAQ:SODA) (and also Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)) maximum growth comes from its business model, which replicates that followed by Gillette and the likes. This razor/razor blade model implies that once the company sells a soda machine, it automatically triggers sales of CO2 refills and flavors.
This is corroborated by the fact that the growth rate of flavor syrups has outpaced that of soda machines. Between 2009 and 2012, unit sales of soda machines have grown at a CAGR of 49% while that of flavor syrups have grown at a CAGR of 57%.
This phenomenon will get more pronounced as markets mature. Between 2011 and 2012, soda machine sales increased by 29% while flavor sales grew 49%. And it helps that margins on consumables are much higher than that in base soda machines.
Now, SodaStream has announced its big target of reaching $1 billion in revenue by 2016. Given that it generated $436 million last year, the objective at first glance may look a little hard to achieve. But if we look at the underlying assumptions we can safely conclude that the company will get there.
Sodastream International Ltd (NASDAQ:SODA) has factored in a CAGR of 23%, which looks very achievable given that the company is still in its early stages of growth and yet to tap big opportunities. The push will come from more penetration and brand awareness across the globe. The two recent partnerships with Samsung and Whirlpool Corporation (NYSE:WHR) are also prospective.
SodaStream aims to have a 10% household penetration in all its operating markets. Although it has double-digit rates in some countries like Sweden, Finland, the Czech Republic, and Israel, its average penetration rate is still 2%. Even in its largest market, the US, it has a presence in just 1% of households.
According to Euromonitor, in 2012 about 251 billion liters of carbonated soft drinks and 31 billion liters of sparkling water were consumed. In these two categories SodaStream’s share of the market was just 0.2% and 2% respectively. This leaves vast territories to be explored and developed.