Sodastream International Ltd (SODA): The Bearish Case for This Beverage Company

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Heavy Hitting Competition

It was not that long ago that Richard Branson, the founder of Virgin Group, drove a tank over Coca-Cola cans in Times Square and took aim at its sign celebrating the launch of Virgin Cola in the US. The Coca-Cola Company (NYSE:KO) came out of that little skirmish victorious, though, as Virgin Cola is no more.
Even-though Sodastream is not exactly a copy of Coca-Cola or PepsiCo, Inc. (NYSE:PEP) the same way Virgin Cola was, going against established stalwart brands such as Coca-Cola and Pepsi will not be a walk in the park. Coca-Cola has recently been rolling out its Free Style Soda Machines across many establishments in the US since 2009 and there is speculation that Coca Cola (NYSE:KO) may sell a Free Style Machine directly to consumers in the future which would put in direct competition with Sodastream. Moreover, a recent Coca Cola marketing campaign featured Coca Cola selling bottles made entirely out of ice at a beach! The bottles were 60% more expensive, but sold at a faster rate. The bottles are eco-friendly as they melt and leave behind no waste; this makes the environmental selling point of Sodastream moot.
DIY carbonaters
Sodastream International Ltd (NASDAQ:SODA) makes a lot of money on refilling empty CO2 carbonators. CO2 refills may bolster up to 90% margins for Sodastream. The proprietary valve on Sodastream carbonators insures that the canisters cannot be filled any other way. Some folks aren’t thrilled by the fact that they have to pay $15 for 60 liters of CO2 and there have been articles and videos around the web which show devised ways to get around the proprietary valve and to refill the gas canister the Do It Yourself (DIY) way. If this trend increases it may hurt the company’s top and bottom line going forward.

Geo-political volatility

Sodastream International Ltd (NASDAQ:SODA) is headquartered in Israel and has a manufacturing plant in the West Bank. This puts the company’s stock price at the mercy of political events taking part in the Middle East. There is a possibility, although slim, that violence in Syria could escalate even further and spill over into neighboring countries creating a greater war. Another concern would be a US or Israeli strike on nuclear sites in Iran. Iran is likely to retaliate against Israel and if that happens and the stock price and even company operations could suffer as a result.

Conclusion

In these two articles we performed a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of Sodastream; a company who is disrupting the relatively stable beverage industry. I presented you with both sides of the story.

I will conclude with my own opinion. I believe that Sodastream is not a fad and that the razor/blade business model for the company will allow investors to use consumable sales as an indicator of how well the company is doing even if soda-maker sales slowdown.

I also believe that Coca-Cola and Pepsico will not be able to stop the growth of Sodastream as both companies are tied to their business model and infrastructure that they have built up for the last century.

Mohammed Shaaban 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. Mohammed is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article The Bearish Case for This Beverage Company originally appeared on Fool.com and is written by Mohammed Shaaban.

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