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

Sodastream has also started to use more conventional media to get its message across. Sodastream aired its first Super Bowl ad this year; 200 million viewers in the US had the chance to hear about Sodastream. For many this was the first time that they had heard about the company or its products. Initially the company wanted to air an ad that depicted Coca-Cola and PepsiCo, Inc. (NYSE:PEP) in a negative light and when that ad was refused, the company showed a backup ad during the Superbowl, but  posted the original ad on its Youtube channel where it has received 4.9 millions of views up until now for free.

Sodastream International Ltd (NASDAQ:SODA)’s soda-machines by their nature inspire a certain fascination. I noticed that they immediately capture peoples’ attention when they catch a glimpse of a Sodastream soda-maker for the first time.

Lots of people also go on YouTube once they have bought their Sodastreams and start broadcasting to the world what this new gizmo is and how it works. This makes the word of mouth spread faster and makes advertising  and selling the product a whole lot easier.

Sodastream is not some start-up that suddenly emerged from nowhere, even if the company just recently expanded into the US. Sodastream has been operating in Europe for quite some time now and has demonstrated staying power in many countries. Its most developed market is Sweden where it has a %24 penetration rate of Swedish households.

Sodastream International Ltd (NASDAQ:SODA)’s business model involves the sale of soda-makers and then the sale of CO2 refills, carbonators, syrups, and  re-usable bottles. Thus when one purchases a Sodastream machine and keeps on using it, that person will be a recurring customer of Sodastream  and should provide the company with a recurring revenue stream. Consumables also happen to have higher margins than the soda-makers themselves so this makes margin expansion a possibility.

While Sodastream is heavily associated with making your own sodas at home, that’s not the whole story. Not everyone who purchases a Sodastream soda-maker at home is trying to make their own versions of The Coca-Cola Company (NYSE:KO). In fact there are heavy users of Sodastream machines who don’t use it to make soda at all. Instead they use it to prepare sparkling water and other beverages.

Sodastream is also creating new partnerships with different beverage companies such as Ocean Spray, famous for its cranberry juice, to diversify what its soda-makers can be used for. This is important because soda consumption has been declining in the US for the last several years. The average American consumed 44 gallons of soda in 2012 down 17% from the peak of 54 gallons in 1998.

Currently Sodastream is only in 1% of US households. This isn’t due to Sodastream being unappreciated in the US of A, but due to the fact that the US is a new market for Sodastream as the company started operating in the US a mere three years ago.

It stands to reason that if Sodastream has an average penetration rate of 8% of in most European markets and a penetration rate of 24% in Sweden, then theoretically in due time it can make it in a higher percentage of households in the US market which happens to be the world’s largest and most lucrative beverage market.