Here’s What SodaStream’s SWOT Analysis Revealed
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Before investing in a company, it’s a good idea to get a sense of its overall picture. A great way to accomplish this is with a SWOT analysis. It examines a company’s strengths, weaknesses, opportunities, and threats in a manner that makes it easy to gain perspective. Once you’ve considered these factors, it makes it easier to determine how the growth story factors into the equation.
Let’s examine SodaStream International (NASDAQ: SODA) with a SWOT analysis to better understand the big picture.
- At-home pop leader. Founded in 1903, SodaStream has been selling at-home carbonation machines based on a tried and true technology. From machines, to CO2, to syrups, they sell the entire experience.
- Razor and blade model. As carbonation machines are purchased, more demand is created for higher margin CO2 refills and syrups.
- Big flavor portfolio. SodaStream offers over one hundred different flavors of syrup, including flavors from Crystal Light and Country Time.
- Strong revenue growth. Over the last five years, revenue has grown on average 28%.
- Predictable profit margins. In the last five years, the gross profit margin has remained stable in the 53-55% range.
- Cost effective. Excluding CO2 costs, making cola at home costs the equivalent of $0.15 per can.
- Low environmental impact. Adopting a Sodastream means fewer bottles and transportation emissions. The only non-reusable item is the syrup container, which produces the same amount of soda as 33 cans.
- Large international presence. SodaStream is sold in over 42 countries, a number that is expected to grow in the future.
- EU concentration. More than 52% of SodaStream’s sales come from within the EU. All things considered, they managed to increase year over year sales by 25% in the heart of the crisis region.
- CO2 exchanges are a hassle. Exchanging CO2 cylinders isn’t as awesome as making an Italian soda in the comfort of your home. Currently, there are two options for exchanges. The first involves going to a local retailer that has the capacity to do so. You can use this map locator for specifics. If you live in proximity to one, the experience is similar to buying more beverages from the store. But if you live too far from an exchange location, you’ll have to use a return mailer. This entails packing a provided box and bringing it to a UPS drop ship location. I wouldn’t call this a bubbly experience.
- Spare CO2 cylinders aren’t cheap. At $30 bucks a pop, you’ll be thinking twice before stocking up on spare supplies. But once you do, refills cost the same $15 that your original cylinder cost.
- Novelty idea. Unless you’re a serious soda drinker, chances are low you’ll be taking the SodaStream seriously, or buying one anytime soon.
- Syrups not as tasty. Aside from Crystal Light and Country Time, the majority of syrups available are made by SodaStream. That means that cola you’re drinking won’t exactly taste like a Coca-Cola (NYSE: KO). For the purist, this will certainly disappoint.
- Untapped demand. SodaStream’s market share pales in comparison to the $264 billion carbonated beverage industry. If they can capture a few percentage points of this market by selling people on the idea of making soda at home, the opportunity is game changing. From this perspective, SodaStream is only in the first inning.
- Further expansion. SodaStream is rapidly expanding their reach into more countries with large markets. Investors should expect more world dominating plans in the coming years.
- Big brand adoption. Dr. Pepper Snapple (NYSE: DPS) recently announced a deal with Green Mountain Coffee (NASDAQ: GMCR) to offer their line of Snapple teas in the K-cup form. It wouldn’t be out of the question for the house of Pepper-Snapple to offer a few of their sodas for the SodaStream. Like fellow Fool Rick Aristotle Munarriz, I agree that this matchup makes sense, and would improve the overall prospects for SodaSteam.
- New product lines. Your countertop isn’t the only place SodaStream is aiming. They are currently designing an under-the-sink dispenser, a filtered soda maker, as well as an on the go single serve soda maker. To boot, they’ve teamed up with third-party brands to launch “SodaStream Inside,” in which they produce a soda maker under a different brand name. All of this leads to more soda dispensers, and more importantly, increased demand for syrups and CO2.
- Effective marketing. If SodaStream can improve the marketing message that their product is more than just a novelty, it would prime more sales. This is especially important in the lucrative US soda-guzzling market, where they command a less than 1% market share.
- Big boys get involved. This is currently unlikely because it would disrupt their own businesses, but Coca-Cola or PepsiCo (NYSE: PEP) could decide to get involved with home soda making. For these players to enter, it would mean that the concept took off and hurt their businesses along the way. But it would also mean SodaStream’s business grew dramatically, and that tends to handsomely reward investors.
- Green Mountain Coffee expands. Currently, coffee and tea are the main interests of Green Mountain, but it’s not entirely out of the question they could become envious of SodaStream’s success. If SodaStream is in fact on to something, it seems that soda-making would be a natural expansion for Green Mountain.
- Middle East. SodaStream is headquartered in the Israel, which means that the threat of war is greater than in less volatile regions. Any outbreak could potentially hurt their operations.
- Product proves to be a fad. This is perhaps their biggest fear, especially in the US, which is the world’s largest carbonated beverage drinking market.
- More competition in blade model. Some of SodaStream’s patents will be expiring in the coming years, which invites the idea of third-party manufacturers creating cheaper accessories or alternatives to SodaStream’s product.
- Anticompetitive behavior. Their business currently prohibits refilling CO2 from unauthorized third parties because it’s a crucial element to their long-term success. However, this approach has come under scrutiny in the past. The highest German court ruled that this practice violated both EU and German competition law. It has forced them to allow for third parties to exchange and refill SodaStream CO2 cylinders in Germany. Be watchful of this precedent in other potential anticompetitive cases.
The purpose of conducting a SWOT analysis is to gain perspective of a potential investment. In the case of SodaStream, there is a significant opportunity for this company to grow into a multi-billion dollar powerhouse. But before that happens, investors are waiting to see how the company fares in the US market in the coming years. Without question, SodaStream is a small cap company with big time aspirations. Provided they can captivate a large enough audience and mitigate their threats, their best days have yet to come.
Dive In, Investors
SodaStream is blazing as a consumer-facing growth stock -- and it's just the kind of stock that legendary investor Peter Lynch used to single out before his peers caught on. Take a look at our analysts' premium report that will pique your interest.
TopDownTrends has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters and short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters. Motley Fool newsletter services recommend Green Mountain Coffee Roasters, The Coca-Cola Company, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.