SodaStream International chief executive officer Daniel Birnbaum says he has an answer to the share slump that’s keeping him awake at night: sparkling water.
The company’s shares have tumbled 57 per cent this year as demand for its at-home beverage maker has stalled. With a recent Gallup poll showing Americans souring on sugared drinks, Birnbaum is shifting the company’s strategy from touting SodaStream as an environmentally friendly alternative to billions of bottles of cola, to focus on another virtue, health.
“We realized that there is a major transformation going on in the beverage industry in America, and it’s that Americans don’t want to drink soda anymore,” Birnbaum said in an interview at the Tel Aviv Stock Exchange. “What they really want to drink is water. Our product is already licensed to make sparkling water.”
Analysts and investors aren’t persuaded. Three of 15 analysts tracked by Bloomberg recommend buying the stock. Eleven recommend holding and one recommends selling. Supporters and critics both say the company needs to improve its marketing and distribution.
“The company’s growth is stuck,” said Idan Azoulay, chief investment manager at Tel Aviv-based Epsilon Investment House, which decided not to invest after analysing SodaStream shares a few months ago. “It’s just not a very appealing investment for us right now.”
SodaStream gained 1.2 per cent to $21.20 at the close in New York yesterday.
Sergey Vastchenok, an analyst at Oppenheimer & Co. in Tel Aviv, which has a market perform rating on the stock, says the company’s message isn’t clear to most investors.
“Every time a company talks about turning a business around by completely changing what it’s doing, it’s a tough buy for investors,” Vastchenok said. “Just a minute ago the company was upbeat about the soda market. So now they’re moving into a new field? It makes investors a bit confused.”
SodaStream sought to revolutionize the beverage world with counter-top machines that promised convenience and environmentally sound consumption. Under Birnbaum, sales nearly tripled from 2008 through 2013, and high-profile ads, including one starring Scarlett Johansson, boosted awareness among American consumers.
As the company’s sales grew, operations became less efficient, cutting into profits, according to Birnbaum. Investor ardour cooled after a lackluster 2013 holiday season caused SodaStream to miss annual earnings estimates. Margins have also been squeezed by discounts given to move a backlog.
The company began facing new competition, too. In May, Coca-Cola increased its stake in Keurig Green Mountain, which is developing a product similar to SodaStream’s, to 16 per cent. The stock took a dive after the company missed its third-quarter earnings forecast.
Bloomberg News, edited by Hospitality Ireland