There's no doubting that Monster Beverage (MNST -0.60%) has made its presence felt in the drink industry over the last 10 years. Thanks to the Monster Energy line, the stock has gained more than 100 times its value in the last 10 years. But recently, the company has faced a number of problems, including regulatory inquiries and slowing growth. In our new premium research report, I examine Monster's business segments, break down the company's key areas to watch, and let you know where this company is headed. What follows is an excerpt on Monster's opportunities.
The opportunity
Let's take a look at the major opportunities for Monster Beverage.
Industry and company-specific growth
The competitive environment and overall industry trends are two critical areas to watch with Monster. Currently, the outlook for the energy drink market as a whole is driven by demographic trends and global market penetration. Energy drinks are most popular with young adults, who have been trading in the traditional coffee habit for drinks like Red Bull and Monster. According to surveys, 34% of 18- to 24-year-olds are regular energy drink consumers. If young audiences continue to gravitate toward energy drinks, and current consumers keep drinking the same energy drinks as they get older, the market will naturally grow. Of course, drinks like Monster are targeted at this young demographic, so consumption will likely be highest in the traditional segment of the population. Monster prides itself on eschewing traditional forms of marketing like television advertising and billboards and instead spends its marketing dollars sponsoring athletes such as motocross riders or snowboarders, as well as musicians who reflect that desired image, defining itself as a "lifestyle in a can." Based on its growth numbers, the strategy seems to have worked.
In addition to the youth demographic, Monster's other prime opportunity is in international sales. Only 20% of gross sales came from overseas in 2011, whereas 64% of all energy drinks are consumed overseas. In comparison, Coca-Cola (KO 2.14%) derives 60% of sales from foreign markets, so the potential for growth could be huge. Monster has grown its international share of sales from 12% in 2009 to 18% over just two years, increasing about 122% in that time to $301 million. If Monster's international sales matched the 64% international consumption rate, its total sales would more than double to $3.8 billion, and that's assuming no growth inside North America. Tack on continued growth in North America, and Monster's stock looks reasonably priced considering the potential future outlook.
In 2011 and the beginning of 2012, Monster expanded to a number of new countries in Europe, including Poland and Russia, and also entered Colombia. In Q2 2012, international gross sales grew 50% to $153 million, or 23% of total sales. The company has continued to expand further into Central and Eastern Europe, Asia, and South America in 2012, entering markets such as Japan, Hong Kong, and Ecuador.
Buyout candidate
Monster shares spiked as high as $83.96 in intraday trading on April 30, 2012, on rumors that Coca-Cola was going to acquire it. Those rumors turned out to be untrue, but the incident reflects the market's optimistic outlook for the fastest-growing segment of the nonalcoholic beverage market. In the future, it wouldn't be surprising to see an industry giant like Coke or PepsiCo (PEP 1.08%), both of which are always looking for the next big thing, to snatch up an upstart like Monster. Monster already uses Coke and Coke bottlers as distribution partners in many outlets.
New products
One of Monster's strengths has been its wide range of energy drinks, which come in a variety of flavors and even include healthier low-carb options. Red Bull, on the other hand, offers just two choices: regular and sugar-free. Monster released its latest line of drinks last year, known as Rehab, which mixes tea and lemonade with its energy formula and is marketed as a hangover recovery drink. Since Rehab's debut in March 2011, the company has added other varieties, featuring green tea, red tea, and orangeade, among others. Management has been impressed by the growth in Rehab thus far, and the product has received positive reviews on the Web. To compete with the growing energy-shot market, Monster also began offering energy shots under the brand name Worx.
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