In Lost in Translation, Scarlett Johansson plays an American newlywed who has followed her husband to Tokyo while he photographs a Japanese rock band. She meets Bill Murray, who's playing a slightly sadder version of Bill Murray. The two wander through Tokyo, building a strong personal relationship even as their connection to the outside world remains loose and disconnected. SodaStream (NASDAQ:SODA) is apparently the new Bill Murray.
The carbonator announced a new partnership with Johansson, setting her up as the company's first brand ambassador. (It makes you wonder if Michael Jordan ever thought of himself as a brand ambassador for Nike -- I imagine not.) Days after the announcement, SodaStream's stock fell more than 25% when the company announced an update to its fiscal year results. It feels very much like SodaStream has wandered off into the night in a land it doesn't understand, staring at Johansson's face as the rest of the world moves on to new things.
SodaStream's 2013 update
At the end of November, SodaStream was looking for net revenue of around $54 million. In January, that expectation dropped to $41.5 million -- 95% of last year's income. Johansson doesn't seem to care. She's already shown up all over the online store and in an infomercial, of sorts. Her official role is to help get the SodaStream message across, something the company has made a bit of a reach for by tying Johansson's self-empowerment outlook to SodaStream's vision of "empowering people with easy-to-use, fun ways to enjoy better-for-you, better-for-the-environment bubbly beverages."
After the update, SodaStream's stock tanked, and it's now down 25% on the year. Yesterday, Barclays piled on, cutting the stock's price target from $100 per share to $55. Ouch.
The shortfall came mainly from the company's holiday season, with management citing sales, product costs, and currency exchange rates as drags on the income statement. SodaStream argues that the future is still bright -- just not right away.
SodaStream's 2014 in a nutshell -- or bottle, I guess
Margins will continue to be pressured in the first half of 2014, according to the company's recent investor presentation. That's going to ease, though, as the year goes on. Then, SodaStream is going to be back to the races. The biggest key to the company's future success lies in the maturing of markets.
Management compared the Swiss market to the American market, arguing that the Swiss market is more mature. There, base units account for just 18% of total sales, while consumables make up the rest. That's pushing margins up in Switzerland, where operating margin is above 25%. In the U.S., on the other hand, consumables only make up 54% of total sales, and operating margin is a mere 5%.
This year, SodaStream needs to get America back on track if it wants to keep it together. Sales in the Americas account for more than a third of total sales, so any margin pressure will be reflected across the whole business. To help its image, SodaStream is going to make a Super Bowl appearance, so be on the lookout for that.
Better options are out there
While SodaStream has been lumped in with growth stocks for some time now, it just isn't growing. In Lost in Translation, Murray ends up with the wrong woman, because it seems like the right thing to do. That's a short-term investment. To get beyond the ups and downs of SodaStream, consider reaching out to companies with stronger brands. SodaStream has said it wants to "normalize" the brand, making it a household name. If that happens, I'll reevaluate the company's strength. For now, though, I'm happy to leave Scarlett at the bar with Bill.
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Andrew Marder owns shares of Barclays. The Motley Fool recommends SodaStream. The Motley Fool owns shares of 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.