Is This the Reason Starbucks Won't Strike a Deal With SodaStream?

Do-it-yourself beverage maker SodaStream International (NASDAQ: SODA  ) acts as effervescent as its soda concoctions these days, as continuing rumors of an impending buyout by Starbucks (NASDAQ: SBUX  )  buoy its stock off its lows. But the coffee slinger has indicated it has its own plans for the future, and they may not include the partnership that the soda maker's investors are counting on.

After reporting earnings last week that showed profits jumping 10% to $427 million, or $0.56 per share, and revenues that were up 9% to $3.87 billion, CEO Howard Schultz said Starbucks would be launching its own handcrafted carbonated beverage, called Fizzio, to 3,000 locations in the U.S., with additional debuts across Asia and Africa. Is this the big soda deal that's been rumored to break, and did the idle gossipers misconstrue what was being discussed?

Source: Starbucks.

Certainly Schultz is positioning Starbucks to be more than just a cool place to grab a cup of coffee. Beyond just food, which has proved to be especially popular as it widens its market to breakfast, lunch, and dinner, Starbucks is further broadening its appeal by extending its drinks business to include beer and wine, juice, and now soda.

A compelling case could be made (and has been) that it wants to meet your beverage needs by going beyond just its myriad corner coffee shops and grocery stores, and reaching into your kitchen as well, with an acquisition of the DIY soda appliance maker. Even the latest scuttlebutt that it's deep in discussions to take a 10% piece of SodaStream seemingly has merit, as Coca-Cola recently took a similar-sized stake in Keurig Green Mountain to introduce its own home-based branded beverage system.

Yet SodaStream's performance has underwhelmed Wall Street lately, with sales for 2013 rising by double-digit percentages to $563 million but adjusted profits coming in below $53 million, much less than the $65 million analysts anticipated. As management doesn't anticipate that 2014 will allow it to escape the "headwinds" it's already experiencing, it raises the question of whether Starbucks would want to partner with the runner-up simply for the sake of saying it also has a place in the home cold beverage market.

It's clear that Coke viewed all the participants in the niche and found SodaStream lacking. That it chose to go with the coffee maker instead suggests that it feels there is one dominant leader of DIY home appliances, and it wasn't the soda maker. I don't see Starbucks jumping on the "me, too" bandwagon when Schultz will be focusing on his company's own soda brand, and I've already expressed concern that SodaStream's controversial base of operations in the Middle East may be something Starbucks and other potential partners might want to sidestep altogether.

The latest reports say Starbucks only wants a piece of SodaStream International, and that could be a more likely scenario than an outright acquisition. Coke's stake in Keurig validates the home beverage niche, but with Fizzio set to launch this year, there may be no need for Starbucks to bother taking on an investment in an underperforming competitor at this point.

Top dividend stocks beyond Starbucks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 29, 2014, at 3:32 PM, martinitony wrote:

    "It's clear that Coke viewed all the participants in the niche and found SodaStream lacking. "

    It is not clear. Perhaps exactly the opposite is true, that SODA, for whatever reason, couldn't reach an accommodation with KO.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2934557, ~/Articles/ArticleHandler.aspx, 8/29/2015 3:09:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 17 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
SBUX $55.63 Down -0.32 -0.57%
Starbucks CAPS Rating: ****
SODA $14.91 Up +0.49 +3.40%
SodaStream CAPS Rating: **