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There's hard money to be made in soft drinks. Just ask SodaStream (Nasdaq: SODA  ) .

The company behind its namesake home carbonation system posted blowout quarterly results this morning. Revenue soared 59% to $66.3 million. Net income may have slipped slightly to $0.28 a share, but it still blew away Wall Street's targets. Analysts were expecting a profit of $0.13 a share on $55.8 million in revenue.

A couple of factors were baked into the thankfully temporary margin erosion. For starters, sales and marketing costs outran top-line growth, as SodaStream expanded aggressively outside of its Western European stronghold. The big stateside push paid off; the 238% revenue spike in the Americas was roughly 10 times greater than its sales growth in Western Europe.

The strong U.S. push helped SodaStream sell 712,000 of its manual water carbonation systems, 85% more than it did during the 2009 holiday quarter. This is welcome news for the future, but it's a margin drag for now. SodaStream's meatier markups come in its CO2 refills, replacement bottles, and soda syrup. Those repeat purchases should pick up at this point. Don't worry. We saw this happen when Green Mountain Coffee Roasters (Nasdaq: GMCR  ) started out selling a ton of its Keurig systems nearly at cost. It's the razor-and-blades model all over again, though SodaStream appears to be making money on its razors.

SodaStream's guidance calls for revenue to climb 25% this year, with earnings soaring by 40%. Earning $18 million on $266.5 million will result in margins expanding again, but analysts will have some tweaking to do on their models.

As a result of its November IPO, SodaStream now has roughly 20 million shares outstanding. The pros were targeting a 2011 profit of $1.10 a share on $249.9 million in revenue. Wall Street will need to lower its bottom-line estimates while jacking up its top-line goals.

The disparity probably explains why the shares popped 4% higher at the opening before turning negative. Mr. Market was initially elated, only to realize that 40% net income growth will mean that SodaStream earns roughly the $0.92 a share it earned in 2010 because of the IPO's dilution. It's also not ideal to see SodaStream sell fewer refillable carbonators than the 2.6 million it cleared during the third quarter.

I'll still take it.

SodaStream's shares aren't cheap by most valuation yardsticks, but this is robust growth in a moribund industry. Dr Pepper Snapple (NYSE: DPS  ) is pegged to grow revenue at a 4% annualized clip in 2011 and 2012. PepsiCo (NYSE: PEP  ) and Coca-Cola (NYSE: KO  ) have some acquisitive sizzle fizzing up this year's growth forecasts, but analysts see just 6% top-line growth at both pop stars during a more normalized 2012. Generic bottler Cott (Nasdaq: COT  ) is growing faster than the brand names, but it's still a slowpoke pitted against SodaStream.

The next few quarters will be telling for SodaStream. Are the folks that were moved by Bed Bath & Beyond's (Nasdaq: BBBY  ) displays this past quarter to make the initial investment now stocking up on more soda syrup and carbonation cylinders, or is this the next Margaritaville cocktail maker? Several years of European success tend to move SodaStream away from faddish fears, but its success as an investment rests largely on how our country's soda-addicted ways play into SodaStream's value, health, and eco-friendly propositions.

Is SodaStream the real deal or a passing craze? Share your thoughts in the comment box below.

Coca-Cola is a Motley Fool Inside Value pick. Green Mountain is a Motley Fool Rule Breakers choice. Bed Bath & Beyond is a Motley Fool Stock Advisor recommendation. Coca-Cola and PepsiCo are Motley Fool Income Investor selections. Motley Fool Alpha has opened a short position on Green Mountain. Motley Fool Options has recommended a buy puts position on Green Mountain. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola and PepsiCo. 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.

Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On March 01, 2011, at 2:24 PM, RIBBY1 wrote:

    Thank you SO much for this article! As you'll guess, I am long (a bunch) SODA. The Reuter and AP headlines have had me in tears all day - they imply such a negative quarter when, in fact, revenue AND eps hugely beat estimates! Especially the eps (33 vs 12 for goodness sakes). Hopefully more people will read this FOOL article for a more accurate telling of the 4th quarter.

  • Report this Comment On March 01, 2011, at 3:57 PM, proac1 wrote:

    Ribby1 - how can you be long? This will go by way of Ron Poppeil's pasta making machine. I can see how this may catch on in Europe because soda is much more expensive there. Here in the US, if you wait for Coke or Pepsi to go on sale at Shoprite, and pick it up at like .15 a can. I know they also sell the idea that it's green. But is that enough to warrant a high multiple? They had good sales because people bought them for gifts over the holidays since it was a neat item. But once the novelty effects wear off, you wouldn't want to pay for it even if it's 50% off at BB-beyond.

  • Report this Comment On March 01, 2011, at 5:59 PM, mvdoc11 wrote:

    If you are considering an investment in SODA, the thing to do is to buy the product, see how you like it and see whether it goes on some top shelf after 2 weeks and isn't used. Environmentalists should love this device. I read that yearly there are over 350 billion plastic soda bottles in the trash. Don't buy the stock uness you have tried the product. It will be money well spent and may help you avoid a costly mistake OR be the down payment on a terrific financial windfall.

  • Report this Comment On March 02, 2011, at 5:48 AM, hashapi wrote:

    I am in complete agreement with you, however how can The Motley Fool allow one commentator to take the negative position ( Cindy Johnson ) bailing out the shorts and then have your bullish analysis.What is the stand of The Motley Fool.

  • Report this Comment On March 02, 2011, at 5:40 PM, emphature wrote:

    I think all you need to do is go to the public forums and read the feedback:

    Merchant Product Reviews (Amazon, Williams Sonoma, etc).

    Twitter Comments (search both sodastream and soda stream)

    Facebook Comments

    Blogs (and although they can be biased, I have yet to find a negative one)

    Also, asking the shop owners, especially the smaller ones. These are professionals who count on good products lining their shelves. I've called or dropped by shops carrying this for the last 4 months and been asking about it (letting them know my intentions are to invest, not to buy the product...I've had one for a year).

    Do what I've done, and I think you'll quickly be able to determine if this is a "fad".

    One of my favorite comments I read on this was: "As an investor, I don't care if there are people who think this is a fad and want to short THE STOCK, I only care if people want to buy and use THE PRODUCT." The latter will teach the former a harsh lesson.

  • Report this Comment On March 02, 2011, at 6:15 PM, delblanco wrote:

    I've owned their product for over a year and love it. Think of this product more as a coffee machine. People love their go to drinks which are coffee and soda.

    The reasons why I love the product: takes <30 seconds to make, saves me shopping time, gas, and my back to lug cases of soda, saves me storage space, saves on recycling space, wasted deposit money and it is fun to make.

    I primarily use it for seltzer and it costs me .26 vs .74 liter. I love the savings. After one year, I figure i will spend about $75/year (3x130 carbonator exchanges) for a single guy. IF, I drank soda you could add another $165+.

    I have tried the sample package of soda packets with a friend. Some soda flavors are comparable to brand soda others are more in line with generic soda flavors. They can improve some of their flavors.

    There are other companies that make home soda but most do not compare to quality, price and convenience to SODA. They offer their product in over 30+ countries. Most other products out there are limited to a handful of countries or just local markets in the US.

    I think this stock is winner. It may not go crazy like GMCR but it will definitely have future momentum.

    It is a great product, you save money, its convenient and environmentally sound all around.

  • Report this Comment On March 02, 2011, at 11:43 PM, LQM2 wrote:

    Well I guess there is a conflict of opinion on the product, I personally think its a piece of cheap junk that has no meaningful value proposition. And in the highly unlikely event it is successful, their key patents expire in 2011, and even without making a machine KO or PEP could sell the syrup and end of story.

    Of more interest to me is the apparent lock up of 12m (of 18m) total shares until 5/2/11. That's when the insiders will try and deal the company to the fools. They'll be out in early June when we find all those pumped up holiday unit sales are not resulting in refills but gathering dust.

  • Report this Comment On March 04, 2011, at 1:47 AM, picard7080 wrote:

    Of more interest to me is the apparent lock up of 12m (of 18m) total shares until 5/2/11. That's when the insiders will try and deal the company to the fools. They'll be out in early June when we find all those pumped up holiday unit sales are not resulting in refills but gathering dust.

    exactly !! beware

    furthermore this is not exactly a razor blade model , because you dont have to bring back your blade to be refilled !!

    and a razor blade cant kill you by exploding

    I think their cost of cylinders stock is far too much , and they exagerate the refillings estimation . Worldwide the average is 1 cylinder per year refilled , not more ( Germany , Swiss , Australia , etc) you can expect a value of 2$ per share within 1 year .

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