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When SodaStream International (SODA) began flailing in 2014, bears said they knew the product would flop all along, calling it a fad.
The DIY soda company had made a big push stateside for its countertop devices, but sales and profits began disappearing -- Americans who had purchased the starter kits seemed to revert to their old habit of picking up soda at the supermarket, as SodaStream was neither convenient nor cheap enough to use as a regular replacement. Household penetration slowed as it seemed consumers who were interested in SodaStream had already purchased it.
But it wasn't just SodaStream that experienced this transition. The once-hot DIY soda market attracted competitors like Primo Water and Keurig Green Mountain, but both companies have pulled the plug on their respective offerings. Many figured that SodaStream would be left for dead, but that hasn't been the case.
Now, two years and a brand revamp later, SodaStream is beginning to find some traction by pitching itself as a sparkling water company.
After its second-quarter report came out this week, the stock jumped 18%, and shares have more than doubled from a low point earlier this year after two consecutive earnings beats. In its most recent quarter, revenue increased 17%, driving a 120% increase in net income as the company built operating leverage and seemed well on its way to leaving the woes of 2014 and 2015 behind.
Importantly, revenue increased by double digits or greater in all four of its regions. The company enjoyed 44% sales growth in the Asia-Pacific region, with management saying its countertop devices have gained a foothold in Japan due to the popularity of whiskey sodas.
Looking beyond the U.S.
When the company debuted on the market in 2010, its sales pitch was predicated on growth in the U.S., which the company saw as its next big opportunity. It began reporting earnings in dollars instead of euros and focused the bulk of its marketing on penetrating the U.S. market.
Though the company has faced a setback in the U.S, it has always been an international business. Based in Israel, its largest market is Western Europe, and it remains that way today with that region contributing 62% of sales in the past quarter.
Revenue in Western Europe grew 14% during the period, led by Germany, SodaStream's biggest national market, which delivered more than 20% growth in both gas refills and sparkling water makers. The period also marked the 18th consecutive quarter of double-digit growth in Germany.
Management also said sales in Japan nearly doubled from a year ago, driven by more than 100% growth in sparkling water maker sales. With a low penetration rate in that country, SodaStream could have a long runway of growth ahead of it. France, Canada, and South Korea were also noted for driving strong growth in the quarter.
What comes next
Though SodaStream may never take over the U.S. as investors once hoped, the company hasn't given up on the world's biggest economy. U.S. sales returned to growth in the quarter with the help of an advertising campaign called Love Your Water, which highlighted the healthy benefits of a SodaStream sparkling water system. The company also targeted Keurig Kold users after that product was pulled from the market.
In a move that could broaden its consumer reach, the company is testing sales through Whole Foods and is hoping to expand early next year. U.S. sales now make up 17% of revenue.
On the earnings call, CEO Daniel Birnbaum cautioned that growth would be more modest in the second half of the year as the company is up against tougher comparisons. Revenue for the full year is projected to grow in the high-single digits with a 45% increase in net income.
SodaStream may never return to the high growth we saw in its early days as a public company, but the company has transitioned to a secular growth product in sparkling water, improved operating leverage, and shown growth across all of its markets, demonstrating staying power in the process. Profits should continue to build and lift the stock from here.
