If you had invested $10,000 in energy-drink company Celsius Holdings (CELH -0.50%) five years ago, you'd have nearly $200,000 today. And those incredible returns resulted from mind-blowing growth in the business.
In 2018, Celsius generated revenue of $52.6 million. In 2022, the company generated revenue of $653.6 million -- up 12 times during that short time period. I don't necessarily believe it can grow that fast over the next five years. But you may be surprised with just how much more runway this promising company potentially has.
How big is Celsius' opportunity?
Celsius intends to counterposition itself in the crowded energy drink market by having a healthier perception among consumers. Its drinks are low-calorie to begin with by not using high-fructose corn syrup. And they are "themogenic" -- they help consumers burn calories even when resting.
If you're looking for a company to compare with Celsius, consider Monster Beverage (MNST -2.17%). Monster is a far more mature energy-drink company, and two things stand out immediately. First, its trailing-12-month revenue is nearly 10 times larger than that of Celsius. Second, its gross-profit margin is substantially better as well.
CELH Revenue (TTM) data by YCharts
From the perspective of Celsius' management, it's been growing by increasing the size of the overall energy-drink market -- not by taking share away from Monster and other competitors. And the data supports this claim. Monster's revenue is up about 76% over the past five years, so clearly it hasn't suffered with Celsius' remarkable rise.
In fairness, Celsius undoubtedly benefited from the downfall of rival Bang Energy. A series of lawsuits and fallout with distribution partner PepsiCo caused Bang's parent company to file for Chapter 11 bankruptcy protection in October.
However, third-party research still points to a prevalent growth trend in the energy-drink space for the foreseeable future. Grand View Research believes the market will nearly reach $178 billion by 2030, compared with $92 billion in 2022. Allied Market Research says the market will only be $108 billion by 2031. But regardless of the exact size of the market, researchers agree it's growing at a strong pace and will be very big.
Considering Celsius' revenue is still under $1 billion, the company has a remarkable runway for growth for the coming decade. And there's opportunity to improve its profitability like Monster, which would grow the bottom line at a faster pace than the top line.
Celsius' five-year potential
Celsius' management doesn't give concrete revenue guidance. But growth doesn't appear to be hitting a wall. In fact, it may have just received a catalyst. When the partnership between Bang and Pepsi fell apart, Pepsi became Celsius' new distribution partner. Officially it only started in October. But management already provided sales data showing a 136% year-over-year jump in sales during the first four weeks of 2023.
For perspective, Celsius' revenue was up 71% year over year in the fourth quarter of 2022. In other words, it appears that the switch to Pepsi's distribution network may have reaccelerated its growth. So perhaps this partnership can help sustain revenue growth for Celsius. As management said in the UBS Global Consumer and Retail Conference, the Pepsi partnership is allowing it to expand into channels that it didn't use to have access to with its old distribution network.
And it's not just about growth in the U.S., where Celsius derived 94% of its revenue in 2022. Pepsi can also help Celsius grow internationally. For perspective, 37% of Monster's net sales in 2022 -- over $2 billion -- came from international customers. Celsius generated $36 million in international revenue in 2022, but that area of its business will probably increase exponentially over the next five years.
As for profitability, Celsius' gross margin may not improve right away. Management has alluded to margin struggles related to growth. For example, there have been instances where strong consumer demand in one region necessitated sourcing its products from out-of-region facilities -- inefficient, but it needs to be done for now while scaling the business at this pace.
Celsius did have a net loss of $187 million in 2022. But it also had a one-time charge of $194 million from cancelling its distribution agreements in favor of one with Pepsi. Aligning itself with one of the biggest brands in the world was the right move, and the company was otherwise profitable last year.
In conclusion, Celsius is one of the world's fastest-growing consumer brands, and growth should be sustained over the next five years as Pepsi helps it scale to the next level. Profitability could also improve as management works through issues related to scaling the business. And if these things happen, I believe it's reasonable to expect Celsius stock to outperform the S&P 500 over the next five years.
