Celsius' (CELH 1.47%) stock closed at its all-time high of $96.11 on March 13, 2024. That represented a stunning 5,310% gain from just four years earlier. At the time, the bulls were dazzled by the energy drink maker's rapid growth, its domestic distribution partnership with PepsiCo, and its international expansion plans.
However, Celsius' stock has pulled back nearly 75% since then. The bulls retreated as its growth cooled off, its domestic competitors gained ground, and PepsiCo reduced its inventories. So could Celsius warm up again over the next 12 months?
Image source: Getty Images.
How Celsius carved out a niche in a saturated market
Celsius sells sugar-free energy drinks made from natural ingredients like green tea and ginger. That health-conscious approach helped it carve out a niche in the energy drink market dominated by Red Bull and Monster.
After Celsius went public in 2006, it spent too much money on costly marketing campaigns and the expansion of its direct-to-retail (DTR) and direct-store-delivery (DSD) distribution networks. Those high costs overwhelmed its unimpressive sales, and it was eventually delisted from the Nasdaq in 2010.
But after Celsius was booted to the over-the-counter (OTC) markets, the company replaced its entire board and C-suite, rebranded and repackaged its drinks, and ended its unprofitable retail relationships to boost its gross margins. It also targeted health-oriented businesses like gyms and health-supplement stores while placing its drinks in the health and beauty aisles of traditional supermarkets and superstores.
Those turnaround efforts paved the way for Celsius' return to the Nasdaq in 2017. From 2017 to 2023, the company's revenue grew at a compound annual growth rate (CAGR) of 82% from $36 million to $1.32 billion. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from negative $5 million to positive $296 million.
What happened to Celsius over the past few years?
Celsius' revenue more than doubled in 2021, 2022, and 2023 as it grew its market share, partnered with more retailers, and switched to PepsiCo as its domestic distribution partner in 2022. Its gross and adjusted EBITDA margins also soared.
|
Metric |
2020 |
2021 |
2022 |
2023 |
9M 2024 |
|---|---|---|---|---|---|
|
Revenue Growth (YOY) |
74% |
140% |
108% |
102% |
5% |
|
Gross Margin |
46.6% |
40.8% |
41.4% |
48% |
50.2% |
|
Adjusted EBITDA Margin |
12.2% |
10.7% |
10.9% |
22.4% |
18.8% |
Data source: Celsius Holdings. YOY=year over year.
But in the first nine months of 2024, its growth slowed to a crawl as the company faced two major challenges. First, PepsiCo reduced its inventories of Celsius drinks after lapping the initial ramp up period of its domestic distribution deal.
Second, market share gains are slowing. Celsius ended the third quarter with a domestic retail market share of 11.6%, but that only represented a 10 basis point increase from a year earlier.
Celsius could be struggling to grow as health-conscious competitors like C4, ZOA, and Monster's Bang carve up the fragmented market. That abrupt slowdown suggests Celsius' business is maturing even though it expects to keep growing its market share in the U.S. as it expands into more overseas markets.
Last year, the company signed a distribution deal with the Japanese beverage giant Suntory to peddle Celsius drinks in the U.K., Ireland, and Canada, and Celsius is selling more drinks on Amazon, which accounted for 10% of its sales in its latest quarter. Celsius also recently acquired the local contract manufacturer Big Beverages to accelerate domestic production.
What will happen to Celsius in 2025?
For 2024, analysts expect Celsius' revenue to rise 3% as its inventory optimization efforts and its incentives to PepsiCo reduce its adjusted EBITDA by about 20%. For 2025, they expect its revenue and adjusted EBITDA to grow 15% and 40%, respectively, as Celsius ramps up its expansion and laps those higher expenses.
With an enterprise value of $5.16 billion, Celsius trades at just 16 times this year's adjusted EBITDA forecast. That makes it cheap relative to its growth potential, even if its days of triple-digit revenue growth are over. If the company continues to expand market share and growth accelerates again, the stock should bounce back over the next 12 months. However, I don't think it will come close to revisiting its all-time highs or be revalued as a hypergrowth stock in this wobbly market.
