Chris Hill: We like to look at battles at The Motley Fool. When you look ahead to 2013, what is the battle in the consumer-goods space that you're going to be watching closely?
Austin Smith: This is really interesting. There's a lot of classic headline battles in this space that people are going to be looking at -- maybe [Amazon.com], Best Buy, or the tablet battles.
I'm actually looking at one a little more obscure. I'm going to be looking at SodaStream vs. [Coca-Cola] and [PepsiCo]. That may seem interesting, because I don't think it's a battle that any of those companies recognize as a battle.
Chris: I was going to say, the classic battle there is Coke vs. Pepsi.
Chris: You've basically got them on one side.
Chris: With SodaStream aimed right at them.
Austin: Right, and the reason I'm watching this is because this is in the very, very early stages of what could be a bigger trend for SodaStream. I don't think it's actually a huge threat to Coke and Pepsi, but when I look at it, it's sort of "battle of the opportunity for investors."
Which stock is a better holding? I actually own Coke and Pepsi -- great dividends for the long run, phenomenal moats.
When you look at a company like SodaStream, it's actually training for the same earnings multiple as both Coke and Pepsi, yet it's got a less-encumbered balance sheet, it's growing revenue at about 50% a year -- and that's actually accelerating from their three-year average of 40% a year -- and their earnings are growing at an even higher rate than that because with their model comes a "razor and blade" model, so you have higher earnings growth as you go forward and higher margins as a result.
It's a battle I'm watching, because it's a really disruptive technology that I think a lot of people are actually underestimating at this point. As far as a consumer-goods investor goes, I think that SodaStream has some really great tailwinds, healthy eating being one.
We saw in the recession, a lot of consumers were trading down toward lower-priced goods, going to Dollar General, things like that. The cost per serving for SodaStream is significantly less than a Coke or Pepsi, so much so that it may actually finally be able to maybe disrupt their brand a little bit, the moat that you get with that.
People will gladly pay 15 cents more for a serving of Coke or Pepsi, but will they pay 75 cents more a serving? That's actually a pretty big chasm to cross.
I think this is a battle that a lot of investors are going to miss. I don't even think Coke or Pepsi will even recognize SodaStream as a competitor at this point, and they may not be, but they're in the early stages of what could be something very big.
Chris: We've seen, in this space before, Coke and Pepsi go the acquisition route. A classic case, a local company here in the D.C. area, Honest Tea, which Coke took an investment in and is now the majority owner of.
Is that a possibility, somewhere down the road? Is SodaStream going to be enough of a threat that either Coke or Pepsi, you think, looks at them and says, "You know what? Let's bring them in-house"?
Austin: "Let's just take them out." Interesting question. I'm not going to take it off the table, but I would say it would be a very unlikely acquisition for them, because most of the time they're looking to acquire brands which they can then put into their distribution network and eke higher efficiencies out of -- SodaStream being far different; it's a different model, it's a different system, so I just don't think that it's something that they're going to be as interested in. But I won't rule anything out.
Austin Smith owns shares of Coca-Cola and PepsiCo. Chris Hill owns shares of Coca-Cola. The Motley Fool owns shares of PepsiCo and SodaStream. Motley Fool newsletter services recommend Coca-Cola, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.