The year 2014 has not been good to carbonated beverage maker SodaStream (NASDAQ:SODA). Its stock has been treated like the market's punching bag, dropping on dismal earnings and popping on regular buyout chatter.
As of now, SodaStream shares are down 32% from the start of 2014. What's worse is that trend could very well continue. It is not a foregone conclusion, of course, but there are three key reasons to believe SodaStream's losing streak is not over yet.
Reason 1: SodaStream's U.S. sales are collapsing
At some point in the past year, SodaStream hit a wall in the U.S. Not even management seems to understand what happened.
What is evident, however, is that the company's picked most of the low-hanging fruit in this market. Now, they're going to have to work a lot harder to get back on the right track – and it's far from certain they ever will.
For a quick synopsis, SodaStream took off like a rocket in the Americas starting in 2007. Sales in this region grew at an average annual rate of 95% during the six years that followed. This staggering growth propelled the company's overall expansion, as depicted in the chart below:
In recent quarters, however, this rocket seems to be coming back down to earth. Instead of growing, sales in the Americas have actually dropped by 28% and 14% during the first and second quarters of 2014.
There's mounting evidence that the beverage maker has pushed up against a ceiling for now. Even last year's holiday season proved uninspiring, prompting The Street's Herb Greenberg to describe its predicament as follows:
SodaStream is now an all-in product, where nearly everybody who is going to get or give a SODA machine has done so or will.
It's hard to disagree; especially given the fact that SodaStream has products in 17,000 retail locations, up from 2,500 at the end of 2010. If customers wanted a SodaStream, they could get one. But for the time being they don't seem too thirsty.
Reason 2: The competition will only get fiercer
While SodaStream's fretting over stalling sales in the at-home soda market, competitors are angling to get in on the action. Coca-Cola (NYSE:KO) and Keurig Green Mountain (UNKNOWN:GMCR.DL) will likely make the biggest splash with the release of their Keurig Cold machine in fiscal year 2015. This could present more problems for SodaStream.
Coke will step into the ring wielding a portfolio of more than 500 beverage brands. Among these are some of the best-selling carbonated drink products in the world. Although it's not clear how many of Coke's brands will be made available in the Keurig Cold, it seems likely that it could offer a wider variety of well-known products than SodaStream. When it comes to providing choices, it's hard to trump the biggest beverage company in the world.
What's more is that Coke might have SodaStream beat in terms of convenience as well. If Coke and Keurig are able to pull off the feat of introducing a countertop device that does not require gas canister refills (Fortune has pointed out that carbonated gas "granules" could do the trick), this will save consumers the hassle of schlepping to the store every now and again. That would provide a significant leg up over SodaStream's current machines.
We all know consumers love choice and convenience, and there's reason to believe Coke could top SodaStream in these categories. This could potentially leave SodaStream with only a couple of key differentiators, including price and the user's ability to customize their own beverages. The problem with the former is that SodaStream admitted in a recent conference call that price is not a driving factor in customers' buying decisions for its machines. In the words of CEO Daniel Birnbaum: "[P]rice isn't our core issue."
As for the empowerment aspect, it's not clear how important this factor is in consumers' minds. If SodaStream can effectively communicate the value of customization, then customers might see the benefits of, say, limiting the calories in their cola. If that's not a clear differentiator, however, the Keurig Cold could potentially steal the show.
Reason 3: The turmoil in the Middle East could sideline SodaStream
Beyond the market dynamics, SodaStream could face some operational issues on its home turf in Israel. Airstrikes are a regular occurrence around its three Israel-based facilities, introducing heightened risk to the company's supply chain. To-date, SodaStream has claimed that no shipments have been delayed, but management admitted that work stoppages have occurred from time-to-time.
Meanwhile, the cultural and political conflict that is so tangible in the Middle East often rears its ugly head in other ways, leading to publicized disputes over issues internal to the company, like firings, or external, like protests regarding the occupation of Palestine.
Sometimes SodaStream is clearly connected to these external incidents, but more often than not it's merely guilty by association. When you have a recognizable brand and a factory located near the center of cultural conflict, that's bound to happen.
Recently, my colleague Alyce Lomax decided the "severe geopolitical risk" posed enough risk to warrant stepping away from SodaStream's stock. The regional turmoil combined with poor communication from the company proved to be a tipping point for her.
From my perspective, the situation seems to be deteriorating with time, but it's important for every investor to gather as much information as possible and draw his or her own conclusions on this particular issue.
The takeaway for investors
On the whole, SodaStream seems to be going flat right now. First off, enthusiasm for its soda makers is fading in the crucial American market. Meanwhile, Coca-Cola and Keurig Green Mountain are preparing for the launch of their Keurig Cold machine, which could have distinct advantages over SodaStream's. And finally, conflict in the Middle East poses risks that SodaStream would rather not worry about at the moment.
All of this is casting a cloud over a company that seemed to have such a bright future ahead of it only a year ago. Who knows? Things can change in a heartbeat. For now, however, there's reason to believe that SodaStream's stock could continue to lose its fizz.
Isaac Pino, CPA owns shares of SodaStream. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, and SodaStream. The Motley Fool owns shares of SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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. The Motley Fool has a disclosure policy.