One of this year's biggest disappointments has been SodaStream (SODA). Shares of the Israel-based company behind the namesake maker of carbonated beverages have shed 58% of their value in 2014 through the end of last week.
It's not pretty, and as an investor I recently looked at five painful lessons that I learned this year. Sales are slipping. Margins are getting crushed. SodaStream starter kits aren't selling all that well.
Let's take a contrarian view this time, going over a few of the things that SodaStream got right in 2014.
1. The PepsiCo test is a pretty big deal
Shareholders caught a temporary break in late October when PepsiCo (PEP -0.12%) revealed that it will be testing out flavors for SodaStream machines. Pepsi HomeMade -- a new brand featuring the initial flavors of Pepsi, Pepsi Wild Cherry, Pepsi Vanilla, Sierra Mist, Sierra Mist Cranberry Splash, and Sierra Mist Peach -- is being tested in select retailers in central Florida over the holidays.
One can rightfully argue that it's more than just a lack of brand-name soda keeping SodaStream down, particularly in the Americas, where revenue tanked a brutal 41% this past quarter on a year-over-year basis. However, Pepsi's presence provides attention and validation.
The test should go well, and may very well expand into 2015. After all, PepsiCo will have to keep up with its largest rival, which invested roughly $2 billion in Keurig Green Mountain (GMCR.DL) earlier this year, ahead of next year's rollout of Keurig Cold, in which Coca-Cola (KO -0.25%) will be a featured offering. PepsiCo struck a deal with Europe's Bevyz before signing up with SodaStream, but that dynamic changed dramatically earlier this month when Keurig Green Mountain agreed to acquire Bevyz. Whether that means that the Bevyz maker will no longer hit the market or that Pepsi's support will be pulled for what is now a Coca-Cola-backed platform, PepsiCo has no choice but to become a bigger cheerleader for SodaStream.
2. Marketing may finally have the right target
SodaStream's had a lot of fun with its marketing campaigns in the past, but in its most recent conference call it announced that it would be repositioning its product as a maker of sparkling water instead of soda. It's the right call. Soda consumption is on the decline in this country, and parental fears of childhood obesity and diabetes are likely curbing purchases.
I've seen product reviews on sites where many of the critics are folks blasting buyers for introducing these machines into their homes as if they were cigarette rollers or Big Mac presses. It's not fair. A lot of SodaStream machines are in homes that use them primarily for turning still water into seltzer that can be flavored with natural ingredients. Despite having "Soda" in the name, SodaStream will try to sell this as a source for fresh sparkling water.
This naturally means that the jabs it's been taking at Coca-Cola and PepsiCo will end. Now with PepsiCo as a partner, that's not a surprise. With sparkling water consumption on the rise -- particularly flavored sparkling water -- SodaStream will at least be riding a trend that's moving in the right direction this time.
3. Let's move beyond the West Bank controversy
SodaStream attracts protestors, and they're not parents concerned about children and soft drink consumption. SodaStream operates a factory in the disputed West Bank settlement of Mishor Adumim, and that has resulted in protests and calls for boycotts from those sympathetic with Palestinian causes.
SodaStream announced that it would be closing down the controversial facility next year when a larger facility opens nearby on turf that is not part of a disputed settlement. Some activists continue to voice their displeasure at the Israel-based company's actions, but it will be hard to smoke up a lot of venom for a company that has clearly made a compromise with the move.
Yes, 2014 was horrendous for SodaStream and its investors. There's no sugarcoating that. However, it is setting the stage with some of its moves for a bounce back into fancy in the year ahead.