I didn't exactly score a lot of points with new SodaStream
After last week's hot IPO and four straight days of scorching gains, I really wanted to like SodaStream. As part of the Motley Fool Rule Breakers newsletter team, I'm always on the lookout for upstarts that can disrupt complacent dinosaurs.
Home-based pop in a world where Coca-Cola
Unfortunately, I didn't walk away with the same starry-eyed enthusiasm as Mr. Market. I voiced my concerns, and I may have nailed a near-term top. The stock has gone on to shed some of its gains over the past two days.
Bulls weren't happy with my cautious perspective.
- When did Cramer actually recommend this stock?
- What about the savings that SodaStream delivers?
- What about Sweden's 20% penetration rate claim as a proxy for the world?
You deserve answers.
Cramer vs. Cramer
A few people pressed me about referring to SodaStream as a Cramer recommendation. I'm as baffled as the readers because I never called it an official rec. My criticism of Cramer's Mad Money interview last week with SodaStream's CEO is that Cramer offered up tantalizing comparisons to the 10-bagger-plus runs by Green Mountain Coffee Roasters
It wasn't fair, since those two companies began their meteoric runs from much lower market caps. If Facebook goes public at $40 billion next year, it's just not going to be a 10-bagger in your lifetime.
Ignoring the starting line is a major oversight on Cramer's part. I certainly don't believe that SodaStream itself will be the worst stock ever. I just think investors need to temper their excitement.
Cramer tried to keep the enthusiasm in check. He referred to Jarden's
Pop without popping the pocketbook
Canned soft drinks recently hit their lowest price points in years. Back in May, The Atlanta-Journal Constitution wrote about Wal-Mart dropping the price on Coke and Pepsi 24-packs to $5 -- and as little as $3.88 during the Memorial Day weekend.
At $5 for a brand-name 24-pack -- and naturally even less for similar private-label cans that SodaStream aims to replace -- we're looking at less than $0.21 a can.
Does something this cheap really need an even cheaper alternative?
Unfortunately, SodaStream isn't cheaper. The syrup containers begin at $4 and are good for 33 cans. Add in the pro-rated cost for the refillable CO2 cylinders and SodaStream pegs its product's cost at $0.25 a can -- and that does not include shipping or the initial $100 to $200 investment on the SodaStream system in the first place. As long as you're cool exchanging empty CO2 cylinders at participating retailers and going bricks-and-mortar for your syrup, the math doesn't get worse than a quarter a can.
The news is better for seltzer buffs. If all you want is flavorless club soda, you can get a great deal at $0.10 for a can-sized serving. However, how big a market do you think that is?
It may not be long before your SodaStream system is rubbing elbows with your margarita blender and popcorn popper in the attic.
How Swede it is
One of Birnbaum's most impressive claims is that SodaStream has 20% market penetration in Sweden. It's also apparently been a hit for years throughout Europe. If so, why did the company only earn $9.7 million on $142.8 million in revenue last year?
Don't get me wrong. SodaStream may build a stateside audience, and we all know about our heady soda consumption habits. It won't be based on its value proposition or convenience, since those are bogus claims. It may have to be a combination of the eco-friendly nature of the product (no cans, though you do have to sink-wash the carbonator bottles and replace them occasionally), the health aspects (on the non-diet flavors that aren't as caloric as the store stuff), and the inner mixologist in us all (since I can't be the only one tweaking with flavors as a kid in making Sproke and PepKist) to win us over.
I'm certainly not going to stop watching this company, and I'll be glued all over its first quarterly report as a public company later this month.
However, initial euphoria has burned investors before.
One of the reader comments from my earlier piece brought up Sirius XM Radio
"Why would anyone pay for something that's free," he asks sarcastically.
Well, he's absolutely right that Sirius XM has evolved into a huge and profitable success, but it also took it a decade of disappointing trading to get there. Investors who got in on the Sirius and XM IPOs -- and held -- are poorer today.
SodaStream has a shot, but investors need to let the misplaced carbonation go flat before coming in at an attractive entry point.
Where do you think SodaStream's stock will be in a year? Share your thoughts in the comment box below.