SodaStream Looks Homeward for a Share Price Comeback

After plunging 80% on Nasdaq, SodaStream has started trading on the Tel Aviv Stock Exchange, but that won’t be enough as sales of its soda machines sag.

Omri Zerachovitz
Omri Zerachovitz
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Scarlett Johansson representing SodaStream
Scarlett Johansson in ad for SodaStream. Credit: Courtesy of SodaStream
Omri Zerachovitz
Omri Zerachovitz

It wasn’t so long ago that SodaStream International was the Israeli dream stock. CEO Daniel Birnbaum and Yuval Cohen, the chairman until recently, took the maker of home carbonated-beverage devices to a $1.5 billion market value. And the company won fame with actress Scarlett Johansson as its brand ambassador in a Super Bowl commercial that took a swipe at Coca-Cola.

But the last two and a half years have been disappointing both for the company and investors. SodaStream’s Nasdaq-traded shares have plunged 80%, and today the company trades at only around $320 million.

There’s nothing innovative or unique about SodaStream’s machines, so success hinges on the company’s marketing messages, which in recent years have hit a wrong note. With consumers increasingly health and diet conscious and soft-drink sales in decline, the company has repositioned itself as a healthy choice, marketing its drinks as “water made exciting” rather than as soda.

To see off the threat of a consumer boycott, it had moved its main production plant from Mishor Adumim in the West Bank to Lehavim in the Negev. The new plant will also improve its manufacturing and efficiency.

SodaStream’s woes appeared to worsen with the emergence of its first major competitor in September when the U.S. company Keurig Green Mountain launched a machine that operates on a chemical basis. But the new product hasn’t gained traction. The devices cost $300 and are allegedly of poor quality. The drink capsules are expensive, too.

More famous for its K-Cup single-serve coffee pods and machines than its soda machine, Keurig agreed this month to sell itself for about $13.9 billion to an investor group led by Germany’s JAB Holding, which is creating a global coffee giant. The Coca-Cola Company, Keurig’s biggest single shareholder with a 17% stake and a partner in its soda-machine business, said it would sell its shares.

The deal suggests that Keurig will focus more on its core coffee business than on its cold-drinks machine. SodaStream shares climbed 12% on the Nasdaq after the announcement of the buyout.

Still, JAB may decide to continue with the new machine and if so will certainly develop new and improved versions. To its credit, Keurig boasts a large distribution network and existing cooperation with retailers.

Also, SodaStream suffers a host of smaller competitors who present no threat now but could make a big move into its market. From the company’s financial reports and analysts’ comments, it doesn’t seem SodaStream is worried about these minnows for now.

Auspicious start in Tel Aviv

With its $295 million market capitalization, SodaStream is among the biggest Israeli companies that has traded exclusively overseas. But on Tuesday, SodaStream launched another move to give its share price a lift; the share starting trading on the Tel Aviv Stock Exchange.

It was an auspicious start, with the stock rising 4.2% to close at 61.80 shekels ($15.98). In two weeks the share will enter the TA-100 and TA-75 indexes, and the stock will make up 0.4% and 1.6% of those indexes, respectively. Thus many institutional investors who weight their portfolios to the indexes will be buying the stock, no questions asked.

Birnbaum says the dual listing will expand SodaStream’s shareholder base and give investors a much longer time window to trade in the stock.

Its decision to trade on the TASE could be seen as a major achievement for the bourse’s CEO, Yossi Beinart, who has been lobbying hard to bring companies to Tel Aviv to lure more investors and expand trading volumes. Or it could be seen as nothing more than bringing home a fading company to live out its final years.

Sparks of hope

Israeli institutional investors face a dilemma. Many of them invested in SodaStream at the top of the market and know the firm well, but they abandoned it because of its disappointing performance. The dual listing, however, is forcing them to reevaluate the company.

SodaStream’s financial results for 2015 reflect a further decline in its business and profitability, but there are sparks of hope. One downer: In the first nine months of the year the company had revenues of $300 million, a 22% drop from a year earlier.

The company sells the carbonation machines themselves, which go for $80 to $200 each and make up a third of sales. There are also recurring sales of gas cartridges, syrups and flavorings.

SodaStream sold 639,000 machines in the third quarter, a 22% drop from the same time in 2014 but a major increase over the 490,000 in the second quarter. Syrup sales fell 12% to $6.7 million, but that was a big increase from the $5.1 million in the second quarter. Gas cartridge sales rose 10% to 7 million units, up slightly from 6.9 million in the second quarter.

The United States had been the growth market that sent SodaStream’s share price soaring three years ago, but that market fizzled and has yet to recover. North and South America sales in the first nine months of the year tumbled 31% to $72 million — and that comes on top of a 35% drop in sales in 2014.

But Europe, which accounts for 60% of SodaStream’s sales, looks better. Results were dented by a weaker euro, but neutralizing the impact of exchange rates, sales grew 9% in Western Europe, led by Germany, Switzerland, Austria, Italy and Belgium.

Net profit for the first nine months of the year was down by half to $9.2 million, but it could have been worse; exchange rates actually helped the company. Half of its costs are in shekels, which weakened in the first nine months of the year against the dollar.

Until two years ago, a significant chunk of SodaStream’s growth was due to marketing prowess. The company branded itself as a competitor of Coca-Cola and Pepsi, with the advantage of being better for the environment because its machine uses reusable plastic bottles; a “homemade” product.

The company’s most innovative technology is its electric gas dispenser that lets users control the amount of carbonation in each drink. The option could hurt the sales of the gas canisters, but SodaStream believes the improved user experience will cause people who buy the device to use it more often, so canister sales won’t be stunted.

Still, the company’s green message didn’t work. The challenge was to create a marketing message lasting more than just two or three years. So a year ago, SodaStream began touting the health benefits of its products, introducing some 50 new syrups it says are healthier and contain fewer calories. That positions the company against carbonated-water makers such as San Pellegrino rather than Coca-Cola.

The next key task is improving the company’s distribution network, particularly in the United States, and not just following the latest trends. It’s now looking for retailers that focus on health.

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