Shares of SodaStream (SODA) have plunged nearly 30% over the past three months as investors began questioning whether consumers’ interest in the company’s soda-making machines has faded.
Like Coca-Cola (KO) and PepsiCo (PEP), SodaStream faces the huge challenge of getting increasingly health-conscious consumers to buy carbonated beverages, a product with little-to-no nutritional value. Per capita-soda consumption has been declining for more than two decades, and barring some sort of miracle, won’t ever rebound to previous levels.
SODA Stock Not So Sweet for Wall Street
Both Coca-Cola and Pepsi have tried for years to bolster sales and have failed miserably because public health activists have linked soda consumption, somewhat unfairly, to obesity and other health concerns.
Evidence abounds that the SodaStream fad is fading. The fourth quarter was particularly worrisome for SODA stock. SodaStream reported worse-than-expected earnings and gave lackluster guidance as the company’s gross margins plunged to 42.4% to 53%.
Even though SodaStream slashed prices 10% below its plans, it still couldn’t move its product. The results cooled Wall Street’s optimism with SodaStream. Barclay’s analyst David Kaplan, for one, cut his rating on the stock yesterday down to “equal-weight” from “over-weight,” and he slashed his price target to $40 from $55 — right around current prices for SODA stock.
As Kaplan argues:
“The key challenge for SODA in our view is the company’s ability to increase its penetration rate without impacting its margins. The company will have to carefully monitor its advertising budget as well as its pricing policy in order to maintain healthy margins.”
Of course, that’s easier said than done, and SODA stock faces a slew of challenges, going forward.
Coffee Is Still King
For one thing, consumers still value coffee more than soda. Though there are people who pound carbonated beverages like they are going out of style, they are in the minority. More consumers appreciate a quality cup of coffee than a “hand-crafted” soda. Coke and Pepsi taste the same in Texas as they do any other place in the country, and the soda costs about the same, too. Market research bears this out.
American workers spend about $1,092 on coffee annually. Young people spend roughly $10 more than their older counterparts. Spending on soda works out to about $850 per household every year. It may not seem like much, but that’s a huge difference.