New Age Beverages’ (NASDAQ:NBEV) Dec.r 3 announcement it was merging with Utah-based Morinda Holdings to become the 40th largest non-alcoholic beverage company in the world was a wonderful tonic for NBEV stock; it’s up 17% since.
Who is Morinda Holdings?
It is a direct selling (think MLM) and ecommerce business marketing Noni-fruit juice drinks in more than 60 countries around the world with more than 70% of its $240 million in annual revenue generated in five countries: Japan, China, Korea, Taiwan, and Indonesia.
Most important, Morinda generated an adjusted EBITDA profit of $25 million in the trailing 12 months; in New Age Beverages’ most recent quarterly report ended September 30, it had an adjusted EBITDA loss of $2.5 million.
The combination creates a profitable business that can move forward with plans for CBD-infused beverages and its other healthy beverage alternatives in the New Age portfolio.
Is NBEV Stock a “Monster?”
If you know the history of Monster Beverage (NASDAQ:MNST), you’re aware the $30 billion energy drink behemoth was once at a crossroads.
Should it continue to explore energy drinks — before launching Monster in 2002, Hansen’s Natural’s, Monster’s corporate moniker at the time had tried and failed with two previous energy drink creations — or go with the decently profitable fruit juices it had produced since the 1930s?
Rodney Sacks, Monster Beverages current CEO, bought Hansen’s in 1992 for $14.5 million. If not for Sacks’ determination to push into the energy drink space, one of the most successful non-alcoholic drink categories of all time, energy drinks might not be nearly as popular as they are today.
In 2003, the first full year of Monster beverage sales, it sold $50 million in energy drinks, which accounted for 36% of Hansen’s annual revenues .
Zero to 36% of sales in 21 months. That’s got to be a record.
NBEV Stock and the Monster Model
Like Hansen’s, New Age has an extensive portfolio of beverage brands, none of them taking off, with total revenues of $38.2 million through the first nine months of fiscal 2018, 6.6% lower than a year earlier.
The company, needing to get bigger in a hurry, and lacking an explosive-growth product like Monster to wow retailers, went the merger route instead, paying $75 million in cash and issuing $10 million in restricted stock to buy Morinda.
It’s a smart play to keep the stock rolling higher.
However, the company has way too many brands to succeed long term. It’s got to find one or two that can scale on a global basis and stick with those; selling the rest.
To me, its CBD drinks have the most potential. Indeed, the positive reaction by investors to the Tilray (NASDAQ:TLRY) partnership with Anheuser Busch InBev (NYSE:BUD) would suggest this to be the case.
Launched in October at the North American Convenience Store Show in Las Vegas by the company’s Health Sciences division, the demand for these products is likely to be significant.
The big question mark is whether it can execute a successful rollout of the products. Morinda’s experience will help.
“We intend to provide a full portfolio of offerings in this emerging growth segment, and expect the range of choices for retailers, distributors and consumers best position New Age to be the leader and authority in the sector,” said New Age senior vice president of sales, Michael Cunningham.
The Bottom Line on NBEV Stock
I see a ton of similarities between New Age and Monster.
That said, a lot has to go right for New Age to move from Monster-wannabe to the real deal. It’s also important to remember that the drinks won’t have THC in them so the novelty or desire to try won’t be nearly as great.
New Age will have to spend a significant amount on marketing and distribution which suggest profitability might be sacrificed in the short-term to ensure the successful rollout.
As small-cap stocks go, I like it, but don’t use your retirement funds at this point in the game if you do buy.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.