Monster Beverage's main revenue component now is its Monster Energy brand, which, according to Morningstar, makes it the
largest seller of energy drinks in the United States convenience-store channel (a 31% unit share versus privately held Red Bull's 27%). Furthermore, the company went from generating $1.3B of revenue in 2010 to $2.06 in 2012.
1. Plenty of room for international expansion available Some may think that Monster is big enough to continue expanding its revenue at the same growth rate. That may be true for the U.S., where retail sales are just slightly below Red Bull, but how about international operations? First of all, Monster Beverages only covers 80 countries, in comparison with Red Bull's 164-country network. According to Morningstar analyst Thomas Mullarkey, this shows that Monster Beverage's growth is just starting. Despite offering more quantity for the same price and an appealing design and concept to the young, Monster's revenue outside of the United States is roughly 10% of what Red Bull generates! Management is committed to achieving international expansion and therefore Monster Beverage's marketing budget will, most likely, continue increasing. The company has been quite aggressive with pricing. In Japan, for example, a Monster can is 20% cheaper than Red Bull. And because of its interesting design, its curious name and price, many are starting to become loyal customers. A strong brand in the making! Also notice that as Monster continues expanding its international operations, it will start benefiting from economies of scale and it will also become able to raise its price, thereby increasing international profits. Regarding this point, Stifel analyst Mark Astrachan said in April that Monster's annual operating profits from sales outside of the US would increase from $5M last year to $101M in 2015. At the same time, international operating margins would rise from 1.1% to 13.4%.
Instead. Even if Monster decides to start building its own distribution network. 3) The advantages to keeping the business simple
. the enormous amount of investment needed to establish a consolidated distribution network could reduce Monster's return on investment so much that it could stop being an attractive pick. that using Coca-Cola's network is risky. from developing markets in South America to big cities in Asia. The second outcome is more interesting for the bulls. which are direct competitors. Notice. Remember when PepsiCo (NYSE: PEP) tried to consolidate its bottler factories? By increasing the asset base. a crucial input in valuation models. the king. but it is totally the opposite. PepsiCo's consolidation efforts had a negative effect on the return on invested capital. both directly and indirectly. the company is focusing on higher-return activities. Coca-Cola manufactures energy drinks. Only time will tell how Coke will react to Monster Beverage's success. its network can never be better at distributing than Coca-Cola's. Pepsi also increased its cost base and added pressure to margins. which is a very expensive thing to do. if Monster continues stealing market share. Coca-Cola consumers could replace part of its Coke consumption for energy drinks. Coke would be forced to increase its distribution fees or to acquire Monster. it grew 17.3%. But at the same time. This may sound like a disadvantage. Furthermore. in terms of distribution network. Monster does not own a distribution network Instead of building its own distribution network. Domestically. like building its brand internationally. Monster uses some of its partners' networks. Coke would need to pay a high premium on the stock price. however. making this potential acquisition the largest one in its 126-year history. Covering 200 countries.The fact: Monster Beverage's international revenue grew 38% in 2012. And despite its consolidation efforts. After all. Furthermore. and it is not a fantasy. Maintaining a distribution network is certainly not a priority for Monster at this moment. Coca-Cola is. including Coca-Cola's (NYSE: KO). 2. it could take many years and a huge amount of capital to achieve a decent scale. Last year. Coca-Cola is one of Monster Beverage's most important competitors. Coca-Cola's network has no rivals. rumors that Coca-cola was in talks with Monster caused the stock price to rise 15%. since Monster has not fully explored its international expansion potential. However. So.
Analysts are now expecting Monster to earn $0. but now that analysts have revised down their figures. it is more feasible for Monster to beat the street the next quarter. The transition from carbonated soft drinks to other beverages is already taking place. we should also not underestimate the size and growth rate of the energy-drink market.37.26 figure. and also now analysts have lower expectations for the rest of the year. High expectations are a common disadvantage in growth stocks. while the street consensus was $0. Such sales exceeded $12. it is curious that neither of them could enter in the energy drinks segment with the same level of success that Monster achieved. But the upside is that stock price has recovered.15 per share for the whole 2013.
. and it is the main reason why PepsiCo and Coca-Cola starting developing other products as early as one decade ago.5 billion . distribution networks and marketing budgets. I believe that the market reaction was exaggerated. However. by providing customers thirsty for caffeine with a new alternative. The stock price was $57 per share and fell as low as $46 while the conference call was taking place. The reason? The company missed the street consensus by a tiny bit: EPS came out at $0. Both companies were correct at predicting that consumer tastes will shift. despite their enormous scale of operations. 4) A favorable adjustment of expectations Monster shares had to deal with an improvement in downward momentum after the latest quarterly earnings.38.5 billion last year. This could make the stock a risky investment. sales of energy drinks and shots are expected to hit $21. or a massive network distribution like Coca-Cola to rent to other companies. The more than 30 different flavors that Monster has is expected to reduce this gap. Many of the new sales will come from the traditional carbonated soft drink category. according to a report from Packaged Facts. more efficient than traditional carbonated soft drinks. an interesting decrease from the previous $2. at least in North America. because many of these consumers are consuming too few cans of energy drinks. which includes drinks like Pepsi or Coca-Cola. It is estimated that the average American consumes 400 cans of coke per year. How about Monster cans? Only 10. However.64 per share in the next quarter and $2.Monster may not have a snack business like PepsiCo (which owns Frito-Lay) to rely on when the beverage business is not doing well. By 2017.
which took the company under its wing and suggested it sell the product as a food. “Monster has a commitment to being responsible and wants to be transparent about the ingredients in their products. a spokeswoman tells CNN. litigation costs take a toll on Monster Beverage earnings
Costs associated with the termination of certain distribution agreements combined with the costs of addressing possible regulations and defending the company from potential litigation had a negative impact on first-quarter earnings for the Monster Beverage Corp. there were a number of exceptional costs that affected profitability in the quarter.
While we are pleased to report another quarter of sales growth. Monster Energy Corp. launched in the third quarter of 2012. The change comes as Monster joins the American Beverage Association.” the spokeswoman said. Monster Energy Zero Ultra. the Monster Energy brand continued to grow in excess of category growth. claims which have been questioned by federal regulators. both in North America and Europe. Sacks. chairman and chief executive officer.” said Rodney C. but the labels will soon include caffeine content in each can.
. “Despite the single digit category growth rates we are seeing.Monster Energy Drinks Will Now Be Sold As Beverages Instead Of Dietary Supplements
In response to all the controversy surrounding the potential negative health effects of all kinds of energy drinks. is retooling its marketing: Instead of hawking them as dietary supplements. the drinks will now be sold as beverages. The product itself won’t change a bit.
said Wednesday that the move is the first step in a planned shift away from licensing to allow the company more control over the growth of its consumer packaged goods.4 million for distributor transitions and the termination of certain distributors........ chief executive. Jamba hopes to expand the line nationally.. of which $3 million was related to legal and regulatory matters.” he said. “As we enter into the new phase of our approach to CPG. and has become our second best-selling product.. “In some of our international markets the energy drink category also appears to have slowed in the quarter .” he said. Terms of the deal were not disclosed. platform. James White.
Jamba Juice is splitting with Nestlé USA to take control of a line of branded energy drinks in a move that marks the next phase in the smoothie chain’s plan to become a global billion-dollar consumer products brand. The line of bottled drinks. “We believe (the softness is) partially due to the ongoing negative publicity that continues to appear in the media questioning the safety of energy drinks and suggesting limitations on their ingredients including caffeine and or the levels thereof and a minimum age restrictions for consumers. “We’ve previously used only licensing agreements for our consumer packaged goods products.. said earlier this month that it has acquired the product formulation and intellectual property for a line of Jamba All-Natural Energy Drinks developed under a licensing agreement with Nestlé... but Jamba said it is expected to close by June 20.. we’ll explore
. or CPG..
he “exceptional costs” that affected profitability included $8.-based Jamba Inc...9 million for professional service costs.has gained considerable traction.
the energy beverage market was soft during the first quarter. was launched last year among retailers in the Northeast... Calif.. and $4. Emeryville... which includes three flavors.... Jamba Inc.
K-Cup packs and Evolution Fresh bottled juices.joint venture.
. such as the VIA Ready Brew instant coffee. co-pack agreements and other sales and distribution arrangements to provide us with increased control of our CPG products and enhanced returns. which allowed the coffeehouse giant to bring its packaged coffee distribution in house.” The move is reminiscent of Starbucks’ split with former licensing partner Kraft Foods last year. Starbucks followed the breakup with aggressive growth of other CPG product lines.