Well, it turns out that the US is indeed dragging SodaStream (SODA) down… and now it’s time for me to take a loss and sell my shares.
I bought SODA and wrote about it for you following the Value Investing Congress earlier this year, with the pretty compelling analysis regarding the value of their European business being the core part of my reasoning. And that business is still valuable, with great recurring revenue and a very strong market position as European customers continue to buy refill CO2 chargers and use them.
In the U.S., not so much. That would be OK as a value play if the company was retrenching and cutting back on growth to reposition the company, but the announcement this morning about their expected (very wide) miss in the third quarter (revenues about $30 million short of where analysts expected, more than 20% short of forecasts) and their reaction to it didn’t sit well with me.
There’s some danger in selling here, and the huge drop this morning may well be an overreaction in the end, because they haven’t reported the actual results or their detailed plan for reacting to them — it could be that Europe is still very strong and they could cut costs dramatically enough in the US in their new strategic plan to turn it around (they’re expected to talk about that when the next quarter comes out, in three weeks), but from the very weak revenue performance during the just-completed quarter it’s clear that the US business must be almost completely moribund, and the core European refills business isn’t strong enough to make up for it (and may itself be weak, we won’t know until they actually report — this was just the preannouncement warning of bad stuff coming).
SODA’s announcement from management was (appropriately) strongly worded in expressing their disappointment with their performance, but strategically it sounds like they’re going to change their marketing to go after the health and wellness business in the U.S. (instead of the traditional soda replacement/better for the environment pitch they’ve been using). I have no idea whether or not it will work, but I suspect that means we’re going to have another very bad fourth quarter because they’re going to have to move a lot of machines at very low prices just to rebalance their inventory in the U.S.
And frankly, ...