Can Splash Group (SBEV) mirror the success stories of Monster Energy and Celsius Holdings?
Splash Group Beverages (NASDAQ: SBEV) is a smallcap beverage company that has seen 85% YTD. The catalyst for this dramatic price action reversal and subsequent bull run over the past three months was triggered by a clear catalyst: the January 18th launch of a new energy drink product, TapouT Energy, to complement their existing portfolio of wine, sangria, tequila, and workout brands. This product launch and the gains SBEV has registered YTD have opened a promising new direction for sustained forward growth. A look at the success stories of Monster Energy (NASDAQ: MNST) and Celsius Holdings (NASDAQ: CELH) can give insight into how other beverage companies have leveraged similar catalysts to become multi-billion consumer staple blue chips.
Monster Energy and Celsius Holdings are two of the dominant players in the US market for energy and workout drinks with market caps of $55b and $7b, respectively. Since the onset of COVID in March 2020, CELH share price has risen >2000% to its current $92, whereas MNST has risen from ±$10 to its current $104 over the past decade. Does SBEV have the potential to follow the explosive growth trajectories witnessed by these two energy/workout drink mammoths?
To answer this question, we need to take a look at the catalysts that drove CELH and MNST to the enviable positioning in the beverage market that they currently occupy. Celsius Holdings’ price action trend has been fast and furious since Q1 ’20, and testifies to a company that leveraged COVID to chart a new course. On 3/3/2020, CELH announced a nationwide product launch with Walmart, America’s largest domestic retailer. Sales skyrocketed correspondingly, as Q3/4 ’20 financials show. The next major catalyst for CELH’s came this past summer when on 8/1/20 the company announced a long-term strategic distribution arrangement with PepsiCo. As part of the deal, PepsiCo invested $550M in CELH and nominated a director to the board. From when the first whispers of the deal went public in June ’20 to market close yesterday, CELH sp is up ±1000%.
Interestingly, a very similar set of circumstances helped transform Monster Energy into a $55B company way back in 2014. Back in July ’14, MNST was trading around $10 a pop. On 8/13/14, Monster announced that it had entered into a strategic partnership with Coca-Cola that entailed KO paying $2.15B and transferring its global energy business to MNST, while MNST transferred its non-energy drink business to KO in exchange. The rest is history, and today MNST is arguably THE dominant player in the US energy drink market.
So what are the core lessons we can extract from these case studies?
1) Product development needs to correspond to mega consumer trends. For both energy drinks in the mid-2010s and workout drinks during the pandemic, early movers like MNST and CELH managed to get an attractive product to market at the precise moment when consumer preferences were undergoing a tidal shift.
2) Robust distribution networks are the key to profitability and scaling. CELH’s distribution agreement with Walmart and innovative e-commerce strategy during the pandemic lockdowns and MNST’s access to KO’s distribution network, were key precursors for them to start generating meaningful profits by gaining exposure to a broader segment of consumers.
3) Strategic partnerships with major players like Coca-Cola and PepsiCo are an up-and-coming beverage company’s golden ticket. It’s clear that the key catalysts for both MNST and CELH were the mega-deals they inked with the biggest players in the beverage industry (Coca-Cola and PepsiCo). The capital infusion and market access these agreements entailed were the door by which CELH and MNST managed to successfully scale and market their products to a broad global market.
Given these takeaways from the success stories presented by CELH and MNST, let’s circle back to SBEV. The way that I see it, SBEV is positioning itself in a way that bears striking resemblance to CELH and MNST on eve of their strategic partnerships with PepsiCo and Coca-Cola. SBEV’s portfolio brands are leveraging not only the trending consumer preference for flavored alcoholic beverages but also the workout/energy drink niche, which have multibillion dollar TAM’s and robust CAGR forecasts through mid-decade.
SBEV is also rapidly expanding its distribution infrastructure across the US. When an EF Hutton analyst reiterated a BUY rating for SBEV in December 2022, he noted that management is prioritizing the expansion of its distribution network and that this strategic focus is catalyzing an acceleration in sales. Into 2023, SBEV has followed up this bullish rating with multiple new distribution agreements YTD, most recently yesterday.
From the look of it, SBEV is already emulating the #1 and #2 factors I cited above as the triggers for MNST and CELH’s explosive growth. What’s missing is a major strategic partnership of distribution agreement with a major player (like Walmart, Coca-Cola, or PepsiCo) that will give them the capital and distribution infrastructure required to begin serious scaling and expansion. While I’m not a fortune teller, if the company keeps posting gains like they have YTD that are matched with fundamental catalysts (ongoing new product launches, distribution deals), I find it hard to believe that they won’t start piquing the interest of the big dogs. Meanwhile, at the current share price of $1.58 SBEV is sporting an attractive entry price for LT holders or believers in their potential for a major strategic partnership or buy out.
Disclaimer: this analysis was written on the evening of March 27th, immediately prior to MNST 2:1 stock split. Share prices mentioned represent the value as of market close on 3/27. And lastly, this is not financial advice, DYOR.
