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The share price of SodaStream (NASDAQ:SODA) seems to have lost its fizz. It’s price dropped nearly 22% today on the NASDAQ exchange to 21.52. Which leads me to tell this story.
Just through days ago my wife and I were browsing through a popular home goods store when the SodaStream display caught my eye. While the machines were sleek and worthy of gracing any modern kitchen, I heard myself asking, “Why would anyone buy these?” I thought, “This is not a necessary counter-top appliance. If it is not necessary, then it has to be a fad.” Try as I might, I could not imagine the demand for these homemade soda machines being the equivalent of a stove or its distant cousin, the microwave. I wondered if the fad might possibly peaked.
Apparently, I am not the only person wondering and asking those questions.
SodaStream released a statement this morning regarding its preliminary results for the third quarter, ended 30 September. A complete report is expected on 29 October. In the meantime, investors ran like blind mice being chased by the farmer’s wife, once they read the following:
- Revenue to be approximately $125.0 million.
- Operating income to be approximately $8.5 million.
No mention was made of how much of a growth or decline those numbers indicated. In case you were wondering,
- Revenue for the second quarter was $141.2 million.
- Operating income for the second quarter was $11.2 million.
That would mean that revenue was down 11.4% and operating income was, likewise, down 24.1%
- Revenue for the third quarter of 2013 was $144.6 million.
- Operating income for the third quarter of 2013 was $18.0 million.
Year-on-year revenue for the quarter was, therefore, down 13.6% and operating income was down 52.8%.
I’ve got to give SodaStream CEO Daniel Birnbaum credit. He did not try to give us an opening paragraph head fake like so many others do when presenting reports like this. He told the truth straight out.
“We are very disappointed in our recent performance. Our U.S. business underperformed due to lower-than-expected demand for our soda makers and flavors, which was the primary driver of the overall shortfall in the third quarter.”
Birnbaum cited an inability to attract new customers at the continued expected rate as the key factor in the less-than-favorable results. (Hey! I’m one of those customers SodaStream has failed to attract! I felt like he was talking directly about me.) I despaired less for the company when the CEO commented that the board recognizes that the results are “a clear indication that we must alter our course and improve our execution.”
It is also important to note that Mr. Birnbaum indicated that SodaStream has a strong balance sheet and, in particular is “well-positioned with ample liquidity to invest in the areas of our business that we believe will fuel profitable growth in the years ahead.” As long as the board sees the company as one that innovates and not just as one that carbonates, SodaStream most likely will endure the current decline in revenue. On the other hand, if they continue to focus on home carbonation, they are likely to experience revenue evaporation, as the novelty fails to attract new customers and loses its fizz for current ones.
