Celsius - live fit

[massimo]

This challenger to Monster and Nocco, which appeals to the youth, has remained without its own thread despite strong growth and parabolic share price development.

CELSIUS® Energy Drinks

They secured distribution through Pepsi and currently operate mainly in the United States and the Nordic countries. Pepsi also owns a stake in the company, and I see it as a potential acquisition target if growth continues profitably. Next, they are expanding into Canada and Germany. Margins are in the whopping 40-50% range.

The products allegedly have performance-enhancing and health-promoting effects: The Science - CELSIUS
Personally, I believe that the downsides of artificial sweeteners are a bigger negative than these tea extracts and added vitamins.

Apologies for the slightly messy start, I typed this on my phone. Valuation is very stretched, and the P/E is hovering around 60-70. Are there people on the forum who have followed this for a longer time and could assess the growth prospects and risks? Market share has been increased significantly, as it should be considering the premium one has to pay for this compared to the market leader, Monster.

[TheCoon]

I don’t currently have a position in the company. I had a short-term holding during that spring frenzy when the share price surged significantly, but I ended up selling that as well (luckily). I’ve been interested in the company on some level for a long time, likely mainly due to Monster’s incredible history of returns. Could this be the next one, etc.

Anyway, here is a link to an interview with the company’s CEO when they were a guest on Odd Lots in the spring. Lots of interesting information on beverage shelving, its importance for sales, the visual look of the shelves, etc. In everyday life, you don’t always realize how much knowledge/skill has gone into planning these various things.

[Gwertheney]

In principle, Monster (MNST) and other “similar drinks” could probably be merged into this thread. The drinks certainly differ from one another, but no one can drink more than a certain amount of them in a day, so they fall into the same category in the competition for daily beverages. Why not Coca-Cola and others as well, but these drinks seem to contain more caffeine and are thus in the energy drinks category.

Celsius is indeed much less visible in Finland, whereas the Swedish brand Nocco, for example, is much more prominent in places like social media. In my experience, for instance on Instagram, you don’t even need that many followers to get a case or two (24-packs) of drinks for free in exchange for visibility (Puhdistamo/Nocco).

Overall, I believe this industry will continue to do well because drinking these beverage products is extremely trendy among youth and young adults. The price per liter is high and margins are certainly solid. Prices per liter seem to vary between €4 and €8. Celsius has a 355 ml can, so there would still be room for shrinkflation down to Nocco’s and Puhdistamo’s 330 ml pack size. Monster goes with larger 500 ml containers.

New drink flavors are released constantly, with hits staying on the market and flops gradually disappearing. And popularity isn’t diminished at all by brand advertising through influencers and celebrities. Even now, when I went to look for more information on Nocco, Valtteri’s face is on the front page along with an announcement of a new ambassador deal. Nocco belongs to the Vitamin Well Group and is not listed.

I am not a consumer of these products, but I’ve probably tasted at least one product from all the biggest brands. My own experiences with these drinks are mainly negative, at least in terms of taste. The products mostly leave an extremely industrial sweetener aftertaste in the mouth. The differentiating factor seems to be branding and advertising. Although I haven’t done any blind tests or taste comparisons, Celsius / Nocco drinks practically taste the same, and I certainly couldn’t say which drink is which if I drank them blind. So I can easily see a consumer buying Nocco because Valtteri Bottas advertises it? In other words, perceptions and advertising sell.

Verkkokauppa.com sells ‘energy drinks’ online in packs. The trend is clearly visible from the list available in-store/online:

Top 5:
Monster 24 products
Nocco 16 products
Red Bull 13 products
Puhdistamo 8 products
Prime 4 products

Overall, Celsius (CELH) has slid down -32% in three months and the valuation is still somewhat stretched. Somehow it feels like there is definitely a lot of faith/hope here for the same kind of share price development that Monster has had, though it certainly has had some. The share price was around 1.5 dollars in 2019 and the 5y growth has been +4500%. My own investment appetite has been limited precisely by the tight valuation, as competition is fierce in the beverage sector. On the other hand, if one were to take a tracking position because I believe in the “megatrend,” I would follow the stock and the industry more closely. In the latest report, revenue did not grow according to expectations, but profitability was better.

Celsius (CELH) 1Y chart:

[massimo]

Celsius is a bit different from traditional energy drinks precisely because of that “health drink” advertising. As I understand it, they also have completely caffeine-free drinks coming out, so they will differ from other energy drinks and Coca-Cola.

[Tasque]

There was a good article about Celsius a few issues back in Viisas Raha magazine. It piqued my interest a bit, but luckily I haven’t started buying yet. The valuation is outrageous, but if you really think about the case based on the fact that, if I recall correctly, 95% of the company’s revenue still comes from the USA, what kind of growth potential could this have IF everything goes right? With Pepsi involved as a major player, there should be enough firepower to expand globally. Although one shouldn’t really just stare at price charts, out of curiosity I compared this to Monster Beverage and its early-stage gains. You could say that Celsius is currently where Monster was in 2007 or a bit later in 2009.

Monster’s price is currently hovering around 48, with peaks at $62.

Celsius, on the other hand, looks somewhat similar:

I don’t know when one can put money into something like this when the valuation levels are 3-5 times higher than what I’ve been used to investing in lately.

This was a bit of a “zero-value” post, but I guess sometimes you could try to get in on these outrageously rising ones, as the rise doesn’t always stop at the first 5000% if there’s a lot of firepower behind it, as Celsius seems to have now.

I should look into the fundamentals (funda) more closely, and it would be nice to read about them here if people have studied this more thoroughly.

[Gwertheney]

@massimo

In the case of Celsius, there is a bit of a difference to traditional energy drinks precisely because of that “health drink” advertising.

I’m not going to start reading those studies now, but I would still consider the “health effects” of Celsius drinks to be quite questionable. Currently, they don’t have caffeine-free products, but for example Nocco does, so caffeine-free isn’t really anything new in itself.

Even Hesari (Helsingin Sanomat) has a story about this particular type of drink, although I’m not an expert and I won’t say whether all the drinks are “BCAA drinks” or if Celsius drinks are even that type. But from a regular consumer’s perspective, they are.
https://www.hs.fi/hyvinvointi/art-2000008723151.html

”Actually no one benefits from BCAA DRINKS,” states registered dietitian, docent Jaakko Mursu bluntly.

According to Mursu, the drinks have found their user base as a result of aggressive marketing. When an athlete praises a BCAA drink on their social media channel, it is easy to convince a follower that it is something they shouldn’t miss out on. An image is created that the drink must be beneficial, and this image sells. The product soon gains a status that feeds itself.

”In such cases, the user rarely questions the actual need. It’s a bit like fighting against a strong current,” Mursu sighs.

As for what Celsius itself says on its FAQ pages

https://celsiussuomi.fi/usein-kysyttya/

I wonder then, if it is a health drink, why is it not mentioned in this question

WHO ARE CELSIUS ENERGY DRINKS SUITABLE FOR?

For responsible adults leading an active lifestyle who want a refreshing energy drink that improves alertness and stamina, contains no sugar, and has natural flavors and colors.

So if you want a drink that provides a pick-me-up, a sense of alertness, and improves stamina. It sounds practically like an advertisement for a caffeine product. It doesn’t say drink to burn more calories, as the research page stated: “Thermogenic properties are proven to increase metabolism. In turn, this causes your body to burn more calories and body fat than you normally would with exercise alone.”

Let’s look at this health aspect once Celsius moves into manufacturing those non-energy drinks. Beverage manufacturers claim that the vitamins etc. added to them are practically essential, but experts are of the opinion that all of them can be obtained from a normal balanced diet. Extracts and vitamins have certainly been added there to create the impression of a health-promoting drink.

[Gadus]

One would imagine that total consumption is starting to hit a ceiling. It seems like almost every young teen you pass is consuming them, and sometimes older people too. I suppose there are statistics on that.

In Finland, the selection is still quite limited compared to the situation across the pond. Here, of course, the big players with established distribution channels can more easily get their products onto store shelves. Every celebrity and athlete seems to be branding their own drinks, hoping to make a quick buck.

I would wager that trends come and go. Creating a competitive advantage will therefore be difficult. Personally, I won’t be putting my money into these.

[Chuckecheese]

Since 2020, the company has grown its market share and revenue quite explosively. So far, that growth has mainly come from the US, and it is still difficult to say how they will succeed abroad. I follow sports to some extent and have noticed that Celsius has been visibly present in various sports, including boxing, ice hockey, etc. At least in the US, you could say that Celsius is perhaps the trendiest energy drink with the most momentum.

Recently, however, the stock has been under heavy downward pressure. A slowdown in revenue growth was visible in the Q1 results, but at the time, the company explained it with temporary inventory-related factors. However, Nielsen data from April also signaled a slowdown in growth compared to before (https://x.com/BevInsights) — this user posts data related to the energy drink market that comes from NielsenIQ. At these valuation levels where the stock is trading, growth doesn’t need to slow down much for the share price to be priced down significantly. A while back, there was also a story in the US news about a guy who had been drinking two Celsiuses a day and ended up in the hospital due to liver problems. This didn’t exactly warm up the market either.

The story is quite interesting, but the recently slowed growth and negative news surrounding the company, combined with a share price that still reflects very high expectations, certainly makes me take a cautious stance for now.

[massimo]

Here’s the latest presentation https://www.celsiusholdingsinc.com/wp-content/uploads/2024/05/Celsius-Q1-2024-Investor-Presentation.pdf

In terms of user count per household, geographic or… the peak of the entire market has likely not been reached yet. But as you said, trends come and go. It’s about who adapts.

[Jape16]

Celsius has enjoyed growth driven by so-called pipeline filling and has achieved strong sales figures simply by filling retail shelf space and distributor inventory. This has contributed to high growth percentages and pushed valuation multiples to the limit.

It is quite clear that in the United States, this growth can no longer be sustained through pipeline filling. Growth, if it is to come, will have to come from the consumer, the growth of the energy drink market, and improving market share within the segment.

The decrease in distributor inventory levels due to better demand predictability and the end of pipeline filling has caused, and will continue to cause, a slowdown in growth. The stock market has already reacted to this with a -42% drop within one month. It is difficult to say how much further the decline will go.

The question marks are:

• How will Celsius fare with consumer demand in its home market? Can it still capture market share and maintain or even improve its listings?
• Will Celsius succeed in executing similar pipeline filling in major export markets and gain growth tailwinds from them for several years?
• Are the product and brand good enough for Celsius to remain in the market permanently, or will it be forgotten by everyone and fall off the shelves in five years?

As an occasional energy drink user (approx. 10-20 servings per year), I would say the product is fresh and good compared to many of its competitors. It has a genuine chance to establish its position, but I cannot assess the probability of this. The product seems to have remained in the selection of Finnish central retail chains for several assortment cycles with fairly good shelf placement, so at least in Finland, consumer demand has held up. Therefore, one can believe the product will perform well in other export markets too. The market is growing, so there are opportunities. However, the story is only just beginning.

Time will tell what happens, but at the current valuation, I have entered with a small position. I will likely add a couple of times if the valuation drops further.

[massimo]

Great text! I have very similar thoughts on this case.

Will Celsius manage to achieve similar pipeline filling in major export markets and get a boost for growth from them for several years?

This is the most important question in my opinion, and for any product that doesn’t have big muscles behind it, I would consider large-scale export success unlikely. In this case, however, Pepsi’s 8.5% ownership of the company increases confidence. Pepsi’s distribution channels open doors to many markets and good shelf space. On the other hand, Pepsi could buy out the whole thing if they see it as a threat to their own products.

As an occasional energy drink user (approx. 10-20 servings per year), I would say the product is fresh and good compared to many of its competitors.

I have a similar user profile and agree with this as well. The can is distinctive and slightly larger than relevant competitors, and the taste is also good. However, these are often seen on sale. Maybe even more so than Nocco.

[Tasque]

There was a pretty good article on Seeking Alpha

https://seekingalpha.com/article/4701827-celsius-a-high-risk-high-reward-investment-in-the-energy-drink-market?source=feed_all_articles

I wish the price would drop a bit more, so I could scoop some up.

[niko_naakka]

Celsius was the US 3rd most popular energy drink brand in 2023! With a 5.9% market share, it was behind Red Bull and Monster.

Celsius Deep Dive to see where The market share could be by 2030

Part 1

Celsius. The New Disruptor! Deep Dive Part 1/3.

Part 2

Celsius. Path to Major League! Deep Dive Part 2/3.

Part 3

Celsius. Time for World Domination? Deep Dive Part 3/3.

[rikkihappo]

This is not a challenger to Monster at all. A completely different customer base. This is, however, a challenger to little Nocco. In my opinion, Monster would seem like a better buy at this stage if you are interested in investing in energy drinks. If this stock were halved, it would start looking more interesting, but at the moment it’s quite a herd stock.

[massimo]

” Celsius has signed new agreements for distribution in UK, Ireland, France, and other countries. I expect that in the next few years, European sales will grow faster than North America.”

I’m looking forward to seeing how the expansion into Europe progresses. Now that sales are mainly limited to the US, the limits of growth are nearing. If Canada and Europe perform just as well, the valuation multiples will shrink quickly.

Monster is quite a stale brand, and I think Celsius (and others) have better products by many metrics, even though they have a significant head start to catch up to. And there are no guarantees that Celsius specifically will be the winner of the future.

[Tasque]

https://www.nasdaq.com/articles/celsius-stock-has-plunged-nearly-50-2024-highs-heres-what-happened-monster-beverage-stock

In this news article as well, Celsius’s situation is compared to Monster. I previously had a technical comparison there to the years 2007–2009; in this news article, it’s to 2012.

[niko_naakka]

“Celsius Holdings stock surges 10% on strong Q2 results”

Celsius Holdings stock surges 10% on strong Q2 results By Investing.com

[massimo]

Another strong result as expected! Sales really took off in Canada. It’s a pity the general market sentiment is so gloomy right now that the good result might not be reflected much in the share price. On the other hand, it could provide some good opportunities to add.

[Jape16]

I think these Nielsen figures look good.

https://x.com/bevinsights/status/1820802176052023323?s=46&t=WEG-cVPSomkRhXnGNjpFZw

At least when compared to Monster.

https://x.com/bevinsights/status/1820801832911851649?s=46&t=WEG-cVPSomkRhXnGNjpFZw

[Waldeboy]

An interesting company. Growth has been staggering in recent years, achieved in the US market. I believe the market share was around the 11% mark. It’s understandable that this pace of growth cannot continue indefinitely. Now, growth has slowed down.

The 12-month trailing revenue is approximately 1.4 billion. If one were to imagine that revenue grows by 20% annually for the next 10 years, the revenue in 2034 would be 8.7 billion. This would roughly match the level where Monster is today. Monster is the closest peer anyway. Monster has a free cash flow margin of about 20%. I believe Celsius can achieve the same over time once the expansion investments are completed. So, if everything goes well and with 20% annual revenue growth, the free cash flow would be about 1.7 billion in 10 years. This is just a thought experiment.

Celsius’s balance sheet is indeed in good shape and it’s already clearly cash flow positive. Now we just need to know how the expansion into Europe takes off and if the brand is attractive on this side of the Atlantic as well. The US alone won’t sustain growth of 20% or more for very long. I can’t say if this is already cheap enough from a buying perspective.