Coca-Cola and Pepsi seem to be synonymous with the beverage industry in the US stock market, having dominated the sector for decades.
Yet, the growing popularity of energy drinks has carved out a new niche, one that has fostered the rise of some extremely successful enterprises. Notably, Monster Energy Drinks (MNST) has realized unparalleled success, becoming the best-performing stock in the S&P 500 Index over the past quarter-century.
Now, an up-and-coming challenger, Celsius Holdings (CELH), is starting to make significant inroads. Over a mere five-year span, Celsius's stock has skyrocketed by an impressive 2,600%.
In this article, we'll take a closer look at the energy drink market to determine whether Celsius has the potential to mirror or even surpass the triumphs of Monster Energy Drink.
The energy drinks market is rapidly expanding, fueled by consumers searching for healthier, sugar-free options. This segment is now one of the fastest-growing in the beverage industry, with substantial market potential.
According to Allied Market Research, the market size will be close to $108.4 billion by 2030, with an average annual growth rate of 8.2%. Grand View Research's report is even more optimistic, predicting that the energy drink market will reach $177.58 billion by 2030, with an average annual growth rate of 8.3%.
Regardless of the specific size, these reports agree that energy drinks are a fast-growing industry. As long as the overall market continues to expand, new players have an opportunity to thrive.
So, who are the key players in the energy drink market? According to Statista, Red Bull (39.5%), Monster (29.7%), and Celsius (5.9%) dominate the US market. It's interesting to note that Celsius has recently emerged as a major player, surpassing Rockstar in recent years with its remarkable growth.
You might wonder what sets Celsius apart in such a fiercely competitive energy drink market.
Source: Statista. Data as of July 2023.
Celsius, an American company founded in 2004, is swiftly climbing the ranks in the functional energy drink market. Offering four beverage lines across 10 countries, Celsius has carved out robust distribution networks in the U.S. through various retail outlets like supermarkets, convenience stores, gyms, and pharmacies.
Energy drinks contain caffeine, which can provide a refreshing boost and enhance concentration similar to coffee
However, unlike coffee, energy drinks are usually sweet because they add a lot of sugar and artificial sweeteners. This is also a criticism that energy drinks are not healthy enough.
Unlike its competitors, Celsius sets itself apart by emphasizing health. Its drinks are sugar-free, sweetener-free, and formulated with natural ingredients like green tea, guarana, ginger, and vitamins, earning them a 'healthy' label.
With people's increasing awareness of health and consumers' emphasis on healthy eating during the pandemic, Celsius has just caught the wave of these two new trends and has grown rapidly.
The company's revenues surged from $52.6 million in 2018 to $653.6 million in 2022, marking an impressive 1142% increase. This growth trajectory has also been reflected in its stock price, which has risen by 2600% over the past five years.
We can assess and compare them based on their products, growth, profitability, and valuation.
In terms of product, based on the report from Caffeine Park, both Celsius and Monster offer various flavors to cater to different preferences. When it comes to caffeine content, a 16-ounce can of Celsius contains 200mg of caffeine, which is higher than Monster's 160mg. Therefore, Celsius may be more effective in providing an energy boost. Additionally, there is a notable difference in sugar content between the two drinks; while Celsius has zero sugar content, a 16-ounce can of Monster contains as much as 54g. This suggests that those seeking to reduce their sugar consumption and prevent health problems such as obesity would consider Celsius as the healthier option.
In terms of company size, Monster is much larger than Celsius. In the first three quarters of fiscal 2023, Celsius had revenue of $970 million, while Monster had revenue of $5.41 billion, equivalent to 4.5 times that of Celsius. In addition, as of January 4, 2024, Celsius's total market value was $13.1 billion, while Monster's market value was $60 billion, about 3.6 times that of Celsius.
In terms of growth, Celsius has far exceeded Monster. During the first three quarters of fiscal year 2023, Celsius' revenue grew by 104%, while Monster's only increased by 12.8%. If Celsius can maintain this momentum, it has the potential to close the gap with Monster in size.
However, in terms of profitability, Celsius falls slightly behind Monster. In the first three quarters of fiscal 2023, Celsius's gross margin stood at 48.1%, which is lower compared to Monster's 52.8%. A higher gross margin indicates that the company's products are more competitive within the industry and possess stronger bargaining power.
From a valuation perspective, Celcius is slightly more expensive than Monster. Based on the closing price on January 4, 2024, Celcius's P/S valuation stands at approximately 11.41 times, while Monster's P/S valuation is around 8.67 times. If we consider the P/E ratio for valuation purposes, Celcius is valued at a significantly higher multiple of 117.8 times compared to Monster's 39.1 times.
In general, Celsius is a smaller beverage company compared to Monster and its profitability is not as strong as Monster's. However, Celsius has greater growth potential, which partly explains why its stock price is valued much higher than Monster's.
You may ask, after experiencing rapid growth in the past few years, can Celsius maintain such high growth in the future?
According to Entrepreneur, Celsius' future growth prospects mainly lie in two aspects:
1. Cooperation with PepsiCo
In August 2022, PepsiCo acquired part of Celsius's shares for $550 million, which undoubtedly brings Celsius greater influence in the retail channel. As Celsius continues to cooperate with PepsiCo to expand sales points, shelf space, and sales volume, it should continue to grow.
Jefferies research predicts that after the agreement with PepsiCo, Celsius may occupy 8% to 9% of the US retail market by 2025. Before the agreement, the company's market share was only 5% to 6%.
2. International growth
The Entrepreneur believes that most of Celsius's growth opportunities are overseas. By the first quarter of 2023, 96% of total sales were from North America.
Since Celsius's business model is fully validated in the North American market, replicating the model in overseas markets will be the company's next goal. If its brand awareness can rise as quickly as it has in the United States, international growth could be very rapid.
Based on the above two assumptions, some analysts believe that Celsius will earn $1.32 per share this year and $2.15 per share next year. If Celsius can continue to maintain high growth, it may be able to digest its high valuation in the future.
1. High valuation
Generally, companies with high growth potential tend to have higher stock valuations. As of the closing price on January 4, 2024, Celsius's P/S valuation stands at 11.41 times.
In comparison to its own historical data over the past five years, this valuation level falls within the lower middle range. However, when compared to the industry average of 3.24 times, Celsius's valuation appears significantly higher. This can be attributed to the fact that the current share price may already reflect future growth potential and could result in sharp fluctuations if the company's growth rate declines.
Source: moomoo. Data as of January 5th, 2024. The data is not current.
2. Intense competition
According to analysts at The Motley Fool, the beverage industry is highly competitive with low barriers to entry, allowing individuals with financial means to easily enter the business. Therefore, they believe that establishing brand recognition is crucial for sustainable success in this sector. Despite Celsius's impressive growth rate, it remains a relatively small player and its brand influence falls significantly short compared to that of Coca-Cola or Pepsi. This leads them to conclude that Celsius has a limited economic advantage.
Additional disclaimer:
This content is not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. All company analysis information is provided by third parties and is not compiled by Moomoo Financial Inc. Any illustrations, scenarios, or specific securities referenced herein are strictly for illustrative purposes.
