Soda

Saul
It has had more than a fair share of bad news in the past 6 months. First it was the slowdown in flavor sales, then the warning, and then the West Bank boycott controversy and now the new competition from KO and Green Mountain. I think the pop today is likely related to the hope of some potential partnership. That is just pure guessing and has no factual basis at all at this moment.
What is your take on Soda? Do you feel it still has a favorable risk/reward ratio as an investment based on your investment philosophy/practice?

Regards.
-M

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M, I’ve been out of Soda for some time. I think the pop today is related to hopes that they will be acquired (by Pepsi?). The money Coke put into Green Mountain was enough to buy all of Soda with plenty to spare.

Saul

I’ve been out of Soda for some time

Saul, you were clearly prescient on that one. What were the signs that made you get out?

Neil
Long SODA

Neil,

I’m not Saul, but I thought you might be interested in the post I made to the SODA RB Board on this topic.
http://discussion.fool.com/1069/sodas-challenge-going-forward-31…

Best, Vic

I believe SODA’s ability to prosper in a competitive landscape has everything to do with how their flavor’s compare to alternatives. It is not about the machine, but more about the flavors. In the past 6 months or so, I’ve observed increasing user sentiment, albeit subjective, that suggests Sodastream’s soda flavors are neither comparable nor preferred to those most popular in the marketplace (Coke, Pepsi, etc etc).

I view the GMCR deal w/ Coke with mixed feelings, since on one hand it does validate SODA’s single cold, carbonated beverage concept, but it also represents a huge competitive threat to SODA that didn’t exist before, especially around the flavors for which it has no real answer at present. There is obviously lots to still unfold from a strategy and execution standpoint within both GMCR, SODA, SBUX and potentially others.

So for me, I felt the shares, while still having great potential, beame more risky which could impair the moat and growth profile for which I originally invested in 2012. So I exited all of my SODA positions in early January.

Nonetheless, I totally realize SODA could be a major success, especially if they pair up with Pepsi, Dr Pepper, etc. But this was the right decision for me and I won’t look back even if SODA succeeds.

I wish everyone the very best who remains invested.

–Vic

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Saul, you were clearly prescient on that one. What were the signs that made you get out?

Neil, you didn’t have to be prescient to get out of this one. The following was from the preliminary results report in Jan. I thought this was clearly the handwriting on the wall.

Saul

“Despite achieving all-time record sales, we failed to deliver our profit targets and are disappointed in our fourth quarter performance,” said Daniel Birnbaum, Chief Executive Officer of SodaStream. “These preliminary results reflect a challenging holiday selling season in the U.S. and several factors, mostly from the second half of the quarter that negatively impacted our gross margin. These include lower sell-in prices and higher product costs, a shift in product mix versus plan, and unfavorable changes in foreign currency exchange rates. While we expect some of these headwinds to continue into the first half of 2014, we are moving quickly to implement the necessary measures to restore margins to historical levels in the coming year. We remain confident that despite this setback, we will continue to profitably expand our share of the global carbonated beverage category and are on the right path to meet our long-term goals.”

Terrible results. I sold out.

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Thanks Vic and Saul for your responses.

Vic:
I believe SODA’s ability to prosper in a competitive landscape has everything to do with how their flavor’s compare to alternatives

That may certainly prove to be true, but Keurig-made coffee is absolutely horrendous (and much more expensive) and yet GMCR has been very successful. So I haven’t really worried too much about how the soda flavors compare to the real thing, but perhaps that’s a mistake. Maybe Americans are more discerning with their soda than they are with their coffee. Or maybe the convenience from a Keurig versus brewing coffee is seen as more pronounced than from a SodaStream versus lugging cans, so people are willing to compromise more on the taste.

Saul:
I thought this was clearly the handwriting on the wall

It was certainly a stumble, but I’ve been burned selling companies after stumbles that prove to be temporary. GMCR is an example once again: it’s up nearly 400% over where I sold out of it a little over a year ago (in part because of the very concerns Vic mentioned about flavor quality). So when SODA management said they know what needs to be done to fix the problem, I held.

Do you find it more prudent to exit and sit on the sidelines after a stumble to see if management can fix it? And do you then watch closely to potentially get back in, or do you move on to other things?

Thanks again!
Neil

Hi Neil,

It depends. Sometimes I buy back in. For instance, I sold out of TSLA at $167 because the price had shot up at a pace I thought was ridiculous. Then I bought back at $128-$130 average. But I hadn’t sold because of any problems, just the price.

With SODA there just seem to be too many questions right now. Pepsi could buy them out for $50 or $60 a share, but maybe Coke and Green Mountain will just blow them out of the water first. And they were having all these problems before that announcement. And they didn’t quite say they could fix the problem. They said headwinds would continue for the first half of the year.

You may be right, but I don’t know.

Saul

Do you find it more prudent to exit and sit on the sidelines after a stumble to see if management can fix it? And do you then watch closely to potentially get back in, or do you move on to other things?

Personally, I never sell entire positions.

I may rebalance my portfolio from time-to-time to get my positions in line with the 0.5%, 1%, 3%, 5%, or 7% of my portfolio that I want them to be.

But even for stocks that have stumbled and I’ve lost confidence in I will relegate them to the 0.5% position size (my GME shares are beating the market now!)

Instead of completely exiting you may find that buying in thirds and selling in thirds works well and gives mgmt time to address issues.

Fdoubleol

Neil,

What you are missing with Keurig is that they have access to many favors that people DO find appealing, like coffee made by GMCR, Dunkin Donuts, Paul Newman, and many others who make K-cups for Keurig machines. This is really not the case (as yet) on the soda side with a Sodastream.

Again, it could happen, but if it doesn’t, then I believe that will be a major negative for the company and the shares. It appears to me that Coke and Pepsi kicked the tires on Sodastream this past Summer (hence the rise in SODA’s shares), and came away without a relationship.

So it is this combined uncertainty that drove me to sell my shares. I repeat that you are absolutely correct that things could work out for Sodastream. Best of luck.

Vic

Thanks, Saul and Vic

You may be right, but I don’t know.

I wasn’t really trying to argue that holding is the right thing, merely expressing the thought process (and past experience) that led to my holding. But I have no doubt your judgement on these things is far better than mine in aggregate, and I’ll continue to reassess my position.

Neil