The Stock of Celsius Holdings Experienced a Downturn This Week
Celsius Holdings' shares took a significant plunge this week, losing over 20% of their value, according to data from S&P Global Market Intelligence. The once booming energy drink brand is currently facing some tough times.
The revenue growth has started to slow down lately. To combat this, the company recently announced a major acquisition – Alani Nu, an energy drink brand currently gaining substantial market share. This announcement was made alongside their Q4 earnings.
Initially, the stock price surged upon hearing this news, but it quickly lost most of its gain and plummeted again away. Let's dive into why Celsius stock is seeing a downward trend, and whether it's still a good investment for your portfolio.
Unexpected Merger
Let's discuss Celsius's Q4 earnings briefly. Revenue in Q4 fell by 6% in North America, which was predicted after PepsiCo, a large distributor, decreased its inventory levels. Despite maintaining a strong presence in the energy drink market, Celsius isn't capturing new market share as it once did. International revenue, however, is expanding rapidly, growing by 39% last quarter, but it contributes a minimal portion to the overall Celsius business.
CELH
More significantly, Celsius announced it would be purchasing Alani Nu for a whopping $1.8 billion. Alani Nu is another health-focused energy drink brand with sugar-free alternatives. In recent quarters, it has grown much faster than Celsius in North America, potentially eating into Celsius's market share gains.
The deal will be funded through debt and stock, and the hope is that it will close soon. As per management's investor presentation, Alani Nu is growing by 50% year over year and generated $173 million in adjusted earnings in 2024, meaning Celsius is paying barely over 10x its trailing earnings for the brand.
At first glance, this marks a cheap deal. But after taking a closer look, investors have become less enthusiastic about Celsius stock. Spending this much to eliminate a rival does not suggest that the Celsius brand is in a powerful position currently, and it implies that the energy drink industry is becoming increasingly competitive.
Should you buy Celsius stock?
S&P Global Market Intelligence. The once fast-growing energy drink brand is now going through a rough patch.
Today, Celsius stock has a market cap of $6 billion. If we include the acquisition price, the market value of the merged companies would be around $7.8 billion. Based on these numbers, the combined companies should generate over $2 billion in sales in 2025. Assuming that margins will increase and that growth will return to the Celsius brand in the coming years, this does not appear to be an overly expensive stock.
If you believe in the potential of this combined entity and the growth prospects of sugar-free energy drinks, now could be a good time to invest in Celsius stock.
Enrichment Data:
Celsius Holdings' stock decline can be attributed to a variety of factors, such as:
market cap of $6 billion. To simplify things, let's say that after the acquisition, Celsius' market value will be $7.8 billion by adding on the acquisition price (the actual numbers are slightly more complicated, but this gets us most of the way there).
- Revenue growth slowdown: Celsius experienced a 6% drop in North American revenue in Q4, partly caused by PepsiCo reducing its inventory levels. This drop in domestic growth has raised concerns about the company's capacity to maintain market share in the competitive energy drink market[1][2].
- Increased Competition: The energy drink market is becoming increasingly saturated with competitors like Red Bull, Monster Beverage, and other health-conscious brands. This competition has likely eaten into some of Celsius's market share gains[2][3].
- Consumer sentiment and spending: A recent decline in consumer confidence negatively affected stocks like Celsius, which sell premium products reliant on discretionary spending. The brand's products are more vulnerable to economic downturns[2].
- Acquisition costs and investor sentiment: While the acquisition of Alani Nu is perceived as a strategic move, the $1.8 billion price tag has raised concerns regarding the financial burden it may place on Celsius. Investors are skeptical about whether this acquisition will offset the company's current growth challenges[1][4].
- Valuation concerns: Despite strong international growth, some analysts view Celsius as overvalued based on intrinsic value calculations, suggesting further potential declines if market conditions remain unfavorable[5].
The acquisition of Alani Nu for $1.8 billion is funded through debt and stock, with Alani Nu generating $173 million in adjusted earnings in 2024. However, investors have become less enthusiastic about Celsius stock due to the high price tag, suggesting that the energy drink industry is becoming increasingly competitive.
Despite the revenue growth slowdown in North America and a drop of 6% in Q4, Celsius's international revenue has grown rapidly by 39% last quarter. The acquisition of Alani Nu, a health-focused energy drink brand with sugar-free alternatives, aims to eliminate competition and boost market share.
Investors should consider the potential of this combined entity and the growth prospects of sugar-free energy drinks before deciding whether to invest in Celsius stock. The ongoing challenges in the energy drink market, including increased competition, consumer sentiment, and acquisition costs, should also be taken into account.
Celsius Holdings' stock decline can be attributed to various factors, including the revenue growth slowdown, increased competition, consumer sentiment, acquisition costs, and potential valuation concerns.