Under the Spotlight Wall St: Celsius Holdings (CELH)
Celsius is one of the rising stars in the energy drinks industry. Could it beat its fiercest competitors, or does it lack the thirst for success? Let’s put it Under the Spotlight.
Founded in 2004 and headquartered in Boca Raton, Florida, Celsius ($CELH) is a rapidly growing sports and energy drinks colossus that is quickly gaining market share. Marketed as healthy alternatives to traditional energy drinks, the company’s beverages contain no sugar, artificial sweeteners or artificial colouring.
Celsius states its products are clinically proven to offer significant health benefits, with the firm claiming its sports drinks boost metabolism. They contain natural ingredients such as green tea extract, guarana extract and ginger extract, which are believed to have thermogenic properties. These ingredients are thought to help increase calorie burning and support weight loss efforts.
Celsius is aiming to become the go-to drinks option for those with a more active lifestyle. Its drinks come in multiple flavours, including both carbonated and non-carbonated options. The company also sells Celsius On-The-Go – single-serve portable powder packets that are added to water, thus making it easy for users to enjoy a Celsius drink wherever and whenever they want.
Operating in a highly competitive market, Celsius has carved out a niche for itself with its unique offerings. Endorsements from celebrities, fitness influencers and athletes have also helped the brand cement itself as a popular energy drink. One of its most notable partnerships is with social media sensation Jake Paul. The company’s CEO, John Fieldly, emphasised the importance of authenticity in the firm’s influencer strategy and noted that Paul’s personal consumption of Celsius drinks and his relevance within the fitness space made him an ideal ambassador for the brand.
However, not every endorsement deal has worked out well for the brand. In 2014, the rapper Flo Rida signed a contract to promote Celsius products, receiving stock options and bonuses if certain targets were hit. The arrangement ended in 2018, but in 2021 the rap star sued Celsius, alleging the firm had failed to pay him the stock options and bonuses he was owed. Celsius denied the allegations, arguing Flo Rida had not met the sales markers required of him. The case went to trial in January 2023 and the jury found Celsius had breached the endorsement deal, awarding Flo Rida US$82.6 million in damages. The company has appealed the ruling and the case is ongoing.
Celsius is dedicated to growing its presence globally, with its product not only distributed in the U.S., but also in China, Hong Kong and Nordic countries. Meantime, the company is focusing on the best approach to introduce its products to the broader European public. A distribution agreement signed with PepsiCo ($PEP) could further help the brand reach new markets, though that has yet to materialise.
Even though Celsius is attempting to enhance its international presence, the company’s revenue remains reliant on the American market, with only US$15m of its US$325m revenue recorded in Q2 2023 coming from outside the U.S. Business is booming for Celsius in America, with the company second only to Monster ($MNST) as the best-selling energy drink on Amazon’s website ($AMZN).
Revenue has increased at breakneck speed, growing at an average annual rate of over 83% in the past five years. And profit margins are also significant, with gross margins sitting at 48.8% in Q2 2022. The rapid revenue growth allied with high profit margins has made investors keen to value Celsius at a higher premium than its biggest competitor: while Celsius trades at 15x revenue, Monster currently trades at 8x. But that’s not to say there aren’t risks associated with the company’s business model.
Though Celsius’ revenues are increasing rapidly, the company still struggles to turn sizeable profits consistently, while its growth strategies sometimes backfire. For instance, in Q4 2022 the energy drinks maker recorded a net loss of -US$28.2m due to the termination of partnerships with some of its distributors. It should be noted, however, that 2023 has been a record year for the company, with Celsius’ net income reaching US$51m in Q2 2023.
Celsius faces competition from well-established beverage companies like Monster and Red Bull, as well as emerging brands in the energy drink industry, like Reign and Rockstar. Potential hurdles for the company include this intense competition, changing consumer preferences, regulatory challenges, supply chain disruptions, high marketing costs and health concerns. As it moves forward, Celsius will need to continue navigating the challenges of the industry while staying true to its core mission of providing consumers with refreshing beverages that promote a healthier lifestyle.
This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.