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SodaStream Shares Tank As New Customers Fail To Materialize

The company projected dismal third-quarter numbers, citing lower demand for its home soda makers and a general shift away from sugary drinks.

Posted on October 7, 2014, at 10:39 a.m. ET

SodaStream / Via

It looks like a devoted following and customers that often act more like evangelists aren't enough to keep SodaStream's business growing. The company this morning pre-announced dismal financial results that show it is failing to attract new customers on top of its existing base, as well as a growing disillusion with sugary sodas.

SodaStream, which sells a device and flavorings to make soda at home, is in something of a bind. It promotes itself as a feel-good, environmentally friendly alternative to its Big Soda competitors, but also depends on consumers maintaining their love for sugar water. The company is already shifting its business toward healthier products, "primarily in the U.S., where we believe this message will resonate more strongly with consumers," CEO Daniel Birnbaum said today in a statement.

The company's shares are crashing after this morning's announcement of preliminary results for the fourth quarter. It projected $125 million in revenue in the quarter and operating income of $8.5 million. That's well short of the $154.4 million of revenue and $17.6 million in operating income expected by analysts. In the third quarter of last year, the revenue was about the same, but operating income of $18 million was more than double what it expects this year. Its shares fell more than 20% to $21.90 in early trading Tuesday and have dropped by 45% so far this year.

"We have not succeeded in attracting new consumers to our home carbonation system at the rate we believe should be achieved," Birnbaum said. He put the company's challenge bluntly: "The third quarter results are a clear indication that we must alter our course and improve our execution across the board."

Like all soda companies, its sales are struggling in the face of increased concern with health and wellness among consumers, especially in the U.S. But it will also have to deal with increased competition from the biggest soda company of them all: Coca-Cola. The soda giant agreed to a deal earlier this year with the K-Cup manufacturer Keurig Green Mountain, where it took a 10% stake in the company and agreed to license its brand, allowing customers to make Coke at home using Keurig devices.

Home-brewed Coke pods are planned to roll out in 2015.

SodaStream also had to deal with a public relations headache early this year when the U.K. charity Oxfam criticized its brand ambassador Scarlett Johansson for working with it. SodaStream products are largely manufactured in an Israeli settlement in the West Bank. Johansson stepped down from her role with Oxfam and defended the company.

"We are very disappointed in our recent performance," Birnbaum said. "Our U.S. business underperformed due to lower than expected demand for our soda makers and flavors which was the primary driver of the overall shortfall in the third quarter."

The decline in soda sales has been industrywide — Coke only recently reversed a decade-long decline of U.S. soda consumption thanks to its "Share a Coke'' campaign, but even then, sales went up only some 2%. SodaStream, which does not market or advertise as aggressively as its much larger competitors, instead counts on a base of loyal customers who buy its machines and accessories, and make repeat purchases of its soda flavorings.

A BuzzFeed News investigation, in partnership with the International Consortium of Investigative Journalists, based on thousands of documents the government didn't want you to see.