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From Fizzy to Frustrating: The SodaStream Story

Financial results from SodaStream International (SODA) this earnings season didn’t exactly disappoint, but they were weird enough to unsettle investors. They also made success in the upcoming holiday shopping season – one in which many retailers say will be difficult -- particularly critical for the small, very popular growth stock.

SODA Chart

SODA data by YCharts

Israel-based SodaStream, maker of machines and supplies for making homemade soda, reported a revenue gain of 29% to $49.8 million for the third quarter on Oct. 30, and net income down about 2% to $16.4 million. Those results generally aligned to market forecasts. But the sources of the sales worried investors. U.S. sales rose 29%, which wasn’t as much as expected. An unexpected 43% revenue rise in Europe made up the difference.

SODA Revenue (Quarterly YoY Growth) Chart

SODA Revenue (Quarterly YoY Growth) data by YCharts

More puzzling was the breakdown in sales between machines, CO2 refills and flavors, all of which are required to make SodaStream drinks. Sales of soda makers and CO2 refills were up 27% and 34% respectively. Flavor sales were up a mere 7% and actually down 2.6% in the U.S.

For many global companies, such geographical anomalies could be ignored. But SodaStream’s popularity on NASDAQ comes from the bet that this company can simultaneously create and corner a market in the big, untapped U.S. market. Anything that suggests Americans are treating homemade soda as a passing fad, rather than the staple it is in some other countries, hurts SodaStream’s share price. YCharts has in the past wondered whether SodaStream will be the next Green Mountain Coffee Roasters, and not in a good way. And even if you like the SodaStream gadget, where's the protective moat around this business?

CEO Daniel Birnbaum told analysts that SodaStream’s numbers give no indication of lagging interest in his products. He blames the U.S. issues on inventory rebalancing in the stores that sell the machines and supplies. He expects flavor sales to accelerate in the fourth quarter and has not changed his expectations for U.S.-led growth, which includes doubling annual revenues to $1 billion by 2016 or before.

The nearly 20% knocked off SodaStream’s share price since the report suggests that investors want more proof. SodaStream’s next best chance to provide some will follow the all-important holiday shopping season, when people buy things like soda makers as gifts. That’s tough timing. Retailers are expecting the slowest holiday shopping season in four years.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  growth stocks   stocks that look pricey   earnings season   

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