Update: Celsius FY 2024!
Huge acquisition and a possible stock recovery!
To say that Celsius has had a tough 2024 would be an understatement.
I released my Celsius Deep Dive on 27. May 2024, when with a market cap of $22B, the company was at the top of the world! On the back of the Pepsi partnership, Celsius reported 95% revenue growth in Q4 2023 and 37% in Q1 2024.
Since then, however, the story has shifted dramatically! As a result of slowing growth, the stock has collapsed 75% to a market cap of a mere $5B. The narrative was bleak, until yesterday!
Read my full Deep Dive to learn more about the company!
On Wednesday, the company suddenly announced that it will report earnings on Thursday and participate in a Wall Street consumer goods analyst conference on Friday. This announcement sent the stock up 14%, as investors speculated that pulling earnings forward must mean that good news are coming.
And they were right!
Yesterday, Celsius announced a $1.8B acquisition of Alani Nu, their largest direct competitor! Wall Street loves deals, thus, the stock jumped 35% on the news!
In this update, I will look back at 2024, the problems, and the new financial reality.
Of course, now that we have more information, an updated valuation model will be presented!
Let’s dig in!
1. Pepsi Inventory Issues
2. Distribution
3. Alani Nu Acquisition
4. Sales and Profits
5. Valuation
6. Conclusion
1. Pepsi Inventory Issues
On 1. In August of 2022, Pepsi invested $550M in Celsius and became their exclusive distribution partner in the USA and Canada. (Read my full analysis of the partnership in Part 2 of the Celsius Deep Dive)
Pepsi channel quarterly revenue grew by 348% from Q4 2024 to Q3 2023, and Pepsi’s share of overall Celsius revenue grew from 31.2% to 64.6%.
The deal was working perfectly, until it wasn’t!
Celsius recognizes revenue not at the final point of sale but when they ship to Pepsi.
It seems that both Celsius and Pepsi significantly overestimated the demand for the beverage. This caused sales to grow in Q3 and Q4 of 2023 at an unsustainable rate!
As Pepsi struggled to sell all of its Celsius inventory, they significantly reduced purchases of new products. This caused Pepsi’s channel sales growth to slow down to 15% in Q2 2024. Things got worse in Q3 when Pepsi sales fell 50%. The company has yet to disclose the Q4 revenue split.
In the Q4 earnings call, the CFO said that inventory issues caused revenue to be between $8-10M smaller.
It seems that the inventory issues could be coming to an end, and we could be returning to a more reasonable 10-20% growth rather than 100% hyper-growth!
2. Distribution
Pepsi distribution deal doesn’t include Costco, Amazon, and International segments.
I wish Celsius’s disclosures would be a bit more consistent as, in some quarters, they disclose Amazon, Costco, and other channels separately and some together, but let’s piece through it.
Despite overall revenue falling, Costco sales still grew in 2024. Q1 Sales grew 8%, Q2 15% and Q3 16%.
Amazon sales grew by 21% in Q3 2024.
The performance of these segments leads me to believe that Pepsi inventory issues are indeed temporary!
International sales grew 37% in 2024 to $74.7M. A slow start, as investors would hope for international growth to accelerate. 94% of Celsius sales are still made in the US and Canada, much higher than Monster and Red Bull.
In 2024, Celsius signed multiple deals with the Japanese beverage giant Suntory. Suntory has dozens of brands, yearly sales of over $22B, 40 thousand employees, and operations that span the globe. Through this partnership, Celsius entered the UK, Ireland, Australia, New Zealand, and France. If successful, we should see meaningful results from this partnership in 2025 and 2026.
I find it likely that Celsius will sign more distribution deals during 2025!
3. Alani Nu Acquisition
In my Celsius Deep Dive, I talked about how, with “feminine marketing,” Celsius has managed to attract a lot of women to the energy drink category. Red Bull and Monster, the two main energy drink giants, are famous for their “masculine” marketing that heavily uses extreme sports in their advertisements. (Read the full analysis in the Market Strategy section of my Celsius Deep Dive).
Well, Alani has taken that to another level!
Red Bull and Monster are believed to generate 80% of their sales from men, whilst Celsius is about 50/50.
Alani is 90% female!
The brand is especially strong with GenZ and millennial women.
Structure
Celsius is paying $1.8B to acquire 100% of Alani Nutrition and all its subsidiaries!
The deal will generate $150M in tax benefits, reducing the net purchase price to $1.65B. Alani likely has carry forward losses on its balance sheet that Celsius can use to reduce its taxes.
This deal, unfortunately, involves some dilution. $1.3B will be paid in cash. Celsius doesn’t have so much cash, so the company will issue $900M in debt. $500M will be paid in stock, representing an estimated dilution of 8.7%! This is quite painful for investors who are still holding the stock after it is down 75%. Under the old valuation, 8.7% of the company would be worth $1.9B, not $500M.
Alani’s founders and management will stay for at least 2 years to help with the transition. If Alani meets certain objectives, they will receive a $25M earnout in 2025.
Before the deal, Celsius had a total debt of just $5.8M. Considering their profitability, the company will have no problems managing this debt.
Celsius is paying 3 times Alani’s 2024 revenue and 12 times fully synergized Adj EBITDA!
The Rationale
The acquisition of Alani Nu is a strategic move aimed at strengthening Celsius’s market position, expanding its consumer base, and leveraging synergies between the two brands.
But most importantly, this is a defensive acquisition!
Here are the main factors driving the deal:
Firstly, I find it extremely likely that if Celsius hadn’t acquired Alani, Red Bull, Monster, or another beverage giant would have done so!
Energy is the most profitable non-alcholic beverage category. However, the industry is no longer growing as quickly as it used to. Between 1999 and 2013, the global energy drink market grew with a 15.2% CAGR.
However, from now on, Mordor Intelligence believes that the global energy drink market will grow with only a 5.9% CAGR. Much slower than before!
This means that growing new brands is not as easy as it once was. Consolidation is coming, and Celsius must act accordingly. By acquiring Alani, Celsius prevents a competitor from acquiring this young and promising brand.
There is no doubt that Monster, Red Bull, or Nestle could have used their scale and distribution network to turbocharge Alani’s growth. This would have put pressure on Celsius’s growth and margins. By paying $1.8B now, Celsius could be preventing billions of losses in the future.
Secondly, it is believed that the majority of the industry growth will come from women and sugar-free energy drinks.
Celsius is already a leader in the sugar-free category, but it is facing tough competition from incumbents. With Alani, Celsius is jumping headfirst in the women-focused energy drink category.
One of my concerns with Celsius’s sponsorship deal with UFC fighters was that the company was moving away from its feminine marketing roots towards a more masculine strategy. Undoubtedly, this was meant to steal customers from Red Bull and Monster, but I feared Celsius could be losing its brand identity. To gain 3 male customers, Celsius could be losing 2 female customers.
Having Alani in their portfolio enables them to segment their efforts. This could lead the company to move away from their feminine marketing with Celsius and make that a “boy brand” and Alani the “girl brand”.
Thirdly, Celsius wants to increase scale, hoping it will improve margins. Alani had sales of $595M in 2024. Celsius believes that this deal will deliver strong synergies of around $50M per year by 2026. Apart from firing employees in duplicate roles, consolidation in production should enable the group to have better gross margins.
Lastly, the company is increasing its product offering and expanding to new categories!
20% of Alani’s sales actually come from pre-workouts, stick packs, shakes, and protein snacks. There is potential for Celsius to become a fully-fledged fitness, sports, and health company that, apart from energy drinks, has a large presence in the fast-growing fitness and high-protein category.
My Take
I believe the company made the right choice here. 8.7% dilution might seem excessive, but the deal could generate significant returns.
During the earnings call, Celsius said that Alani is about two years behind them in their distribution strategy. This means that it is likely Celsius could significantly grow Alani’s revenues in the next few years. Let’s assume 30% growth in 2025 and 20% in 2026.
This means that Alani’s revenue could grow to around $644M in 2025 and $773M in 2026.
Assuming Alani could achieve a 7% net margin, below Celsius’s currently depressed margins of 8%, net income could be $45M in 2025 and $54M in 2026.
This suggests Celsius is paying 2.3 times 2026 sales and 33 times earnings!
This is not cheap, however, I wouldn’t also call it “grossly overpaying” as some on the Fintwit suggested right after the announcement.
These are conservative estimates. It is entirely possible that Celsius could achieve higher growth and better economics.
4. Sales and Profits
Celsius closed the year with revenue of $1.36B, up 3% Y/Y.
Looking at the chart above, we see that this is far below historical growth. Between 2018 and 2023, the company grew sales by 2.477%. Although no one expected to see such serious inventory issues as Pepsi had, it is not surprising that revenue growth came down. Hypergrowth can’t last forever.
Growth went negative in Q3 and Q4, with sales falling 31% and 4% respectively.
Lower sales caused profits to decrease as well. With operating profits falling 42% to $156M, the margin fell to 11.5% from 20.2%. Meanwhile, net income decreased by 54% to $105M, with net margin moving from a healthy 17.7% to 7.7%.
5. Valuation
Despite jumping 35% after the announcement, Celsius is still down 64% from May 2024. At the current market cap of $8.24B and net income of $105M, the company trades for a TTM P/E of 79.
This is a premium valuation, so investors are clearly pricing in a return to growth and improving profitability.
Wall Street analysts haven’t had time to update estimates to reflect the acquisition, so it is pointless to look at their estimates now.
I, however, have updated my valuation model.
Valuation Model
I can admit when I am wrong, and clearly, the estimates in my May report were overly optimistic. I couldn’t have foreseen such a massive and quick collapse in Celsius story and stock price.
The organic growth of Celsius will clearly be lower than many analysts believed. However, with Alani in its portfolio, Celsius is well-positioned to benefit from current trends.
For 2025, I model Alani growing sales by 30% to reach $644M. Additionally, I model a recovery in Celsius organic growth to 15%, with sales reaching $1.56B. For a total revenue of $2.2B.
For net income, I find it quite likely that Celsius will significantly improve its margins, as they were depressed in 2024 by Pepsi inventory issues. With a 15% net margin for Celsius and 7% for Alani, 2025 net income reaches $278M.
For 2026, I model Alani growing sales by 20% to reach $773M. Furthermore, I foresee a continuation in Celsius organic growth of 15% to reach sales of $1.79B. For a total revenue of $2.57B.
For net income, with a 15% net margin for Celsius and 7% for Alani, 2026 net income reaches $323M. Adding the $50M in synergies, we get a net income of $373M.
To calculate 2026 EPS, we must take into account the dilution. If we take the current 231.787M outstanding shares, adjust for 8.7% shares given to Alani shareholders, 2% other dilution, and assume that dilution in 2026 won’t exceed 6%, we get to 271.984M shares. Net Income of $373M/271.984 we get to 2026 EPS of $1.37.
The current share price of $34.50 means that Celsius trades just 25 times 2026 earnings!
Assuming top line growth falls to 15% in 2027 and remains at around 10-12% further on, we get to 2030 revenue of $4.04B, 198% above 2024 levels. This is $1.9B below my May model. It is quite clear that my estimates were overly optimistic. Investors should always adjust their valuation whenever new market realities set in. Valuation is not a science, it is an art.
In terms of profitability, I model a gradual improvement in profitability to reach 21%, around the same level Monster operates at, to get a net income of $843M.
Moreover, it has become clear that to sustain such growth, Celsius could be forced to do more acquisitions. For this reason, I am increasing dilution from 1.5% in my earlier model to 6%.
With a P/E of 30, we get to a market cap of $29.3B, around $73.68 per share, compared to $154.3 per share in my earlier model.
This presents a 114% upside to the current valuation, a CAGR of 13.5%!
6. Conclusion
This is how I concluded my May Deep Dive:
“Celsius is financially sound, however, the company is trading at a premium valuation! Both the Base Case and the Bull Case models show that there is still an upside in this company, however, the upside is dependent on the company's success overseas.
Ultimately if Celsius translates its brand message successfully, and finds great manufacturing and distribution partners, the stock will do well. If the company fails at these tasks, the stock will stagnate!”
I was right to identify the risk of buying a company at a premium valuation. Sustained growth is difficult, and even small slowdowns can cause large decreases. Celsius slowdown was not small, the company went from growing 100% in 2023 to just 3% in 2024. In retrospect, the 75% fall was justified.
I was partially right about my conclusion that the story now lies overseas. International growth was just 37% in 2024. Even in a world without Pepsi inventory issues, this was too low to justify the valuation. The company must accelerate its efforts to grow in Europe and South America.
However, admittedly, I completely missed the Pepsi collapse. I didn’t think it was likely that their domestic business would collapse so quickly and so brutally. I was incorrect.
However, at the current valuation, the company seems to be a significantly better deal than it was in May. No longer do investors need hypergrowth to justify the valuation.
As the Valuation Model shows, a relatively modest 12-17% 2030 CAGR would be sufficient for the investors to have a reasonable 113% upside!
This leaves significant room for the company to overperform! If Celsius organic growth accelerates, Alani integration goes well, and the company successfully grows in other fitness categories, investors could see additional upside!
However, if the integration fails and growth doesn’t accelerate, the stock will stagnate!
Thank you!
If you want to learn more about Celsius I suggest you read my full Deep Dive. I cover topics that I didn’t discuss in this update, such as business model, marketing strategy and more. Apart from the valuation, everything else is as relevant today as it was back in May!
Celsius. The New Disruptor! Equity Research! Part 1/3.
Thank you for reading Global Equity Briefing!
Global Equity Briefing is an investing newsletter with a focus on analysing global companies. I have written highly detailed Deep Dives on Ferrari, Palantir, Robinhood, Celsius, Mercado Libre and Hello Fresh!
Additionally, i have written Investment Cases on Amazon and Google! and comparisons of Visa vs Mastercard and Eli Lilly vs Novo Nordisk!
My goal for 2025 is to write 1 article a week!
Subscribe to get all my articles as soon as they are released!
You can follow me on Social Media below:
X(Twitter): TheRayMyers
Threads: @global_equity_briefing
LinkedIn: TheRayMyers
Disclaimer: Global Equity Briefing by Ray Myers
The information provided in the "Global Equity Briefing" newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.
The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.
Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the "Global Equity Briefing" report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.
but it could be worth it if Celsius successfully integrates Alani and captures long-term growth in the female-focused energy drink market.
What do you think?
Thanks for the quick analysis! Clear and detailed. CELH investors like me appreciate it very much! :)