Company Reports

Celsius has amassed impressive volume share gains in the North American functional and reduced sugar energy drink category in recent years, surpassing $1.3 billion in sales in 2023 from just $75 million in 2019. Propelling the momentum, we surmise Celsius’ better-for-you product portfolio and active-lifestyle branding strategically caters to consumers' penchant for healthier alternatives, while a 2022 distribution agreement with wide-moat PepsiCo has bolstered its channel reach and ability to secure shelf space. That said, we remain skeptical that Celsius benefits from any durable competitive advantage based on brand intangibles or cost advantages, given intense competition from resource-rich incumbents with strong brands, such as Monster and Red Bull, and smaller entrants’ propensity to deliver innovation.

No-moat Celsius’ shares surged around 20% after reporting fourth-quarter sales of $347 million (up 95%) and $0.17 in earnings per share (up 242%) that topped FactSet consensus by 4.8% and 8%, respectively, with a milder outperformance than in the first three quarters of the year. However, 2023 sales of $1.3 billion and a 20.2% operating margin largely matched our estimates. We think the market’s reaction reflects the firm’s progress in core initiatives such as expanding distribution points, new product launches, and market share gains. However, our take is more tepid. We expect to raise our $33 fair value estimate by a mid-single-digit percentage to account for slightly greater revenue growth and the time value benefit, partially offset by higher-than-anticipated advertising spending, but shares remain richly valued. While we remain sanguine about Celsius’ health-centric offerings and PepsiCo’s distribution strides, we caution investors on the challenge of gaining market share from dominant players like narrow-moat Monster and Red Bull, especially as rivals intensify innovation and pricing competition over time.

We’re initiating coverage on energy drink brand Celsius with a no-moat rating and a $33 fair value estimate, which leaves shares trading around a 60% premium to our intrinsic valuation. Despite the firm’s strong position in the reduced-sugar energy drink niche and compelling near-term growth narrative, we believe the market overvalues its ability to wrestle market share from entrenched competitors like narrow-moat Monster and Red Bull and to defend against new entrants in the longer term. Fundamentally, Celsius’ strategy seems replicable, and we anticipate that resource-rich rivals are likely to ramp up innovation to bolster their better-for-you offerings, challenging the firm’s narrow focus on the segment.

Celsius has amassed impressive volume share gains in the North American functional and reduced sugar energy drink category in recent years and is poised to surpass over $1 billion in sales in 2023 from just $75 million in 2019. Propelling the momentum, we surmise Celsius’ better-for-you product portfolio and active-lifestyle branding strategically caters to consumers' penchant for healthier alternatives, while a 2022 distribution agreement with wide-moat PepsiCo has bolstered its channel reach and ability to secure shelf space. That said, we remain skeptical that Celsius benefits from any durable competitive advantage based on brand intangibles or cost advantages, given intense competition from resource-rich incumbents with strong brands, such as Monster and Red Bull, and smaller entrants’ propensity to deliver innovation.