Celsius Holdings Spotlight: A 10x Stock With 10x Potential

Today’s deep dive is on Celsius Holdings. Started in 2004, Celsius offers energy drinks primarily in North America, competing with Monster and Red Bull. Celsius has taken a “health” angle on the industry and has become popular among a wider range of customers than competitors as a result.

Why Celsius? In ~100 Words

Celsius is the hottest beverage company in the world, growing at an astounding 112.8% annually over the past three years. The company’s recent growth has been fueled by a distribution partnership with Pepsi and a capital-light, scalable business model that has allowed supply to scale with demand.

Plus, the product itself is pretty great.

The valuation of Celsius gives me pause, but we’ve seen this movie before. Monster Beverage traded for nosebleed valuations for decades, only to outperform the market by a very wide margin.

Celsius could replicate Monster’s success in an even bigger addressable market than traditional energy drinks. And that’s a ride I want to be on.

Key Stats

Celsius Holdings by the numbers:

• Company: Celsius Holdings

• Ticker: CELH

• Market Cap: $11.8 billion

• Revenue (ttm): $1.15 billion

• Gross Margin: 47.5%

• Operating Margin: 15.3%

• Net Income: $155.5 million

• Shares Outstanding and Y/Y Growth: 237.3 million (+4.4%)

• Earnings per share: $0.49

• FCF (ttm): $55.8 million

• Date Founded: 2004

• Founder: Carl DeSantis

Celsius’s Leadership:

• Founder: Celsius was founded by serial entrepreneur Carl DeSantis, who nursed the company through over a decade of searching for traction in the market. He passed away earlier this year at age 84.

• CEO: John Fieldly has been CEO since 2018 and has led the company through its current growth phase.

The Strategy

As a business, Celsius is relatively simple to understand. The company comes up with drink formulas and does branding and marketing, but that’s about it. Partners mix, bottle, and distribute drinks to their end location.

Ironically, Celsius is a drink company that doesn’t make drinks.

Celsius the Alchemist

Celsius’s core business is developing drink formulas, branding and marketing those products and assisting distribution partners in sales. This is more of a drinks lab with a marketing arm attached than it is a “beverage maker”, which I’ll cover more about below.

The product fits in what’s known as the energy drink category, but that doesn’t fully capture the product. Celsius is less “jolt of energy” than 5-Hour Energy and less “this is probably poison” than Monster or Red Bull.

I think of Celsius as more of a coffee replacement for those of us who don’t drink coffee.

The company dances a line between fun energy drinks and health products, but it highlights the potential health benefits in certain circumstances.

A calorie-burning beverage! What’s not to like?

The Co-Packer Structure

Beverage companies like Coca-Cola and Pepsi work with third-party bottling companies to produce beverages and put them in cans and bottles. This allows these companies to operate a more capital-light business than they would have to build manufacturing plants and gives bottlers the flexibility to utilize excess manufacturing space with other beverage products.

Not every product is the same, but to use Coca-Cola as an example, the company will make proprietary Coca-Cola syrup and then ship that to bottlers, who dilute it and put it in a can and on a truck to the store. This segment is called concentrates and is shown in the red column below.

Celsius takes this model to the next level, allowing the “co-packer” to mix all of the raw materials, fill cans, and package materials for distribution. Celsius’s role in operations is essentially as a logistics coordinator.

From Celsius’s 2022 10-K:

Without this structure, Celsius wouldn’t be able to nearly 10x revenue in three years. It would be busy building plants and scaling operations. By using co-packers, Celsius can leverage existing equipment and employees to scale the business profitably in a capital-light structure.

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