Ticker Insight Pro: July 2023. Buy Monster Beverage

Monster Beverage is a consumer-facing company with a dominant brand and a large market share in the United States. The company’s gross, operating, and free cash flow margins have been temporarily depressed, but these margins are expected to normalize as Monster continues to grow its revenue at a low-double-digit rate.

Monster is led by a team of execution-oriented co-CEOs who have been at the helm for over 30 years and own 8% of the company’s shares. This management team is backed by a deeply experienced team of executives.

Monster has a long-term distribution agreement with Coca-Cola, which gives the company the ability to ramp up volumes of new drinks globally. Monster is also expanding into new arenas, such as international markets, new sales channels, and alcohol sales. These new initiatives are expected to drive further growth for the company.

About Monster Beverage (MNST)

Monster Beverage Corporation is an American beverage company that develops, markets, and distributes energy drinks, brewed coffee, hydrating sports drinks, juices, and teas. The company’s products are sold in over 160 countries and territories.

Monster Beverage’s most popular product is Monster Energy, a carbonated energy drink that was first introduced in 2002. The company also produces a variety of other energy drinks, including Monster Energy Ultra, Monster MAXX, Java Monster, Espresso Monster, Caffé Monster, Monster Rehab, Muscle Monster, Monster Hydro, Monster HydroSport, Monster Dragon Tea, Reign Total Body Fuel, Reign Inferno, NOS, Full Throttle, Burn, Samurai, Relentless, Mother, Play and Power Play, BU, Nalu, BPM, Gladiator, Ultra Energy, Live+, and Predator.

In addition to energy drinks, Monster Beverage also produces brewed coffee, hydrating sports drinks, juices, and teas. The company’s coffee brand is Java Monster, and its sports drink brand is Monster Hydro. Monster Beverage also produces a variety of juices and teas under the Monster Energy brand.

Monster Beverage’s products are sold through a variety of channels, including convenience stores, grocery stores, gas stations, and online retailers. The company also has a direct-to-consumer business that sells its products through its website and mobile app.

Monster Beverage is a leading player in the global energy drink market. In 2022, the company had a market share of 30.1% in the United States and 27.6% in the global market. Monster Beverage’s growth has been driven by its strong brand, innovative product portfolio, and global distribution network.

The company is facing some challenges, including increasing competition from other energy drink brands and concerns about the safety of energy drinks. However, Monster Beverage remains a dominant player in the energy drink market, and it is well-positioned for future growth.

Monster Beverage’s Scope of Operations

Monster, a dominant force in the U.S. energy drink market with a staggering 30% share, has become a household name among readers. While its energy drinks remain at the forefront, the company is making strides in diversifying its product offerings. Currently, Monster operates through three core reporting segments:

1. Monster Energy: Undoubtedly the most recognizable products, encompassing a wide range of Monster and Reign flavors, which contribute to a significant portion—over 90%—of the company’s total revenue.
2. Strategic Brands: This division, often overshadowed, plays a crucial role as it comprises sales of various lower-priced energy drinks that Monster acquired from Coca-Cola back in 2015. These strategic brands add to the company’s overall market presence.
3. Alcohol: An unexpected revelation for many, Monster ventured into the alcohol industry through its acquisition of the CANarchy Craft Brewery Collective in 2022. As a result, the company now possesses a collection of craft beers, including renowned names like Dale’s Pale Ale and Jai Alai IPA, among others.

The strategic expansion into these diverse segments showcases Monster’s commitment to adapt and grow in the ever-evolving beverage industry, capitalizing on both familiar and emerging market opportunities.

Why Investing in Monster Makes Sense

The Equation for Success: Brand and Distribution

In the realm of capitalism, predictability often reigns supreme. As soon as a fantastic new product hits the market, competitors swiftly follow suit, offering similar alternatives at slightly lower prices. While this benefits customers, it can be a challenge for investors.

Monster, as a company, is not immune to this phenomenon. The recipe for their beverages is no secret, clearly displayed on the side of each can, making it relatively easy for others to replicate their products.

This is where the concept of having a „moat“ becomes crucial—a sustainable competitive advantage that sets a company apart from its rivals. For Monster, its moat is built on two fundamental pillars:

1. Brand Value: As mentioned earlier, Monster enjoys widespread recognition and trust among consumers. This intangible but powerful aspect leads customers to be willing to pay a premium for their products, contributing to the company’s strength.
2. Distribution Network: While creating an energy drink might be manageable, establishing a global presence for these products is far more challenging. Fortunately for Monster, strategic bottling and distribution partnerships, including one with Coca-Cola, which holds a 19.5% stake in Monster, have allowed the company to reach a global market.

Demonstrating its brand value, Monster successfully implemented price hikes on its energy drinks in September 2022. Despite this, energy drink sales surged impressively by 8.2% year over year, amounting to 349 million cases sold over the past two quarters.

Expanding on the distribution aspect, Monster’s products are now available in 142 countries. However, the company’s more affordable energy drink brands, namely Predator and Fury, are underrepresented, being sold in only 34 countries. Fortunately, Monster has ambitious plans to rectify this by doubling the presence of these brands in 29 additional countries by the end of 2023.

This winning combination of strong brand value and a well-established global distribution network positions Monster as an attractive investment opportunity, with the potential for continued growth and market expansion.