SodaStream Pops the Tab on a Promising IPO

Daniel Birnbaum, CEO of SodaStream (SODA), is betting he can turn carbonated-drink dispensers into a household necessity. Based on his company's initial stock offering, which launched in early November, it looks like Wall Street agrees. Initially priced at $20, the stock has risen to around $31, a 55% increase in two weeks.

On the surface, SodaStream may seem like a questionable bet. After all, soda syphons have been around since the early 1800s, and rose to massive popularity in the 1920s, when they became a perennial set-piece in slapstick routines and Noel Coward plays. While they've declined in popularity over the years, seltzer bottles are still being manufactured and sold around the world.

SodaStream's innovation -- and the reason that the company may be able to make people forget about old soda machines -- lies in its careful positioning as the solution to three cultural concerns. As worries about the environment combine with a general move toward increased thriftiness and concerns about the health risks of soft drinks, many soda drinkers may be inclined to reconsider their consumption habits. Birnbaum is hoping that his potential customers will see SodaStream as the healthy, environmentally responsible, low-cost solution.

Mix Your Own Flavor

The company's sleek, compact carbonators are a little smaller than a coffee machine and are designed to blend nicely into the average kitchen. Using a large tube of compressed carbon dioxide, they carbonate water at an estimated cost of 25 cents per liter. By comparison, traditional single-use soda syphon cartridges cost 67 cents per liter. For soft-drink fans, the company carries 100 flavorings, making it possible for users to produce homemade sodas for far less than the cost of store-bought brands.

The machine also produces less waste. It carbonates water in reusable one-liter bottles that can last up to three years. Traditional sodas use nonrefillable bottles and cans that are rarely recycled. According to Birnbaum, "Less than 25% of the bottles and cans in the U.S. are recycled, and more than 100 billion bottles and cans are thrown away per year. Producing those bottles and cans uses up 100 million barrels of oil per year."

Birnbaum is also hoping to attract health-conscious consumers. Unlike most conventional sodas, SodaStream's flavorings use sugar instead of high fructose corn syrup, a common food additive that has been vilified in recent years. The company's diet flavors are sweetened with Splenda, a hugely popular sugar substitute.

Going Global

SodaStream began planning its IPO nine months ago. Originally, the company intended to sell 4.7 million shares but boosted its offering to 5.4 million. The launch yielded $109 million, a hefty sum that Birnbaum hopes to use on a major expansion: "We are planning to build a new factory, increase our working capital and pay back our debt. We want to have a positive balance as we go into a high-growth period."

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As part of its expansion strategy, SodaStream has entered 24 markets -- including Russia, France, Italy, the U.K., Canada and the U.S. -- in the last 30 months. Birnbaum is especially optimistic about America, which consumes 20% of the world's soda. The challenge, however, is selling the SodaStream to Americans who are content to buying their soda from grocery stores and markets.

"A big part of our job has been educating consumers about the SodaStream," Birnbaum acknowledges. "We need to tell them about the health benefits, money savings and environmental friendliness of the machine." At least judging by the stock's movement over the past few weeks, investors are convinced that Birnbaum and company have a future full of fizz.

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