Celsius Earnings: Softening Energy Drink Demand and Competition Begin to Pressure Growth

We anticipated that Celsius would face intense competition in its pursuit to carve out a niche in the fast-growing energy drink market dominated by incumbents, which underscores the firm’s no-moat rating. However, this pressure has become evident sooner than we expected amid softer demand due to a challenging macro environment and new sugar-free innovations by competitors. Taken together with planned inventory reduction by North American distributor wide-moat PepsiCo, revenue growth moderated to 23% in the second quarter and 29% year to date, lagging our 37% fiscal 2024 projection. However, in terms of profitability, the firm’s 23.4% operating margin in the second quarter outpaces our 20.8% full-year estimate. This is due to continued freight optimization efforts and lower material costs benefiting the gross profit line, coupled with general and administration leverage, but partially offset by higher selling and marketing expenses than we anticipated. Balancing these results, we don’t plan any material changes to our $36 fair value estimate and view shares as fairly valued, as the stock price now approaches our intrinsic valuation following a 55% fall from its peak in May.