MNST - Think Twice About Betting Against Monster Beverage

2024-03-25 01:50:08 ET

Summary

• Despite competition from Celsius, Monster's dominance in the US convenience channel and its ability to innovate make it a strong player in the US energy drink market.
• More than half the energy drink market is outside the US, and MNST continues growing nicely on a global basis.
• For many years, it has been very foolish to underestimate Co-CEO Rodney Sacks and the Monster management in the energy drink market.

Introduction

Per my April 2023 article , Monster's ( MNST ) gross margin has fallen substantially from the 60% level of 2019. Some of this is transitory due to the company's covid philosophy of emphasizing product availability over economics. However, some of it is permanent seeing as growth is high in segments where the gross margins are less attractive than the US energy drink market; the alcohol segment and the international segment are examples where gross margins are not as good. Co-CEO Hilton Schlosberg repeated his emphasis on dollars over margins in the 2Q23 call (emphasis added):

We went into alcohol with our eyes wide open, we knew the margins that were in alcohol would be lower than the margins in the energy drink category. So we look at margin, I've always said this on calls, I say we bank dollars, we don't bank percentages. And I've always encouraged analysts to just think, likewise, that we don't bank percentages, we bank dollars .

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