I Sold Celsius
A post-mortem on my Celsius position, why I bought it, and why I just sold it.
Ah Celsius. I couldn’t have found a more emotionally challenging moment to purchase this stock if I tried. If only I had bought it when I took my first sips of the delicious energy drink back in 2022, but alas, I did not.
I made my initial buys back in late 2023 and before I could get the position anywhere close to fully sized, the stock doubled on an earnings beat. It proceeded to fall back down 30% or so and I bought more, it rose back to a near double yet again and then boom…the Pepsi normalization and subsequent crash of the stock. More on that later.
The Thesis
I bought this company it for a few simple reasons.
I loved the drink and its two largest competitors (Red Bull/Monster) had already spent decades branding themselves as a sort of “jet fuel.” As appealing as this idea is to many people (mostly young males), there never seemed to be any alternative to this testosterone fueled branding….until Celsius came along. They were crushing the energy market growing earnings by double and triple digits yoy. A lot of this growth had to do with a new demographic of consumers: women. Celsius’s sugar free “better for you” energy drink offered consumers a tasty and “guilt free” alternative to Redbull or Monster. I found myself drinking them every day, but it was a while before I realized they were publicly traded.
I believed international expansion would be just as explosive as the growth in the States. Celsius was expanding rapidly in North America, and once they partnered with Pepsi as a distributor, I saw no reason they couldn’t continue that growth over seas.
Energy drinks are a great business. Lets face it, caffeine is habit forming, and usually consumed daily. If your company creates a product that becomes someones go-to source of caffeine, you now have a daily subscriber. There may be millions of Starbucks and small local coffee shops, but theres really only two energy drinks: Red Bull and Monster. While Red Bull is a private company, Monster is publicly traded. One look at Monster’s stock performance and you’ll see why I was interested. Since 2010 the stock is up 1,800%. This is a powerful market to be a winner in. In my mind, Celsius was not only a leader in the sugar free category, but they had opened the energy drink market up to the other half of the population: women.
So there you go, that was the thesis. A fast growing “daily subscription” business that was approaching an even larger runway than its competitors. Moreover, they had no debt and plenty of cash. I always like to see a healthy balance sheet, so I considered that to be a sign they were a responsibly run company.
So what happened…
As I mentioned earlier, Celsius had partnered with Pepsi as its primary distributor. This enabled Celsius to expand into more stores and keep up with their growth in demand. Celsius hires producers to make the drinks, and then Pepsi distributes them to end markets. In fact, Celsius actually sells the drinks to Pepsi…this was a detail I was not aware of. Celsius doesn’t mark a sale when you buy one at the store, or even when the store buys one from Pepsi. Instead, they mark a sale when Pepsi buys inventory from Celsius. This means that when we saw revenue and earnings skyrocket, what we were really seeing was Pepsi acquiring a ton of inventory that would hopefully be sold later. This is called “filling the channel.” It could also be called “channel stuffing”…depending on what you want to imply.
So what happened? Well, it turns out that Pepsi had bought way too much inventory from Celsius back in 2023, and would now be “normalizing” that inventory. Meaning, Pepsi bought too much and now they’ll buy even less than enough in order to compensate for the overstocking. This meant two things. The first was that a good deal of the explosive growth we saw was bullshit, and the second was that we could expect a few quarters of steep revenue declines. As you can imagine the stock fell, and then fell more, and more and more and more. As it passed below $30/share I began buying again and ultimately built the position into a “full position.”
I still believed in the company, although my initial purchase did not have this as a potential risk. I figured “slow growth” was the enemy. I didn’t expect to learn that the 40 P/E multiple I signed up for was based on nonsensical “E.” But that was in the past, and I figured at this price the stock was likely undervalued. I knew we would have a few tough quarters, but “ultimately,” I thought, “growth will resume.”
I started listening more closely to earnings calls, and there is a term I heard mentioned a lot. This term is “SKU.” If you don’t know what an SKU is, heres a brief explanation. SKU stands for “Stock Keeping Unit.” Lets say I sell you a hundred bottles Poland Spring Water. I’ve sold 100 units of 1 SKU. If I sold you only 20 bottles Poland Spring Water, 20 Dasani, 20 Figi Water, 20 Smart water, and 20 Cokes, then I’ve sold you 5 SKU’s.
So lets say you’re the owner of a local corner store, and you want to sell regular coke. How many cokes would you order from the distributor? Well, probably as many as you think you may end up selling in between deliveries right? But lets say you also offer Cherry Coke, Vanilla Coke, and Diet Coke. Well in that case you’ll probably end up ordering more product from the Coca-Cola company than you would if you only offered normal Coke. Keeping products stocked is an important part of retailing, and so you’ll end up making more orders to ensure that you can always offer your customers as many types of Coke as they’d like. Make sense?
Well, heres the thing. Thats all great if there really is demand for all of those types of Coke. But lets say I wan’t to make some quick cash with my beverage business. I can’t convince you to buy 100,000 cans of normal coke, but I may be able to get you to buy 1,000 cans of 100 different SKU’s. That may be a bit hyperbolic, but its precisely the behavior I started to see crop up at Celsius.
The introduction of more and more products and flavors and options (SKU’s) from Celsius had me wondering…who’s buying these? There has been a very present emphasis on introductions of more SKU’s in every earnings call I’ve heard. Not so much talk about end user growth picking up, just more products being offered.
This might concern me less if there hadn’t already been a massive (and self inflicted) pull forward in demand for Celsius drinks. In other words, they’ve already been burned by channel stuffing, and yet they keep introducing new flavors and varieties. Could this be a simply marketing strategy? Possibly.
Look, this isn’t a short report. Its very possible this is a legitimate strategy. You roll out a bunch of options and then keep producing the ones that are popular. Seems fine to me? But that never seemed to be the point of the SKU’s on those Earnings Calls. Instead, it really felt like every new SKU was an accomplishment, regardless of how well each one performed. There was no talk of “Orange Peach and Mango are bestsellers, but we’re discontinuing Cherry and Grape.” Instead it sounded a lot more like, “here are 10 more flavors and 5 new product lines, we’re sure people will love em.”
And so I wondered…are they just trying to juice the numbers here? It seemed possible. But I held firm. I decided look, when I first noticed Celsius in a store it was because there were like 20 options that took up an entire Bodega cooler. It was as if the store was saying “which type of Celsius do you want?” rather than “Do you want a Celsius?”
Interestingly, the stock began to regain its footing in 2025. The decline reversed and then suddenly…
The Alani Nu Acquisition
In February of this year Celsius announced a major acquisition of rival energy drink brand “Alani Nu.” These guys had come out of nowhere and had grown to become the 4th largest energy drink brand in North America. Their primary consumer? Women.
Now, I’ve tried an Alani Nu and it was definitely delicious. No shade on Alani Nu at all. But Celsius was about to make a cash, debt, and stock acquisition that was going to make a major dent on both the balance sheet and the share count. This wasn’t a small purchase. This was a nearly 2 billion dollar acquisition being made by a 10 billion dollar market cap company. A company which was only recently the “slick new kid on the block.” And here they were buying up the competition.
3 things annoyed me about this deal.
How did Celsius let Alani Nu take so much market share? Where’s the competition? Why does Celsius, a growth company, suddenly need to buy its growth! What happens when another competitors starts taking market share?
This is a BIG purchase for a small company. The clean balance sheet was suddenly dirtied and all for a rival brand. Will Alani Nu beverages take market share from Red Bull? Or will they instead just prove to be a product women buy instead of Celsius. Can’t beat em, buy em? Thats not my style. Not for a young company like Celsius.
Non-Gaap, pro-forma, adjusted EBITDA. If that doesn’t make you want to puke then I don’t know what to tell you. But this was the rallying cry of the acquisition announcement. Celsius’s management was justifying this purchase to shareholders by projecting future non-gaap EBITDA profit from the Alani Nu acquisition. In other words, “this company many not be profitable, but once you let us move all the numbers around, project undisclosed growth rates and “efficiencies,” and subtract out real expenses like interest, tax, depreciation, and amortization…well after that it looks great. Bullshit.
Maybe this sounds petty or overly “munger” of me, but just seeing a powerpoint with “non gaap, pro forma, adjusted EBITDA” was the real crack in the glass for me. But you’ll never guess what Alani Nu will bring Celsius…yep…more SKU's. More products, flavors, and varieties. More stuff to…well…stuff into the channel. If I were Pepsi, I’d be wondering how long retailers will take all this random “healthy but not actually healthy” type inventory.
As i’ve written these Substack articles and disclosed my ownership of Celsius twice now, I’ve noticed that each time I got to the Celsius position I felt a bit…unenthusiastic. Moreover, since 2023 I have found many more companies that I feel more confident about than Celsius. It was starting to feel like I was just holding it to hold it.
Incredibly, this Alani Nu acquisition was very well received by the market. The stock has almost doubled since the announcement and all while the earnings are still very much depressed. I actually found myself rationalizing the hold because of the channel stuffing I expect. It sounds crazy, but I was “forecasting” a strong back half of the year all because I thought they’ll stuff the channels with Alani Nu. This is not the sort of attitude I should have about an investment.
So I sold it. Not a winner at all with a market loosing gain of 8% net return.
If you own Celsius, just know I could totally be wrong about this company. But I can’t own something where I feel this shaky about the operations. I don’t like looking at earnings figures and wondering how legitimate they are.
I do somewhat expect to see Celsius stock well above where it is today as the year closes out. Whether they’ll truly deserve such a valuation i’m not sure. But for this investor, I had other fish to fry.
Talk to ya later