Whitney Tilson had an impressive 2014– but he is not backing down on some of his bold calls in 2015. Whitney Tilson is out with a new email to investors in which he explains why he is still bullish on Sodastream and why 3D systems is a dream short. Check it out below.
Whitney Tilson on why is he long in Sodastream and calls 3D Systems a dream short.
Whitney Tilson on Sodastream
1) This is just the kind of article (from the front page of today’s NYT business section) that comes out when a stock is so beaten down that it’s about to skyrocket – mark my words. I wouldn’t change a word of my presentation on SODA at the Robin Hood Investors Conference last Oct. (attached).
The ending is particularly silly:
“It’s a huge hassle,” Mr. Schmitz said, “and the alternative is so cheap — I can buy a liter of sparkling water for 89 cents.”
The beverage industry is buzzing with rumors that Keurig Green Mountain, the coffee company in which Coca-Cola has a minority stake, is on the verge of unveiling a machine that makes both single-serve hot drinks and carbonated cold drinks. In December, Keurig bought the rest of Bevyz, which held a patent for such a hot-cold machine. (It previously had a 15 percent stake in the company, which officially was named MDS Global Holding.)
“I think many people aren’t going to want two machines, one for hot, one for cold, on their countertops,” Mr. Sicher said. “I think a hot-cold combination machine from Keurig is inevitable.”
A) The article focuses on what a hassle it is to replace the SodaStream canister, but I’ve found it to be really easy – just bring it in to any one of 60,000+ stores and walk out with a new one. And what about the hassle of schlepping a bulky, heavy container of soda water bottles through the supermarket, to the car, to your home/apartment, and putting it away?
B) Sure, you can buy a liter of sparkling water for 89 cents – but that’s more than TRIPLE the 23-27 cents per liter if you have a SodaStream machine.
C) If I read another story about Keurig’s vaporware… This was a product that was supposed to be out last holiday season, and here we are most of the way through February and not only is there no product on the shelves, there’s not even a demo! Here’s what I wrote about the “threat” this poses to SodaStream (page 30 of the attached):
- Keurig Cold doesn’t exist and there is no firm date for its launch
– I’m highly skeptical that it will reach shelves this year
– I’m equally skeptical that the proposed chemical-based carbonation (thus eliminating the need for CO2 canisters) will live up to expectations
– There is talk that the degree of carbonation will be significantly lower than with a SodaStream machine; if so, will Coke really put its brand on this?
- At anticipated price points of $200-300 for the machine and $0.60-0.80+ per serving for Keurig Cold and Bevyz – multiples of SodaStream’s prices – they are unlikely to have mass appeal
- While a single-serve coffee machine like Keurig makes sense (as the alternative is to brew an entire pot of coffee), Coke, Pepsi and other sodas are already sold and widely available in single-serve containers
- The target SodaStream customer is not a hardcore Coke/Pepsi drinker
– They tend to skew higher income, be more health conscious, etc.
- Keurig Cold and Bevyz will not make sense (economically or otherwise) for consumers who just want seltzer (SodaStream’s core customers)
- Keurig Cold and Bevyz will not make sense for consumers who want larger portions than single-serve (i.e., for gatherings in which you want bottles of seltzer on the table, or families with lots of kids)
Whitney Tilson on 3D Systems
2) I was quoted in the Barron’s cover story last March entitled Beware 3-D Printing:
“Investors love organic revenue growth,” says Whitney Tilson, manager of hedge fund Kase Capital and co-founder of the Value Investing Congress. “The problem is that you really have to differentiate between organic revenue growth and profitability.”
Tilson calls 3D Systems a “dream short,” and he has been adding to his own short position of late. He’s betting against four other 3-D printing names, as well, which he declined to name. “These stocks are being valued as if this is the next coming of the iPhone and iPad combined,” he says. He describes walking around CES seeing dozens of companies hawking essentially the same thing. “There was booth after booth of companies with very similar products to 3D Systems. And at lower prices.”
He thinks 3D Systems would be generously valued at three times revenue, which would put the stock at $15, 80% below its recent close.
And again in the follow-up article in Barron’s a week ago (there’s a similar story on the back page of the Money & Investing section of today’s WSJ):
“All the momentum guys are gone…yet it hasn’t fallen enough for any sensible value investor to want to own it,” says Whitney Tilson, who was short five 3-D printing stocks last year before closing out his entire portfolio of short positions. “On any metric, the stock remains wildly overvalued.”
(I didn’t close out my entire portfolio of shorts, but most of it.)