Celsius Keeps Taking Market Share as Its Revenue Falls: Here's How That's Possible

The energy drink space is big and filled with many upstart players. One that has risen to prominence in recent years is Celsius (NASDAQ: CELH). The company was able to differentiate itself in the crowded space by making its portfolio sugar-free and by claiming its drinks are thermogenic, allowing drinkers to burn calories even while resting.

In short, Celsius has quickly skyrocketed to the No. 3 spot in the U.S. energy drink industry by market share, trailing only Red Bull and Monster Beverage.

It's unclear whether Celsius will ever be able to further climb the ranks of this market -- Monster and Red Bull still have sizable leads at this point. But the company is still taking market share. As of its third-quarter report, management believes it has 12.1% market share, up from 11.4% earlier this year.

It's here that astute observers might raise an eyebrow. How can Celsius possibly be taking market share when its Q3 revenue was down a painful 31% year over year, which included a 33% plunge in North America?

There is a simple explanation for this apparent contradiction. And the details here may help inform whether Celsius is a stock worth buying following its steep sell-off.

Celsius' market share is up, but revenue is down

When someone meanders down to a convenience store and picks a can of Celsius over a can of Monster or Red Bull, that's great for Celsius from a market-share perspective -- it got a sale whereas the other two didn't. But when that consumer walks up to the register and pays, that doesn't count as revenue for Celsius.

Technically speaking, Celsius doesn't sell beverages to thirsty consumers. Rather, it sells its beverages to distributors who in turn sell to retailers and consumers. That's how it works in the consumer-packaged goods space. And normally, revenue tracks pretty closely with end sales to consumers. But sometimes, there can be disruption.

In this case, Celsius' top distributor ordered too much product last year. Now, the distributor needs to correct its inventory levels. Celsius' revenue consequently took a hit of over $100 million from this single partner. And yet, end sales to consumers still went up 7% year over year. Considering this 7% sales growth outpaced growth in the industry, its market share increased even though revenue to the company plunged.

What does this mean for investors now?

Imagine if I pitched Celsius stock like this: "Celsius stock is down more than 70% from its all-time high, and its revenue plunged more than 30% last quarter. Would you like to buy shares?" Many investors would likely decline the offer. After all, who wants to own shares of a business in severe decline?

But if the pitch was reframed as: "Celsius stock is down more than 70% from its all-time high, but it's a profitable energy drink company that continues to take market share away from entrenched incumbents like Red Bull and Monster. Would you like to buy shares?" Investors might give Celsius stock a closer look in this case.

Indeed the 31% drop in revenue is alarming without context. But Celsius' sales are still going up and boosting market share. Moreover, the company's gross margin through the first three quarter of 2024 is 50%, up from 48% in the year-ago period. Finally, it has over $900 million in cash and equivalents with zero debt. In other words, this is still a strong and growing business.

Furthermore, investors shouldn't discount Celsius' potential for additional growth. References to market share have been for the U.S. market only, and there's still some opportunity there. But perhaps the larger opportunity is in international markets. International revenue has made up only 5% of the total in 2024, but it's up 36% year over year as Celsius enters new markets.

As you can see, Celsius' business is in a far better position for long-term success than what its headline numbers and stock price would lead investors to believe. The issue with its largest distributor will normalize over time, and for this reason, now could be a good time to buy Celsius stock.

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Jon Quast has positions in Celsius. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool has a disclosure policy.