Let's say you invested
$1,000 in this company's stock in February 1994. Today, that $1,000 would
be worth $2 million. You're probably wondering
what company that is. It's not Amazon. It's not Microsoft or
even Google. In fact, it's not a tech
giant at all, but an energy drink company,
Monster Beverage Corporation, or monster
for short. We've had a buy on the
stock for a decade plus straight. Think about it. The next global mega
brand. Three decades ago,
Monster's stock was trading for less than a
nickel, but since then it's appreciated by about
200,000%, making monster the best performing stock
in 30 whole years. Yep, you heard that
right. You can't be as lucky as
they've been for as long as they've been without
being really good at running a business. This is a company that
today is going to do $7 billion in sales in 23,
probably break 8,000,000,000 in 24. CNBC tried to find out how
this company has had such a monster rally under the
radar. In 1990, South African
entrepreneurs Rodney Sacks and Hilton Schlosberg
bought a struggling juice company by the name of
Hanson Natural and immediately took it
public after decades operating as a private
entity. The co-CEOs bet early on
an immature energy drink market, initially
launching Hanson's Energy in 1997, five years
before their infamous monster drink, and 15
years before the company would rename itself
Monster Beverage Corporation. It was bought out of
bankruptcy. Then they created the monster brand
out of nowhere, launched it, and then it just kept
on building and building and and what's
fascinating is they built it the right way. They
were very slow and methodical in how they
built the distribution of the brand, making sure it
was strong in every market that it was in. The company had made
enough strides that the Coca-Cola company took
notice. The soda giant bought a
16.7% stake in exchange for $2.15 billion in
cash. The stake has since grown
to 20%. Coke transferred the
ownership of its energy drinks to Monster, who in
turn traded its Non-energy drink businesses,
including Hanson's Juice Products, to Coke. Additionally, the two
companies strengthened an existing distribution
agreement. Coke became Monster's
preferred global distribution partner, and
agreed that Monster's Brands would be the only
energy drinks it would distribute. Since the
Coke Partnership, Monster's market cap has
about tripled. The Coke Agreement was a
landmark event for this company. They've
obviously been showing that they can grow
globally, and that's what effectively they've been
doing, what's been driving most of the growth in the
outperformance in the stock. Monster's brilliance,
knowing its customer, selling its best seller,
monster, for the same price as main competitor
Red bull's product only twice the volume. It really resonated,
especially with younger consumers, blue collar
workers, which continues to be the bread and
butter of the business today. Pursuing that core
customer has remained the company's key strategy. Instead of traditional
marketing, it prioritizes sponsorships, targeting
extreme and unconventional sports, drawing many fans
from those bases. What they were able to do
is figure out who their consumer was, is, and go
after events that that consumer paid attention
to. Monster drinks aren't sold
in bars nor marketed on TV. Despite many
attempts, the company never responded to CNBC's
request for comment or interview, and
presumably, the company has never conducted a
public interview. They hold earnings calls
four times a year and 1 or 2 other events
historically, and that's about it. So they've let
the results speak for themselves. The way they built the
brand is, is quite unique, less about the category
and more about the lifestyle and what you
can accomplish with the product. Monster offers a variety
of products, anything from alcohol to coffee to
other energy drink brands. Unlike technology that
demands constant upgrading, these types of
products deliver steady returns. They rarely
become obsolete. But even more central to
Monster's success is that it operates as a holding
company with dozens of subsidiaries that handle
and develop various beverage brands, some
under the Monster name and others that operate
mostly independently. This is a business that is
essentially a marketing company. They're they're
essentially selling a brand. There's very
little capital intensity in the business. They produce way more
cash than they can ever spend. It's a really good
problem to have. The company is asset light
relative to other consumer staple businesses. It doesn't have many
manufacturing facilities and it doesn't distribute
its own products. Hence the importance of
the Coca-Cola partnership. What I think monster's
been able to do is very rare, actually. They've
been able to take a master brand and they've been
able to cut it across subsegments of the
beverage industry. Even Coca-Cola, which is
one of the greatest brands in the world, has not
been able to do that. Still, it took decades to
grow the company into the drink behemoth it is
today. It really didn't get going
until they introduced Monster. They had
introduced some other energy drink brands in
the late 90s, and for various reasons, they
never fully took off. And it wasn't until
Monster was created and really started driving
growth. For 31 consecutive years,
monster sales have grown. In 2023, the company
achieved record third quarter net sales of
$1.86 billion, up 14.3% from the same period in
2022. Its Monster Energy drinks
segment, which includes several brands,
represents the majority of that. In 1999, energy
drinks were classified as new age
beverages, representing just 9% of the segment. Though not a perfect
comparison, the same analytics company
predicted energy drinks represent about 21% of
the entire beverage industry in 2024. The energy drink industry
has expanded rapidly. Dozens of new products
and companies have entered the market. In 2023,
energy drinks brought in $21 billion in revenue. Still, monster then Red
bull are the largest energy drink producers. 57.2% of the category is
made up of other players like Ghost Energy, owned
by Anheuser-Busch InBev. Overall, the category is
expected to continue growing revenues even as
additional products arrive on the market. Conversely, a greater
value in buying an energy drink today than a lot of
other things. Everybody can continue to
win even if the base gets bigger. Monster bought one of its
biggest competitors, Bang Energy, in 2023 after it
went bankrupt, a strategic move that netted them a
new manufacturing facility. The company's
past returns don't necessarily guarantee
future gains, but analysts say its stock is primed
to keep up the momentum. We've been recommending it
for a decade. When you outperform this
long by this much, you should be a known entity
at this point. We're still in the very
early innings of this, of this global story. This
is going to last a lot longer. This is not just
going to end because they've had all this
massive outperformance in the stock market. It's
not as big as it can be in China or India. You know, it's not in
every subsegment like you see in the US. So there's
a lot of expansion opportunities. There are, however, some
risks ahead. Sacks and Schlosberg
steered the company into the 21st century and
through explosive growth, but are now in their 70s. No clear successor has
been named. These are really, really
sharp managers. The decision making is
very consolidated, and I think they need to start
thinking about creating comfort with the investor
community, that there is a legitimate succession
plan. Bands add another
obstacle. Some countries and
retailers have already implemented restrictions,
as the caffeine content in these drinks has spiked. Though the UK does have a
legal age mandate, it hasn't stopped people
from buying the products. Monster continues to
grow there. They're-- from a company
standpoint, none of this really had much of an
impact. For protection
standpoint, you really haven't heard a peep out
of folks for for a while because as I said, the
FDA is ultimately kind of said, what do you want us
to do? As of February 2024, the
US has no national regulations, and analysts
say they are cautiously optimistic that none will
manifest in the near future. A 2013 Senate
hearing on energy drink risks resulted in no
industry changes, and monster fans don't seem
to care. This stuff isn't
particularly healthy in the conventional sense,
and yet the consumer seems to defy that view. They're willing to look
past that for a once a day, once a week
consumption occasion that they treat themselves. And so I think that's one
of those things that's maybe a little bit harder
to understand, and yet clearly has been a factor
in driving growth and probably will be a factor
in driving growth going forward.
