Splash Beverage Group (NYSE: SBEV) stock is trading 23% higher from its start in March. The gain is more impressive on a year-to-date basis, with SBEV stock jumping by over 72% to $1.68 so far on Monday. Few can argue the surge is unwarranted. Continuing a wave of deals signed in 2022, SBEV is doing more of the same this year. In fact, many can and will argue that SBEV is growing at the fastest pace in its history, inking deals with several of the country's largest wholesale distributors and retail chains. (* price of $1.68 on 4/03/23, Yahoo! Finance, 10:11 AM EST)
Those include striking impressive distribution agreements with tier-one distributorships, including some of the largest representing Anheuser Busch (NYSE: BUD). Those deals put SBEV products in significant markets across the country. In addition, SBEV has executed retail product placements in Walmart (NYSE: WMT), Target (NYSE: TGT), 7-Eleven Stores (OTCMKTS: SVNDY), and many Sam's Club locations, respectively, selling Splash beverage products in different categories. Of course, those following SBEV aren't surprised by the company's ability to earn market share and shelf space. They point to SBEV as managed by a Who's Who list of experts in the beverage sector, several responsible for taking the Red Bull energy drink from development stages to billions in sales.
To fans of that crew, the belief that history can repeat itself is common. This time not for a single brand but for at least four: SALT, Copa Di Vino, Pulpoloco, and TapouT. Each has distinguishing factors and targets different market segments. However, they all share something in common with Red Bull; they can be category leaders by leveraging unique qualities that can do more than develop market segments and alter existing ones. And there is one thing they have that Red Bull didn't- a running start and inherent market traction.
Still, other things are factoring into the SBEV value proposition. In addition to excellent products, they have exclusive licensing rights to what could become the most critical change to retail packaging in decades- CartoCan, an Eco-friendly packaging method with such broad application, can become a billion-dollar asset on its own.
An Award Winning Product Portfolio
Ahead of plans to monetize that asset, there's plenty to appreciate from the value inherent to an all-star lineup of beverages and spirits. Copa Di Vino is one. It's a single-serve bottled wine that earned national attention by being the only product featured twice on the popular investment show Shark Tank. As important and validating Copa's taste, position, and potential, every "shark" wanted a piece of that deal. Notably, more than just the great taste was part of the discussion. They were also after its value as a leader in package sealing technology that the "sharks" believed could open near-limitless monetization opportunities. They had good reasons to be interested. Its eco-friendly specifications are so revolutionary that Copa Di Vino can remain fresh for up to a year, compared to competing brands having a sell-by date of months or even days. Despite enormous bids, the brand's original owner balked at the offers. And bad news for the "sharks" has become excellent news for SBEV, noting that Copa has strengthened as a brand since then, with the same packaging technology still a considerable contributor to its overall brand value.
A second product, Pulpoloco, SBEV's made in Madrid, Spain, sangria, is another compelling brand asset. It, too, is earning an increasing share of attention and segment sales. It received a big bump in the right direction last month when SBEV announced that select 7-Eleven Stores will add Pulpoloco to its store shelves. That follows the chain previously awarding Pulpoloco its Brands With Heart designation, facilitating SBEV showcasing the brand to 7-Eleven and Speedway stores. More than great taste, like with Copa Di Vino, there's a potentially massive value kicker. This best-in-class sangria is packaged in innovative and marketable packaging technology that many have called the most socially conscious and eco-friendly packaging on the market: CartoCan. And the best news regarding this is that SBEV holds exclusive rights to the unique packaging technology, which could exploit its potential as a sought-after packaging type in the beverage industry.
It certainly checks the right boxes. In addition to being 100% biodegradable, the innovative packaging technology is 30% more eco-friendly than aluminum or PET and uses 30% less total raw materials to create. The raw materials that are used come entirely from renewable sources. That includes using only wood fibers from forests managed in an exemplary fashion, which has led to CartoCan packaging earning the exclusive right to bear the Forest Stewardship Council (FSC) label. And like Copa, the CartoCan keeps Pulpoloco shelf-stable for at least a year, keeping the vibrant character of its taste profile well-protected during that time. There's more.
SALT Tequila is another asset fueling SBEV's growth. It is also accruing national deals allowing it to target and capitalize on a significant tequila market niche, flavored, a segment expected to push the overall tequila market to become an over $18.5 billion market by 2028. SBEV's SALT can be material to that increase. SALT is a 100% agave, 80-proof tequila brand building a substantial consumer base in a flavored spirits market experiencing double-digit growth. Offering premium chocolate, berry, and citrus-flavored tequila, SALT Tequila is ideally and uniquely positioned to do more than exploit that potential; it can dominate the category. Incidentally, it's on that path. A 42-store deal with Walmart's wholly-owned Sam's Club, among others, is expanding the brand's presence on a regional scale that could quickly become national.
A fourth brand asset is earning significant headlines: TapouT performance, hydration, and recovery drink.
TapouT: Formulated And Positioned As A True Hydration And Recovery Beverage
Since 2022, TapouT has been scoring important deals, resulting from its recognition as an actual performance beverage focusing on active hydration that encompasses activation, electrolyte restoration during exercise, and complete recovery following a workout. Different than other marketed sports drinks, TapouT's formulation provides an optimized mix of the vitamins, minerals, antioxidants, electrolytes, and sugars necessary to drive cellular hydration in the muscles and other body parts requiring fluids, fueling them during the activity and facilitating their replenishment during the body's recovery process. Similar to SBEV's other products, differences are also advantages.
The biggest is that TapouT performance drinks aren't formulated or marketed as protein drinks to help people bulk up or as caffeinated energy beverages giving a false boost at the start of a workout. Instead, TapouT performance drinks are consciously balanced to provide the optimal nutrients and hydration for peak performance and recovery. The more excellent news is that TapouT has crossover segment appeal while staying true to its marketing as a balanced performance beverage that boosts hydration, performance, and recovery from one drink source. In other words, its crossover appeal presents multiple multi-billion-dollar market segment opportunities and does more than expand its consumer reach; it adds significantly to its overall brand value.
And that value continues to accrue. While gaining popularity in non-targeted segments, it is performing exceptionally well in its primary market, earning business from the active consumer looking for a balanced blend of nutrients, electrolytes, and vitamins to optimize performance and speed up recovery after intense physical activity exertion. Of note, SBEV believes that TapouT can help redefine the performance drink category by marketing a more genuine product that provides beneficial results without gimmicky caffeine-induced side effects. The brand's growth and increasing consumer recognition and engagement indicate SBEV is on the right path to meeting that goal.
Revenue-Generating Agreements Expose Valuation Disconnect
Actually, they are on the path to meeting multiple accretive goals by consistently executing distribution and retail placement agreements with many of the world's largest wholesalers and retailers, including retail giants Walmart, Target, and many Walmart- owned Sam's Club locations that are clearing shelf space for SBEV products. Accretive deals aren't slowing.
On the contrary, additional distribution and retail agreements leverage the strength of market-dominant broad-line partners, which could do more than facilitate a pathway for Splash to penetrate other national and regional chains; it could expedite it. If so, tapping into those channels through a management team understanding every facet of the beverage industry can do more than accelerate SBEV's growth; it can allow SBEV to leverage a competitive edge and get its products on significantly more store shelves across the country. The results from that position SBEV to aggressively target segment opportunities from a combined beverage market expected to eclipse $1.8 trillion in 2024.
By the way, investors shouldn't fear the "R" word in SBEV's case. The beverage industry is historically recession-proof, which allocates to companies and brands offering better products that are competitively positioned to maintain and build share. Splash Beverage Group checks that requisite with all its brands. And important from a valuation perspective, each offers more than premium quality; they are also produced, packaged, priced, and marketed in an eco-friendly way. In some respects, the packaging is so inventive and scalable that it can cross segment lines and independently become appreciable long-term value drivers.
A Compelling Value Proposition Supported By Brand Strength
It's the combined potential that is and should be attracting investors. Aside from short-term market fluctuations, SBEV is hitting on all cylinders to create more sustainable shareholder value. Revenue growth is undoubtedly impressive. Revenues in 2021 were over 2000% higher than those posted the prior year. While growth slowed against a tough comparison in 2022, it was still impressive. SBEV posted significant growth in Q2 and then bested them again in Q3 with a 73% increase over the same period in the prior year. Q4 didn't disappoint. The company's revenues were $4.79 million compared to $3.06 million in the previous year, an increase of 56%. Year over year, gross revenues were $19.0 million compared to $11.8 million in 2021, an increase of 61%. The better news is that momentum is behind the growth, with its e-commerce platform Qplash and Copa Di Vino driving the quarter's growth.
Keep in mind that 2022 results represent the first full year of operating results after its mid-year 2021 public offering and up-listing of its shares to the NYSE American. From an investor's perspective, watching them grow gross revenues to over $19 million while strengthening gross margins is more than encouraging; it's exciting to watch. Considering that SBEV has an operations tailwind and knowing that brands can sell for, on average, 7X revenues and as high as 20X, it's likely that the best for SBEV and its investors is still to come.
And while the company didn't provide revenue guidance for this year, precedent suggests that overall strengthening will continue, and appreciably so. In a market environment where that metric matters, SBEV is, therefore, more than a value investment opportunity; it's also a timely one.
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