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Zevia makes zero-calorie soft drinks sweetened with Stevia (plant-based) and has plans to disrupt the $770B global non-alcoholic beverage market. The CA-based company plans to raise $200 million by offering 14.3M shares between $13-$15. At the midpoint, Zevia would have a fully diluted market value of $907 million.
Zevia markets its zero calories, zero sugar, naturally sweetened beverages in the US and Canada. The company offers approximately 37 flavor variations across soda, energy drinks, organic tea, mixers, kids' drinks, and sparkling water. Each product line is sold under the Zevia brand name and uses a standard set of organic ingredients. Zevia was founded in 2007 and has a CAGR of 30% since inception. Zevia ended 2020 with $110 million in annual sales. We are currently estimating 2021E Revenues of $140-145 million and 2022E of $185-$190 million. Using Hedgeye estimates, pricing at the midpoint implies 4.8x 2022 sales. It plans to list on the NYSE under the symbol ZVIA.
SOME THINGS TO CONSIDER:
Taking market share in non-alcoholic beverages.
Zevia is competing in the enormous non-alcoholic beverage category. Utilizing Stevia as its sweetener, the company is taking share through the appeal of its zero sugar, zero-calorie beverage. Stevia is a plant-based sweetener. All of Zevia's products are packaged in cans, which have higher recycling rates than another packaging. Zevia markets its products as "plant-based" and "better for the environment," hitting two popular consumer attributes. Zevia has demonstrated strong growth rates even against the pandemic comparisons.
Can a flavor, attribute, or brand be a moat?
There are precedents of all three being able to compete against the giants in beverages effectively. The movement away from sugar beverages is building momentum. In Western Europe, the industry is moving to reduce sugar content on its own. Coca-Cola and PepsiCo both had sugar-free versions of their popular beverages a generation before Zevia came to market. Zevia's flavors are not innovative; they are designed to imitate what consumers are already familiar with. The Zevia brand attributes of "better for you," "plant-based," and "better for the environment" resonate with customers who do not see the giants in the category as authentic in those attributes.
The financial growth formula deserves a high multiple.
The company's long-term growth targets are 30% top-line growth, 500bps of gross margin expansion, SG&A leverage exceeding gross margin expansion. Zevia's higher price points have not hindered revenue growth and lead to attractive margins. In addition, Zevia's 3rd party distribution reduces the company's fixed asset needs. Combining a high revenue growth rate, expanding margins, and low capital needs will lead to impressive future returns.
