New Age Beverages stock gained 38% on April 8 on the announcement.
“This is just the first initiative that we expect to do with them on the Marley brand and other New Age products on which we are in active discussions,” said Craig Thibodeau, New Age’s VP of Key Accounts, in the press release.
It’s a big deal for sure. And Walmart expects a lot, as InvestorPlace contributor Will Healy noted in January, advising that all owners of NBEV stock might want to reconsider their expectations in the weeks and months ahead.
CBD Drinks Opportunity
“I think the speculation lies in company execution more than in its product,” Healy wrote January 29. “The Tilray-InBev alliance focuses on research. Also, the investment by Constellation Brands (NYSE:STZ) in Canopy Growth (NYSE:CGC) has not yet brought a CBD-infused beverage to market. Hence, NBEV appears poised to take the first-mover advantage.”
Healy was speaking about New Age’s Marley+CBD Mellow Mood brand and its opportunity to capture the first-mover advantage in the CBD-infused beverage market.
“I see a ton of similarities between New Age and Monster,” I wrote” Dec. 21. “That said, a lot has to go right for New Age to move from Monster-wannabe to the real deal. It’s also important to remember that the drinks won’t have THC in them so the novelty or desire to try won’t be nearly as great.”
New Age has got to execute on the Walmart deal, or it could be one and done for the company.
I can remember a friend of mine in the specialty apparel business being reluctant to enter into an agreement with Walmart because the expectations get ratcheted up exponentially. If you don’t perform, your products are off the floor. Not to mention Walmart drives a hard bargain when it comes to wholesale prices.
If New Age doesn’t do huge volume with Walmart, it will face a significant loss and will lose its first-mover advantage
The stakes are real.
Just four days before the Walmart deal, New Age announced a distribution deal with Hudson News, the folks who run all the airport newsstands, that puts the company’s products in more than 15,000 outlets across the Northeast and select key national accounts.
All great news. But you’ve got to execute because Walmart and Hudson won’t hesitate to cut New Age loose if they aren’t delivering the sales
Monster executed at a very high level. Can New Age do the same?
Losses Will Be Significant
In the fourth quarter, New Age’s revenues were almost $14 million, ahead of the consensus forecast of $13.54 million. That was the good news. The bad news was that its operating loss more than doubled to $10.1 million from $4.9 million in Q4 2017.
Thanks to the Walmart deal and NBEV’s $85 million acquisition of Morinda Holdings, CEO Brent Willis expects revenue to grow to around $320 million in 2019. Of course, he didn’t say how much it will lose.
As I see it, New Age will lose plenty.
In 2018, it had an operating loss of $19.4 million on $52.2 million in revenue. That’s up considerably from a $6.3 million loss in 2017 on approximately the same amount of revenue.
So, if New Age had an operating margin of -37% in 2018 and you extrapolate that to 2019, its operating loss could be over $100 million in 2019. I say “could” because it’s unlikely.
A more realistic figure for a 2019 operating loss would be around $60 million or three times last year’s operating loss.
Now, if the Walmart deal gains traction, it’s possible that the operating loss will be smaller than $60 million, but I wouldn’t bet on it.
Do You Get What I’m Saying About NBEV stock?
Depending on how you definite small-cap stocks, NBEV stock is either a small small-cap or a large micro-cap. Either way, it’s a money loser.
On the plus side, New Age Beverages has some exciting brands and potentially lucrative distribution deals. On the downside, its CBD drinks will be competing with an increasing number of competitors, many of them with greater financial resources.
I do like NBEV stock as a speculative play, but until it gets more on the bone from its strongest brands, only those who can afford to lose their entire investment should be thinking about New Age Beverages stock at this point.
For everyone else, buy Monster Beverage and accept reasonable returns and a much lower level of risk until New Age is making money. Then buy.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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