- The Coca-Cola and Monster relationship endured years of speculation, long before Coca-Cola made the decision to acquire a 16.7% minority stake rather than buying the company outright. Analysts still question this decision, as Alex Gennaro discussed in Seeking Alpha.
- Monster was always a risk for Coca-Cola because of the energy drink segment's litigation issues. Monster's aggressive brand personality differs from that of Coca-Cola, a company that uses Santa Claus as a spokesperson and sports taglines like the former "Open Happiness."
- However, energy drinks are a fast-rising category. Monster's purchase price could rise significantly thanks to growth via Coca-Cola's distribution network and major deals on the horizon, such as expanding into China, the world's second-largest energy drink market.
Monster's commitment to innovation has stretched the brand into categories like energy drink fusions with RTD coffee, tea, and protein drinks. Monster has also produced varieties with different positioning, such as Unleaded, a non-caffeinated energy drink, or Zero Ultra, which contains no calories or sugar.
Coca-Cola would benefit from having a bold innovator like Monster in its portfolio, especially one that is positioned in a fast-growing category (8.1% unit sales growth in the 52 weeks ended November 1, 2015, according to IRI Worldwide). Strategic diversification of Coca-Cola's portfolio is one clear advantage, but another is leveraging the startup-like mentality Monster has toward innovation and creative marketing.
Still, even Monster isn't immune to changing consumer preferences and the rise in competition, especially from energy drink and energy product startups but also newer categories like caffeinated water. In earnings last week, the company reported a 9% dip in revenue (7% at constant currency), including an 11% decline in its Careers – North America division.
Either way, it could be too late for Coca-Cola if the beverage giant doesn't move fast. Monster's China deal and upcoming product lines set to debut in the third quarter of this year could ratchet up Monster's potential multiple and/or stock price. To maximize return, Coca-Cola needs to acquire Monster at the right inflection point of growth, and it's unclear if that point has passed.
At the same time, if Monster's earnings reports remain underwhelming and the company stagnates after years of explosive growth, Coca-Cola may have hedged its bets wisely in taking the safe route with a minority stake.