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Morningstar | Monster's International Presence Should Continue To Be a Source for Growth, Leveraging Its Brands

Monster Beverage has become a core player in the global energy drink market over the past decade, and we think its brand-driven intangible assets have helped it secure a narrow economic moat. Monster’s volume share exceeds that of its largest competitor, Red Bull, in the United States, but remains underindexed internationally (we estimate a mid-teens global volume share); even if its share doesn’t reach domestic levels, we believe that significant opportunity exists abroad. We think the firm’s geographic diversification should help offset decelerating volume in the U.S. (71% of 2018 revenue) as the market becomes more saturated and consumer preferences trend toward healthy, all-natural beverages. We estimate that Monster's net sales to customers outside of the U.S. have averaged above 20% growth over the last three years, well above the high-single-digit rate seen domestically.In 2015, Coca-Cola acquired an equity stake in Monster (it owns around 19% of shares at present), transferring its energy drink brands to the latter and inheriting Monster’s non-energy-drink offerings, which has allowed Monster to conduct its operations through the expansive Coca-Cola bottling network. We contend this partnership has helped Monster quickly expand its geographic reach. We expect energy drinks to continue to outpace growth in the overall carbonated soft drink category and for Monster to gain volume share globally, allowing for high-single-digit growth over the next decade. At the same time, we believe Monster’s lack of control over its distribution hampers its ability to develop meaningful relationships with retailers, limiting its competitive advantages relative to the largest beverage manufacturers. Net sales per case have declined around 2% on average over the past five years, as the share of international sales has climbed from around 20% in 2012 to nearly 30% in 2018, suggesting limited pricing power abroad. However, we think modest operating margin improvement is feasible over the longer term as the firm achieves economies of scale in its manufacturing operations and is able to better leverage overhead costs abroad.