1/ One of my favorite investing questions: How on earth did Monster Energy $MNST compound a total of 70,515% since 1985, turning a $10,000 investment into $7 million over that same time frame while the average American household generated total income of $1.8 million?
2/ As is always the case when it comes to the "supercompounders" of the investment world, Monster Beverage's long-term success is a combination of: good product, good structure, and good management.
3/ The first one, good product, is hard to define. We live in a world where everything is reduced to numbers, yet the reason we make a decision is very subjective. But if you throw sugar + caffeine + citric acid at consumers, they will respond enthusiastically.
4/ Also, the audience is young adults which is a demographic (1) open to trying new things, (2) not going to worry about health content because teens and 20-somethings can handle a lot without the adverse effects showing, and (3) need energy due to poor sleep habits.
5/ Okay fine, but how did Monster distinguish itself against the historical market titan Red Bull? Well, I would say better taste (sweet), better price ($2 cheaper), larger portion size (16 oz vs. 12 oz), and seemingly more responsible (90 mg caffeine vs. 110 mg).
6/ Also...packaging. The "M" is evocative like Nike's swoosh or the Apple with a bite out of it. It captures mystery with a bit of weirdness. Studies show Monster users experience a dopamine hit before consuming the product that is much larger than peers. It's all senses!
7/ Next, there is the question of structure. Monster isn't the only company that knows energy drinks are fast growth. So does Coca-Cola, Pepsi, Nestle, and the death stars of the industry. How do you compete with that? You don't!
8/ What did Abraham Lincoln say you should do to remove an enemy? Turn him into a friend! Monster gave Coca-Cola a 19.3% ownership stake as part of a major distribution and bottling agreement.
9/ This has two major effects: (1) It turns a competitor into an entity interested in your success because Coca-Cola shareholders get richer when Monster succeeds, and (2) it allows Monster to focus on its comparative advantage (the brand) instead of distribution.
10/ You can't make a beverage cheaper than Coca-Cola, Nestle, and Anheuser-Busch. You can't build a network in years that your peers built in a century. By outsourcing distribution, Monster has grown profit margins from 15% to 27% because syrup is $$$ whereas bottling is only $.
11/ That is why Monster grew its profits per share by 21.0% since 2011. Also, it's why future profits are only expected to grow at a rate of 11.0% as Monster deals with saturation in convenience stores and rolling out its own (partial) distribution network in Ireland.
12/ And finally, there is the good management angle. Some companies are set up so that the executives are awarded ridiculous benefits and shareholders don't get to keep it--after all, you can raise anyone's salary to the point the residue for the owners is left barren.
13/ Not how Monster does it. Its executives own 10.4% of the company. That is $4 billion owned by managers, most of it built over time through purchases or lower than peer stock grants. This isn't Sardar Biglari land but Warren Buffett land in terms of joint venture structure.
14/ Also, the company has no debt and $2 billion in cash. That's beautiful because it means the wealth gets built by growing the business itself rather than financial engineering. Financial engineering can create wealth, but it imposes burdens on the future with debt to pay back.
15/ When you buy Monster stock, you're not paying back the past. The share count has been remarkably steady in the 500 million share range for the 2000s, 2010s, 2020s. The growth is real, not manufactured. Shareholders do well because it's real, not propped-up wealth.
16/ That's how you get rich in the stock market. Great product + sold in a way to maximize the comparative advantage of the company + run by management that is aligned with shareholders. And, given Coca-Cola's stake, will ultimately be acquired by KO shareholders for a premium.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
