Celsius Pops on Acquisition and Earnings

Key Points

• Celsius Holdings' acquisition of Alani Nu is expected to create a powerful combined entity in the rapidly expanding better-for-you functional beverage market.
• The company's profitability improved in the most recent quarter, suggesting effective cost management and strong pricing power for its products.
• Celsius Holdings exceeded analyst revenue and earnings expectations, generating renewed investor enthusiasm and positive momentum for the company's stock.

Celsius Holdings NASDAQ: CELH is back in the spotlight after a period of stock price struggles. Shares skyrocketed nearly 30% on February 21, 2025, triggering a Limit Up-Limit Down (LULD) pause due to the rapid price movement. The catalysts? A better-than-expected fourth-quarter earnings report and the announcement of a $1.8 billion acquisition of Alani Nutrition LLC (Alani Nu). But the crucial question for investors is whether this surge represents a sustainable turnaround fueled by strategic growth or is it merely a temporary spike masking underlying challenges.

Earnings Beat Expectations

The immediate driver of the stock's jump was Celsius's earnings report for the fourth quarter of 2024, which exceeded analyst expectations on several key metrics. Revenue for the quarter came in at $332.2 million, surpassing the consensus estimate of $326.07 million. However, This seemingly positive result masks a more complex reality: revenue decreased by 4% compared to the same quarter in 2023. 

The company attributed this year-over-year decline to ongoing inventory adjustments with its primary distribution partner, PepsiCo NASDAQ: PEP, along with increased promotional allowances and distributor incentives. Essentially, Celsius had to work through excess inventory that had built up in the PepsiCo distribution channel.

Despite the top-line revenue dip, Celsius delivered a strong performance where it arguably mattered most: profitability. Adjusted diluted earnings per share (EPS) reached $0.14, beating analyst expectations of $0.11. Furthermore, gross margin, a crucial indicator of a company's pricing power and cost control, improved significantly to 50.2%, up from 47.8% in the fourth quarter of 2023.

This suggests that Celsius is becoming more efficient in its operations and maintaining healthy pricing despite the competitive landscape. The market's positive reaction indicates that investors were willing to look past the revenue decline and focus instead on the bottom-line beat and improved profitability.

A Billion-Dollar Bet on Growth

The second and arguably more significant factor contributing to the stock surge was Celsius' announcement of a definitive agreement to acquire Alani Nutrition LLC (Alani Nu) for $1.8 billion (or $1.65 billion net of anticipated tax assets). Alani Nu, founded in 2018, is a rapidly growing, female-focused brand offering a range of energy drinks, supplements, snacks, and other wellness products.

This acquisition represents a bold strategic move by Celsius, aiming to solidify its position in the rapidly expanding "better-for-you" functional beverage sector.

The acquisition is about strategic diversification and market share expansion. Combining Celsius' existing product line with Alani Nu's offerings creates a platform expected to command approximately 16% of the total energy drink market. Crucially, Alani Nu brings a strong following among female consumers, a demographic where Celsius can significantly expand its reach. The deal is expected to create a combined sales base of around $2 billion.

Celsius anticipates $50 million in run-rate cost synergies within two years, primarily through streamlining operations and leveraging combined resources. The deal's financial structure involves a combination of cash and stock, reflecting Celsius's confidence in its long-term growth prospects.

The acquisition is valued at less than three times Alani Nu's trailing revenue and approximately 12 times its trailing adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), metrics that suggest a reasonable, though not inexpensive, price tag. Pending regulatory approvals, the transaction is set to close in the second quarter of 2025.

Risks Remain Despite Recent Gains

While the earnings beat and the Alani Nu acquisition have injected renewed optimism into the Celsius story, significant challenges and risks remain. Investors must look beyond the immediate hype and consider the potential hurdles the company faces in maintaining its upward trajectory.

The most pressing concern is the deceleration in reported revenue growth. While retail sales data, which reflects consumer demand, showed a 22% increase in 2024, the company's actual reported revenue declined in the fourth quarter. This discrepancy highlights the lingering impact of the PepsiCo inventory adjustments. Until Celsius demonstrates a sustained rebound in reported revenue, questions will remain about the true strength of its underlying sales momentum.

Secondly, integrating Alani Nu presents a considerable operational and cultural challenge. Successfully merging two distinct brands and company cultures is a complex undertaking, and failure to execute effectively could lead to disruptions and undermine the anticipated synergies.

There's also the question of potential competition for shelf space, at least in the near term. Analyst concerns have been raised about the current distribution agreements of Celsius (with PepsiCo) and Alani Nu (with Anheuser-Busch InBev NYSE: BUD), potentially creating a conflict of interest.

The energy drink market is fiercely competitive, dominated by giants like Monster Beverage (NASDAQ:  MNST)  and Red Bull. Celsius will need to continue innovating and aggressively marketing its products to maintain and grow its market share against these well-established rivals.

Another potential issue revolves around consumer overlap. A key question is whether Alani Nu will attract new customers to the combined entity or if its growth will come at the expense of existing Celsius consumers.

The Bottom Line

Celsius Holdings is undeniably at a pivotal moment. The company's recent earnings beat and the ambitious Alani Nu acquisition have reignited the growth narrative, sending the stock soaring. The potential for a combined powerhouse in the "better-for-you" energy drink market is real, and the long-term prospects could be attractive.

However, investors must carefully weigh this potential against the significant risks. The success of the Alani Nu integration is far from guaranteed, and the company must demonstrate a clear rebound in reported revenue growth to justify its current valuation. The energy drink market remains intensely competitive, and the long-term impact of combining two potentially overlapping brands is yet to be seen.

Several key metrics will be crucial to monitor in the coming quarters. Quarterly revenue growth will be paramount, providing evidence of whether Celsius has overcome the PepsiCo distribution challenges. Market share data will reveal whether the Alani Nu acquisition leads to incremental growth or simply cannibalizes existing Celsius sales.

Finally, management commentary and progress reports on the integration process will be critical in assessing the company's ability to achieve the promised synergies and navigate the complexities of combining two distinct organizations.