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CELSIUS: TOO HOT TO HANDLE

Posted on January 29, 2024January 29, 2024All

I’m a bull, but sometimes you see things so silly that you can’t ignore them.
For me, that is Celsius stock right now. Growth investors are going crazy and
Celsius has been on a monster run… but are they buying the top of a shitco bull
run? Let’s dive in!


A SERIES OF RED FLAGS

This isn’t my specialty, so no guarantee some of this isn’t dumb. I try to put
myself into the future to explain why Celsius would be a terrible investment
from this point on. I think this is the case:

BULLSHIT MARKETING

Celsius has historically framed itself as a fat-loss energy drink via
“thermogenic properties”. It’s not a secret that green tea/caffeine do have
minor thermogenic effects.

> “CELSIUS works by combining its clinically proven formula of healthier,
> energy-boosting ingredients with your own body’s physical activity. It’s a
> team effort that benefits you in more ways that we can explain (but we’ll do
> our best). Six published university studies have been conducted on CELSIUS by
> U.S. accredited scientific research facilities rendering strict scientific
> standards. To ensure consumer confidence, trust, and industry independence,
> the studies were all presented at scientific conferences and published in peer
> reviewed publications. Each one of these studies showed that CELSIUS has
> thermogenic properties.”
> 
> From Celsius website

The problem comes in when you start saying things like this (in studies that you
funded):



Celsius have a series of six “studies” on their website that make similar
claims, which are blatantly not true. While Celsius doesn’t show this anymore,
they historically showed “BURNS CALORIES Up to 100 and More!” on their cans.



They have already lost lawsuits for deceptive marketing, including marketing
that they didn’t have any preservatives… which was a blatant lie.

The good news is that Celsius is starting to shy away from this BS marketing.
Yet the same leadership team that used that BS in the past is still in charge.
Something about shit leopards not being able to change their stripes though. Yet
– despite marketing changes, misleading marketing is still following it with
many Tik Tok users believing that Celsius contains Ozempic.

A TON OF MARKETING SPEND

Celsius is trending at approximately 20% of total sales being spent on
marketing. For a growing company, this is fine. If growth starts to slow, this
could get ugly quick. You can start to get an idea of where Celsius is spending
their marketing if you track their Twitter account.

Celsius also had a lawsuit filed against them by Flo Rida as well, with $83M
being awarded to Flo Rida. If screwing over Flo Rida isn’t bad luck, I don’t
know what is.

> “Basically, I helped birth this company, and all we was looking for was some
> trustworthy people who acted as if they were family and then when it comes
> down to the success of today, they just forgot about me.”
> 
> Flo Rida lolz

SLOWING MARKET PENETRATION

Beyond a sketchy past, I think one of the key bear cases for Celsius is that
their main catalyst (increasing market penetration) is coming to an end. When I
step back and try to understand where the majority of sales growth has come
from… I see this as the major driver.

Bulls will argue that Celsius will offset this with even more international
growth, but the reality is that Celsius has been trying and failing to enter
international markets for a long time now. Until I see success here, I have a
hard time believing it.

> We signed a deal last year with Pepsi that came in as an 8.5% owner
> within Celsius. We transitioned the distribution over them, October 1, 2022.
> We were sitting at about a 65% ACV, which means we’re in about 65% of the
> tracked retail locations nationally when we commence that transition. Quickly,
> rapidly, we jumped to about a 90% ACV by the end of the year, and now we’re
> situated around 95%, which is close to full distribution at this point.
> 
> Toby David – Celsius Executive

QUESTIONABLE LEADERSHIP

Another key thing to research is the leadership and board. A quick dive into the
board left me underwhelmed but ultimately didn’t yield any major red flags. The
management team does lead to some more interesting results with John Fieldy
(President & CEO) coming from biotech company Oragen, where he was controller.
Oragen’s historical stock results speak for themselves. Fieldly left Oragen to
become Celsius’ CFO.





When the CEO comes from biotech… it starts to explain what is happening here
from a marketing perspective. Yet that is conveniently left out of this summary?

MISSION STATEMENT

Now I’m just being a bully, but come on, this is their mission statement? This
is a $10B company?

> “become the global leader of a branded portfolio that is proprietary,
> clinically proven, or patented in its field”
> 
> Celsius Mission Statement

MATERIAL WEAKNESSES

Celsius has had a series of accounting problems which were mentioned in their
most recent annual report. Below is a high-level summary of the problems
prepared by my assistant chatGPT.

 * Evaluation of Disclosure Controls and Procedures: The company’s President and
   Chief Financial Officer concluded that the disclosure controls and procedures
   were not effective due to material weaknesses in internal control over
   financial reporting.
 * Material Weaknesses in Internal Control Over Financial Reporting: The
   document lists two main material weaknesses:
   * Ineffective design of information technology general controls (ITGCs),
     particularly regarding the segregation of duties over program change
     management for certain applications.
   * Failure to design and implement components of the COSO Framework to address
     all relevant risks of material misstatement, including elements of control
     environment, information and communication, control activities, and
     monitoring activities components.
 * Management’s Remediation Plan: The company has outlined a plan to address and
   remediate the identified control deficiencies, which includes improving
   change management consistency, enhancing the control environment, and
   implementing more effective review and oversight responsibilities.
 * Audit Opinion on Internal Control Over Financial Reporting: The independent
   auditor, Ernst & Young LLP, expressed an opinion that, due to the material
   weaknesses described, the company did not maintain effective internal control
   over financial reporting as of December 31, 2022.

It does help that Celsius upgraded from a sketchy auditor to E&Y. Yet, E&Y has
revealed several material weaknesses that have yet to be resolved. This is not a
great sign given their questionable past. I’d have serious questions if anything
has changed.

FOLLOW THE MONEY

It doesn’t help that the largest investor in Celsius was Carl Desantis (RIP). He
was known for a multivitamin company Rexall Sundown which ended up being sued by
the FTC for deceptive claims… It’s almost like they have a playbook. The heirs
to his fortune appear to be aggressively selling their shares.

When you scan the top holders of Celsius stock… you find a lot of Hong Kong
investment money here (I’m not familiar with these investors) and a passed-away
investor with billions at stake (Desantis). This is not my area of expertise
here, but if you go to Whale Wisdom and sort high to low, Celsius looks a lot
different than other stocks. When you look at insider sales, you see a lot of
insider selling. Overall not a great situation.

BANG BANG

It’s not the same, but I do see some similarities between Bang and Celsius. Bang
made some false claims and ultimately lost a lawsuit for $293M causing them to
hit bankruptcy.. and eventually get bought out by Monster. Furthermore… the
massive rise in sales was driven by Pepsi replacing their Bang shelf space with
Celsius. I think Celsius has far more staying potential than Bang did, but
overall it’s hard not to see the potential.


THE BULL CASE

Why has Celsius been successful to this point? It’s a highly caffeinated
beverage that tastes good and convinces people that it is healthy. People love
caffeine, things that taste good, and lying to themselves that the prior two are
healthy.

The easiest / laziest bull case going forward is international growth. That is a
lot harder than it seems. I don’t have a ton of insights here, but I wouldn’t
just assume this will happen quickly. It will likely take years to gain
traction.

The other bull case for Celsius, and what should’ve been a sign of rising sales
to come was Celsius’ success on Amazon. Most of the major energy drinks are on
Amazon and Celsius sales have outsold them.

The other thing that is worth stating is that it takes excellent execution to
hit this sales growth. Or maybe it doesn’t since Peloton did it. Either way,
people have been doubting Celsius for years now and they’ve all been buried. I
saw what they all were saying and agreed on the downsides for the past few
years. The life of a bear is terrible.




WRAP IT UP

The simplest way to explain Celsius is that is a highly caffeinated drink that
tastes good and has a strong brand. I’m making it a lot more complicated than
that, which I think is needed to provide an accurate picture of all the shady
shit Celsius is doing. I’d short Celsius, but I need a catalyst and I don’t see
it right now. I think the bear case is a shady company, with the major catalyst
of increased distribution wrapping up (currently at 95%).

Blindly shorting a drugged-up cult without any downward pressure is probably a
bad idea, but when that catalyst hits, I’ll be buying puts like a madman.



Author: fatbabyfunds

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