There is a lot of talk about New Age Beverages (NBEV) and their valuation. The company loses money off of $50 million in revenue in a quarter. But, after the Morinda merger – creating the 40th-largest beverage company, there are expectations that the newly combined company will bring in $300 million in revenue. Given the economies of scale of increased revenue along with the introduction of a new CBD infused beverage the company should see its fortunes turn upward. This may be the reason why NBEV stock moved upwards some 35% in the month of January. But, is there really an opportunity for the company to see $300 million in revenue and be profitable, or will the stock come crashing back down?
The Big Question with NBEV’s Revenue
I am not entirely sold on the new company’s combined revenue coming in at $300 million. First, New Age Beverages had $50 million in revenue before the merger. In order for the company to hit the $300 million level, the New Age half would have to double its revenue from $50 million to $100 million. This may be in the wheelhouse of the company since it doubled its revenue from the year previous of $25 million to the now $50 million annual revenue.
But, it is the Morinda portion that I am troubled with. We are not entirely certain of the company’s revenue prior to the deal only that the deal would bring in an additional $200 million in revenue. But, New Age Beverages only paid $85 million for Morinda. This amount of money for so much in revenue does not add up as a lot of investors have pointed out. There is still a process involved before the companies finish the merger deal and there is a lot of time before investors get to see the end result.
My thinking on this is that the Morinda valuation was too low to actually see $200 million in revenue. If Morinda had revenues of $200 million and earned a 10% net margin, and you valued that company at 20-times earnings (the current average for the stock market is 29-times) then this company would be worth $200 million itself, not less than half of that at the $85M paid by New Age Beverages.
Then there is the infused CBD beverage the company plans on introducing in the near future under their Bob Marley brand of beverages. While I am a big believer in CBD, I am in the minority. The truth is, not a lot of people know what CBD is, understand its benefits nor are about to switch habits and begin to buy this product in a manner that will drive revenues up for New Age Beverages significantly. I believe there is too much hype in this product.
As investors, we are still waiting to see the end result of the combined companies and whether or not there is the value in the merged companies. Personally, I remain on the sidelines as to actually taking a position in the company. But, my suspicion is that the revenue will not hit its target nor will the company be as profitable as it states it will be. If that is the case, the stock could come crashing back down. I remain on the sidelines with this company until we get more information. I am also pessimistic on the overall, long-term outlook. Time will tell.
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