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TMFRhino (98.02)

I Feel Bad for the Suckers Buying Jones Soda

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June 01, 2010 – Comments (9) | RELATED TICKERS: JSDA , WMT

Anyone buying Jones Soda better be hoping that today's run-up is news leaking about them finding a new sugar daddy (sorry for that pun...), because otherwise, this stock is boned. 

A little background: since announcing a Wal-Mart distribution deal, Jones Soda is up 250%. A couple months ago, there was a proposed buyout of the company for ~$5 or $6 million, and now they're worth $50 million. Today alone they were up 80% on no real news. Hence, the thought that some kind of news might be leaking.

So, what's with this "huge" Wal-Mart distribution news? Well, Wal-Mart is going to start selling Jones 6 packs across its 3,800 stores. I mean, its good news for a struggling company, but the Wal-Mart deal is only expected to account for 10% of Jones retail distribution.

Okay, Jones did $23 million in revenue in the last 10 months. Let's be generous and say a 10% boost in distribution (to Wal-Mart, which drives a hard bargain), leads to a 10% increase in total sales. That puts Jones at an extra $2.3 million in sales. Oh, did I mention they've been losing money for YEARS, and burned through $2.5 million in cash last quarter?

I should also note, they're down to $2.3 million in cash, and last year during the final three quarters where they're "seasonally strong", their cash burn was still over $3 million. Good luck getting a credit facility with these figures! Hint: you can't. Or else they can always try to dillute shareholders, but how long their shares can act as currency.

I mean, this is an absolute joke, and aside from any kind of phantom buyout scenario I feel really bad for the people getting suckered in to this. As a Seattle native, I wish Jones the best, but they've cut to the bone to lose as little as they're losing now, are still bleeding cash, and have lost several other major contracts which will continue bleeding the top line.

On the plus side, note that I say top line, because for the most part it looks like these deals were unprofitable, and the company had no right signing them in the first place.

Anyway, I've said my .02. Stay away.

 

9 Comments – Post Your Own

#1) On June 01, 2010 at 8:21 PM, MegaEurope (22.68) wrote:

"the Wal-Mart deal is only expected to account for 10% of Jones retail distribution."

You are not being fair.  The 10% projected increase is in retail locations, not sales.  Jones could easily do 5x average sales volume at Wal-Mart compared to their current locations.

That said, I agree JSDA is overpriced.  But saying that in a way that is inaccurate and seemingly designed to offend people (i.e. suckers) is a bad idea.

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#2) On June 01, 2010 at 8:52 PM, TMFRhino (98.02) wrote:

Hey MegaEurope,

I suppose that's fair, I read the 10% figure from a secondary source, but after finding the actual press release (which, I could have overlooked it, but I originally didn't see on Jones Soda's investor relations website) it says "The deal increases Jones’ total retail outlet distribution by nearly 10%".

That being said, these kinds of smaller stocks are the grounds for pumpers galore and I don't mind using headlines like this to make people at least think twice about blindly buying in. I was only alerted to the run-up because I had a friend put a sizeable amount of money into it with no reasearch at all.

That being said, I still question the amount of profitability Wal-Mart's contract brings, and for a company struggling with cash, how they'd acquire the funds for any sort of net working capital ramp of a substantial size.

Best,

Eric

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#3) On June 01, 2010 at 9:04 PM, TMFRhino (98.02) wrote:

Also, I should add, they've had distribution deals with Wal-Mart/Target/etc in the past which have fizzled out. Wal-Mart not only drives a hard bargain, they're quick to maximize their shelf space sales.

Best,

Eric

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#4) On June 01, 2010 at 9:08 PM, ragedmaximus (< 20) wrote:

i made 57% profit today and sold tomm im in and out for 5-10 then im gone off to the next pop

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#5) On June 01, 2010 at 9:11 PM, ragedmaximus (< 20) wrote:

dcth looks good for 10% maybe chart looks strong momentum up

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#6) On June 01, 2010 at 9:14 PM, ragedmaximus (< 20) wrote:

also i feel jsda could be a future spec takeover play but only keep  a  small  amount

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#7) On June 02, 2010 at 2:55 PM, calidan535 (68.78) wrote:

Whatever their previous problems, no doubt the economy had a huge part in it. If you look at their 5 year chart it matches the economy's dive. Their recent unprofitable quarter it said on its website was due to excess inventory at its own warehouse and another 1/2 million impairment at a distributor. All retailers experienced this, even the one I'm working for now took a big bite out of its bottom line. Obviously with a picked up economy losses on excess inventory are not going to be much of a problem, if at all. From the comments on their website by customers, they aren't even carried in most of the retailers they were in just last year, so of course their profitability is going to be down. But I don't see how they won't get back into those same retailers very soon. They are not a one hit wonder, they didn't ramp up nicely to $28 a share over 9 yrs based on luck or speculation. I wouldn't doubt it at all that they get back up to $15 no problem. If you checked out their product, it is superior to other sodas (just bought one the other day) in my opinion. On their website people are very angry that they can't get their Jones Soda anywhere they used to. They seem to have a very strong cultish following. That doesn't suprise me given how their board contained Coke's former marketing VP. Nobody markets and brands itself better than Coke and so Jones strong brand name by the marketing expertise of Mr. Steve Jones among many communities comes as no suprise.

Yes, they flopped somehow but they didn't flop until the economy did. That would probably be either former managment or unfair trade practices by their competition (Coke). Anyway they have a new CEO and will most likely be getting into all the former stores they were in before. They've probably learned from a lot of distribution mistakes and will only be stronger this time around. In fact their new CEO is a specialist in distribution. They said they have a new focus on increasing their margins. I think they have a better product than any I've seen at Walmart (I checked recently). I would much rather buy their drink than a monster drink or gatorade anyday. Their flavors are very original and very tasty, and besides that many of the kids on the website say they just want to buy it for the bottle itself. Check out their marketing scheme. I just don't see this stock ending up anything under $10 a share, period. In the longer run I expect it to go well over its former high $28. The price is pumped up in anticipation of that fact in my opinion.

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#8) On June 02, 2010 at 6:18 PM, JaysRage (94.10) wrote:

Wow.  I'm surprised that I haven't heard anyone relay the whole Jones Soda story.   Several years ago, before the economy went in the tank, Jones soda was one of the darlings of the small caps.   They had an innovative CEO who was constantly in the media.   They held promising patents on pictures on bottles that had all sorts of promise for sports marketing and possible collectible signature bottles.  They were trendy and popular and they were the soda of choice of Starbucks, so they had some serious visibility.   So what happened? 

1) Starbuck dropped them

2) They tried to convert from bottles to cans and fumbled it.

3) The founder and CEO left the company  

They were too arrogant at the time to think so, but everything they were came from Starbucks.   The departure from that venue dropped them like an atom bomb.   Then they fumbled the switch to the "higher margin" cans and by the time they figured it out everyone forgot who they were.   They never followed up on the foothold that they gotten by winning contracts to sell to the Seahawks and Mariners and they never pursued collectable sports bottles.   All of those things were set up by their hard-working and hard-selling CEO.   He was forced out of his own company by the near-sighted and stupid board of directors. 

So now what?   They are just another soda company trying to break in.   All the things that made them different and all the avenues to exposure that they had are gone.   They are done.

I still do like the soda.   The blue raspberry is my favorite.  It tastes roughly like fundip.  

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#9) On June 13, 2010 at 11:15 AM, dwot (99.57) wrote:

I've never liked Jone's Soda.

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