Monster: Besieged on All Sides, Will the Former 'Monster' Turn into a 'Sick Cat'?

$Monster Beverage(MNST.US) In the cross-market comparison of Chinese and American beverages, Dolphin Research recently selected Monster Beverage ("Monster" or Mocha) for comparison, leading to the upcoming peer research on Dongpeng Beverage.

In the previous study, we focused on analyzing how Monster, as a follower, achieved success through differentiated positioning and community marketing, leveraging giant channels to surpass competitors.

However, past success does not guarantee smooth sailing in the future, as Dolphin Research's previous coverage of Lululemon serves as a typical counterexample. As the earnings season ends, Dolphin Research is swiftly moving to study the next truly critical core issue, looking at the present:

1. What will drive Monster's future growth? Are its wings stable?

2. Is it a good investment target? How is the current cost-effectiveness?

Let's delve into the discussion:

1. How is Monster's future growth potential?

1.1 The rise of niche brands, Monster faces threats from all sides

Before analyzing Monster's growth potential, let's first look at the changes in the competitive landscape of the U.S. energy drink industry in recent years.

From the chart below, we can see that starting in 2019, Monster's market share began to decline significantly, dropping from a peak of 43.6% to 29.2% by the end of 2024. Correspondingly, Monster's revenue growth in 2024 was only 4.9%, underperforming the industry growth rate of 7% according to Nielsen.

On the other hand, emerging brands such as Celsius, Ghost, and Alani Nu have grown rapidly in recent years, with their market share increasing from less than 5% in 2015 to around 15%, resulting in a significant decline in the concentration of the U.S. energy drink industry, with the combined market share of the duopoly Monster and Red Bull dropping 10 percentage points to 66%.

So the question arises, why has the market share of the former energy drink duopoly been eroded by numerous small and medium-sized brands? Considering that some investors may be unfamiliar with these emerging local energy drink brands in the U.S., Dolphin Research selected four representative emerging brands that have grown rapidly in recent years, and conducted a detailed analysis from four dimensions: product composition & positioning, channel strategy, and marketing methods, as background reference:

By comparing the table above with the strategies of traditional energy drink giants like Monster and Red Bull, we can see that the rapid rise of these emerging brands is due to:

(1) The core lies in capturing the trend of health and niche demand: As American consumers' health awareness gradually increases, they are becoming more cautious about consuming high-sugar, high-calorie drinks, one of the most significant trends in the U.S. soft drink industry in recent years is the slowdown in growth of traditional high-sugar drinks, replaced by rapid growth in relatively healthy categories such as zero-sugar and functional drinks. This is evidenced by Coca-Cola's financial reports showing double-digit growth for zero-sugar cola for four consecutive quarters, while classic cola shows zero growth.

For the energy drink segment, it is no exception. Compared to the high-sugar + synthetic caffeine combination of Monster and Red Bull, the table above shows that these emerging brands share the common feature of using zero-sugar + natural caffeine (compared to synthetic caffeine, natural caffeine contains plant components such as polyphenols and chlorogenic acid, which can delay caffeine absorption in the body, resulting in a milder effect) design, making them relatively healthier.

On the other hand, from a product positioning perspective, these emerging brands have chosen consumer groups and consumption scenarios that are not fully covered by traditional giants, whether it's fat burning, muscle building, or skin improvement, they offer more functional and focused options, creating a "second curve" beyond "energy replenishment and mental alertness", better meeting the diverse niche needs of consumers.

As for Monster, although it differs from Red Bull, which relies on a few classic SKUs to dominate the market, Monster has been launching 1-4 new products annually since introducing its classic series in 2002, through addition (combining with coffee, tea, juice, or directly adding protein, electrolytes, and other functional components to achieve new flavors and effects) and subtraction (reducing sugar and carbohydrate content to launch healthier drinks suitable for obese consumers and those who cannot consume excessive sugar), maintaining a relatively rich product line, but its core remains the high-sugar, high-caffeine classic energy drink, and its product system has not timely adjusted to the health trend, which is the main reason for Monster's market share erosion.

(2) Increasing investment in new media for efficient and precise target audience reach. In terms of marketing, although these emerging brands generally adopt KOL + community marketing strategies, they play this strategy to the extreme, unlike Monster. According to research information, these emerging brands allocate over 80% of their marketing expenses to new media (Monster is below 30%), rarely sponsoring large events or placing large TV ads, focusing on KOLs targeting niche audiences, creating social activities and topics to interact with consumers, although their marketing breadth may not match giants like Monster and Red Bull, their advantage lies in higher efficiency and stronger stickiness in reaching their target audience.

(3) Leveraging giant channels. Dolphin Research mentioned in "Monster: Tearing Red Bull Apart, How Did the "Monster" Achieve 100x Growth in 20 Years?" that the distribution channels for non-alcoholic beverages in the U.S. are mainly dominated by three giant beverage companies: Coca-Cola, PepsiCo, and KDP (accounting for nearly 80%). From the table above, we can see that compared to Monster leveraging the distribution network of "big brother" Coca-Cola, these emerging brands have partnered with PepsiCo & KDP for extensive distribution.

For example, Celsius (Burning Power), after PepsiCo invested in Celsius in 2022, Celsius quickly integrated into PepsiCo's distribution network in North America, with convenience store & restaurant coverage rapidly increasing from less than 10% to over 95%, and its market share in the U.S. energy drink market quickly rising from less than 1% to 10%, becoming the third-largest energy drink player after Monster and Red Bull.

This also illustrates that due to the high degree of chain retail in the U.S., reliance on standardized supply chain systems, and early deep cooperation with giants like Coca-Cola and PepsiCo, small and medium-sized brands can quickly leverage giants to expand channels, meaning that the channel segment in the U.S. market does not constitute a core barrier.

In summary, the core reason these emerging energy drink brands can erode Monster and Red Bull's market share is capturing the major trend of consumer health and niche functional needs, while increasing investment in new media and leveraging giant channel networks accelerates the pace of catching up.

In the absence of significant differences in channels and marketing, energy drinks ultimately evolve into brand mind competition. For giants like Monster, years of marketing and promotion have formed a "wild and rebellious" brand mind in consumers' minds, making it difficult to associate with health, providing an opportunity for small and medium-sized brands to counterattack.

Therefore, from the perspective of the U.S. domestic market: Firstly, from the industry level, looking at the overall market space for energy drinks, according to Nielsen data, energy drinks in the U.S. have developed for over 20 years, with penetration among the core consumer group—18-34-year-old males—exceeding 85%, almost reaching "one can per person" level.

On the other hand, combined with the analysis above, the continuous increase in consumer health awareness is gradually shifting towards lower-sugar, sugar-free, and functionally added healthier products, creating a certain substitution effect for traditional high-sugar, high-caffeine energy drinks. Therefore, Dolphin Research judges from the industry level that the energy drink category in North America will gradually transition to a low-speed stable growth period. Based on GlobalData data, Dolphin Research estimates that the growth rate of the North American energy drink market from 2025-2029 will be between 7%-8%.

From the perspective of competitive landscape, under the impact of emerging brands, although Monster launched the Zero Sugar series in 2023 and expanded the Zero Sugar product line with different flavors to fill its health gap, attempting to attract more consumer groups, combined with research information, since the launch of the Zero Sugar series, although its growth rate is higher than Monster's core, its performance is still weaker than emerging brands like Celsius and Alani Nu (according to Nielsen tracking data from Q1 2025, Zero Sugar's all-channel growth rate is 3.4%, lower than the 13.5% growth of the zero-sugar energy drink category). Dolphin Research believes the core issue is that Monster's Zero Sugar still relies on Monster's "rebellious culture" non-mainstream label, which fundamentally conflicts with the "healthy lifestyle" positioning.

Therefore, unable to shake off the existing label and failing to successfully transition to health, Dolphin Research assumes that Monster's domestic market share will continue to be eroded by emerging brands over the next five years, with overall sales growth weaker than the energy drink industry, with a CAGR of 6.3% over the next five years.

1.2 The core growth engine still relies on international markets

In the previous section, we analyzed Monster's growth space in the U.S. domestic market. So, what is the growth potential of the international market when facing domestic obstacles?

International market: For the international market, similar to Coca-Cola, due to different stages of economic development among countries, the demand for energy drinks varies. Overall, developing countries and emerging markets have a relatively high proportion of labor-intensive populations, resulting in relatively rigid demand for energy drinks, leading to generally higher growth rates.

Therefore, Monster's international market sales growth largely comes from emerging markets including Latin America, Africa, and the Middle East (EMEA), leveraging Coca-Cola's global network to achieve continuous channel penetration, currently still enjoying the rapid growth phase of channel dividends.

From a competitive landscape perspective, currently, there are not many players with a certain scale going overseas, and the overall market is still dominated by Monster and Red Bull. Although other brands have started to go overseas in recent years (Dongpeng Beverage entering Southeast Asia, Celsius entering Canada, the UK, and Australia), overall, they are still in the early exploration stage, with small scale and no international influence yet.

However, in the medium term, as brands like Dongpeng and Celsius accelerate their globalization efforts, Dolphin Research believes that the competition in the energy drink industry is likely to become more intense, and since Monster went overseas earlier, standing on the "shoulders of giants" like Coca-Cola to complete internationalization, it has enjoyed a certain first-mover advantage, so currently, other brands pose relatively little threat to Monster in the international market.

Considering that Coca-Cola's international market share is close to 60%, Dolphin Research assumes that Monster's international market share is slightly lower than Coca-Cola's, increasing from the current 40% by 10 percentage points to 51%, corresponding to a CAGR of 16% in Monster's international market sales growth over the next five years.

Combining the analysis above, overall, Dolphin Research assumes a CAGR of 12.4% in sales over the next five years.

In terms of price, although the proportion of Monster's healthier and more functional products is increasing, driving the overall product price range to gradually rise, due to higher growth rates in the international market, and the fact that the unit price in the international market is basically half of the domestic price, the overall price range is gradually declining, from $8.9 falling to $8.6, with a CAGR of -0.7%

Combining the forecasts from both volume and price dimensions, we arrive at a set of data, namely, Monster's sales and price CAGR over the next five years are 10% and -0.7%, respectively, corresponding to an overall revenue growth rate of 11.1%.

In terms of gross margin, from the chart below, since Monster's pricing in overseas regions is only half of the domestic price, coupled with the fact that Monster's production in overseas regions is mostly outsourced to Coca-Cola's bottling plants, resulting in higher production commissions, and the costs of raw material procurement, logistics, and warehousing are higher than in the U.S., Monster's gross margin in overseas regions is nearly 20 percentage points lower than in the domestic market.

From a pricing perspective, since Monster's pricing in overseas markets is usually 80%-90% of Red Bull's, to ensure its market share is not lost, Dolphin Research believes the probability of Monster actively raising prices is low (especially in markets dominated by Red Bull like Western Europe and Asia-Pacific), so the only way to improve overseas gross margin is from the cost side.

In fact, according to the previous analysis, from 2023 onwards, Monster has significantly increased its investment in building its own supply chain, with the proportion of fixed assets soaring for two consecutive years, including building production plants in Brazil and Ireland and constructing warehousing facilities in multiple regions worldwide, so Dolphin Research assumes that over the next five years, as Monster increases its own supply chain proportion to reduce production costs, the gross margin will gradually increase from 54% to 58%.

In terms of expense ratio, firstly for distribution expenses, due to the previous global supply chain disruptions causing Monster's transportation & warehousing costs to rise significantly, Dolphin Research assumes that as Monster optimizes its supply chain in overseas markets, the distribution expense ratio will gradually return to below 4% from 4.6%.

In terms of sales expense ratio, although recently impacted by emerging brands, Monster has increased its expense investment, especially in advertising for the zero-sugar series, but Dolphin Research assumes that as the overseas market continues to grow rapidly, the scale effect will lead to a decrease in the sales expense ratio from 10.1% to 9.4%.

Ultimately, the operating profit margin will increase from 26% to 33%, based on the above assumptions, with a profit growth rate of 17% over the next five years.

2. How to view Monster's investment value?

(1) High valuation is precarious

Reviewing Monster's valuation changes over the past 10 years, we can see that except for extreme macro disturbances such as the 2020 pandemic and the severe impact of high inflation in the U.S. in 2022 on consumer power, which caused Monster's valuation to drop below 30x, at other times it remained between 30x-50x, with an average PE of 38x, historically implying a full growth premium.

Comparing this valuation with Monster's own performance growth rate, over the past 10 years, as the growth rate of the energy drink industry slowed overall, Monster's annual compound growth rate was 12%, which is clearly expensive compared to the average valuation level of 38x.

On the other hand, from a peer comparison perspective, excluding the impact of growth on valuation, from the PEG perspective, Monster's PEG is above 2, implying a strong future growth perpetuity, indicating that funds require it to maintain a high growth rate in the U.S. domestic market while also sustaining rapid growth in overseas markets for many years.

Dolphin Research believes Monster's past valuation premium mainly came from the pricing power brought by the duopoly monopoly competition pattern maintained with Red Bull, under which leading companies can continuously strengthen scale effects and brand mind to raise their own moat.

In fact, combined with the analysis above, it is precisely because Monster's non-mainstream brand mind is deeply rooted in consumers' minds, causing Monster to react slowly in this wave of health trends, and its brand tone is difficult to support Monster's short-term health transition, leading to rapid growth of emerging brands eroding Monster's market share, ultimately worsening the competitive landscape, therefore, as Monster is in a defensive stage, its valuation will inevitably be affected.

(2) Currently somewhat overvalued

Finally, from a relative valuation perspective, since Monster has entered a stable growth period, considering the current deterioration of Monster's competitive landscape, if we apply a 28x PE for 2026, the corresponding market value is $63.5 billion, with less than 3% upside from the current level.

From an absolute valuation perspective, we estimate the WACC at 8.93%, and finally calculate Monster's reasonable market value at $61.9 billion under the assumption of a 3% perpetual growth rate, which is basically the same as the current stock price, with only 0.9% premium space.

Therefore, combining the two valuation methods, Dolphin Research believes Monster is currently somewhat overvalued, and from an absolute return perspective, the investment value is not significant, but as a relatively rigid demand energy drink track, and overseas still in the penetration rate improvement stage, compared to Lululemon, which also faces deteriorating competitive landscape and near-stagnant growth in its home market, Dolphin Research believes the probability of a rapid valuation decline is relatively low.

If Monster can complete the adjustment of its product matrix to health through frequent new launches, coupled with changes in marketing, and slowly change consumer mind, it may still have investment value, but currently, it has not yet successfully transitioned.

(3) "Sneaky" buyback

Additionally, Dolphin Research noticed that after the U.S. market fell into negative growth in a single quarter in 2024, the company used "money power" far beyond its sustainable capacity for buybacks: operating profit for 2024 was less than $2 billion, but $3.6 billion was spent on buybacks, and if calculated at the current stock price, the "shareholder return rate" for 2024 reached 6%, which is quite good.

However, this buyback is different from other buybacks, as the company's stock buyback is quite "sneaky": after the buyback is completed, it is not canceled but becomes treasury stock (the company clearly stated it was not canceled, just transferred to the treasury, reducing the circulating shares), usually not canceled, from Dolphin Research's observation, it is generally either converted into employee stock option incentives or released at a suitable time later.

This means the company's buyback is not a true shareholder return, as it does not truly reduce the total share capital or increase EPS, more like a self-controlled "stock price manipulation", so such buybacks have no real significance for Dolphin Research.

At the same time, the buyback amount for 2025 is only $500 million, meaning even if the company steps in to boost the stock price, there is not much buyback capacity for 2025, so the company's future investment opportunities, given the current high valuation, still depend on growth rather than this opportunistic "buyback".

3. Summary: Even if not a sick cat, future pressure is not small

Through the analysis above, in one sentence, Monster's success secret is "extreme light asset + subculture atomic bomb + giant channel leverage", as a follower, to complete a "counterattack" without first-mover advantage, it must find the audience group suitable for its brand tone through differentiated positioning, and "penetrate" this audience group through a series of precise marketing, forming a strong brand recognition, only then can it leverage channel leverage to continuously break through, which is the key to Monster achieving thousands of times investment returns over 20 years.

Currently, the problems Monster faces are also clear, on one hand, the loss of market share under the impact of emerging brands like Celsius, C4, and Ghost, and on the other hand, if it wants to break through from new categories, due to its deep binding with Coca-Cola, it cannot choose other soft drink categories besides energy drinks, so it can only try to break through with Hard drinks, as craft beer does not conflict with Coca-Cola's channels.

But from the current progress, since the brand reshaping was just completed last year, and the internal organizational structure was reorganized, combined with the company's management's performance meeting statements, the short-term focus is still on product innovation and local testing, with a low probability of large-scale volume.

Therefore, the only growth potential at the current stage is the growth of the international market, and as long as the competitive landscape in the international market does not deteriorate, Dolphin Research believes Monster's high valuation can still be maintained, but it is also necessary to be vigilant about the impact of players like Dongpeng and Celsius accelerating globalization on Monster's market share.

Overall, Monster is still a slightly superior company (superior in the growth sustainability of rigid demand products), and compared to companies like Lululemon, which are also in the second growth stage, since Monster's core is relatively more stable, with stronger stickiness, and more inclined to "essential consumer goods" in terms of attributes, it has not yet faced Lululemon's Davis double kill after growth slows down.

This concludes the research on Monster, Dolphin Research will next conduct a comparative study on the high-quality assets in the domestic energy drink track—Dongpeng Beverage, stay tuned!

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Dolphin Research related articles: "Monster: Tearing Red Bull Apart, How Did the "Monster" Achieve 100x Growth in 20 Years?"