Reed's Going Public?!?!

[S3]

Stay away from this offering.

I just read their prospectus. In summary:
1) 3 million shares @ $6/share = $18 million.
2) Represents 47.1% of the company.
3) $18 million/47.1% of the company = valuation of over $38 million.
4) Reeds revenue is ~$6.5 million, growth rate is ~7%.

Based on recent sales of past companies, a quick way to value a company is Revenue X (1 + Growth rate).
1) SoBe = $300 million X (1+33%) = $400 million. Actual price paid = $390 million.
2) Odwalla = $125 million x (1+40%) = $175 million. Actual price paid = $180 million.

This would suggest a valuation of ~ $7 million for Reeds ($6.5 million x 1+7%).

They are valuing this company at over 5x its value using this quick method.

Any thoughts?

[sodasommelier]

Well.... for thoughts, I guess I'm doing better than I had ever imagined, then!!

Actually, Reed's is really going after investors right now. I can honestly say that Reed's is the only company (outside of mine) that I have any shares in. But of course I got mine way back before all of this so I suppose if everyone goes out and buys stock now in Reed's, mine will increase in value [img]smile.gif[/img]

At any rate, anything you know about how all of that works and what it's really worth would be fascinating for me to learn, so go ahead and post whatever you dig up and I'll be enthusiastically waiting to read about it!!!

[S3]

SS -
Interesting that you are a stockholder. Couple of additional thoughts/observation:
1) Based on current shares outstanding, your stock s/b worth around $1.48/share. Valuation methods differ, but I am using an estimated acquisition value. Discounted cash flow method doesn't work well for a company that is losing money.
2) Straight from the prospectus, they plan to spend about 33% on a cooler/vend program, 29% on slotting, and 11% on sales reps. I don't know your thoughts, but I believe the cooler program and slotting program are destined to fail. They cite SoBe and Snapple as successes with the cooler programs, but that is because, in part, the distributors paid for 50% of the cold equipment. As for slotting, are they really ready to play that game? I don't believe that they have all the facts as to how the cold equipment and slotting programs worked (or didn't) for Snapple/SoBe.
3) Again, straight from the prospectus, they plan to begin operating their own plant. Is this the best use of their funds? Are they proficient product development and marketing people, or are they proficient manufacturers? I suggest that they leave the production to the co-packers for quite some time before they bogg themselves down in this quagmire. Should they add another co-packer - sure. How about Lenore? Evansville Brewing? There are plenty of options.
4) Finally, they view their brewing process as a trade secret? Give me a break. This is no reason to open your own plant. The brewing process is well-known and already duplicated by several mfrs. Don't spend the money on a plant unless you achieve a real competitive advantage.

Reed's has the potential for a bright future, but the decisions they make now will impact their future for better or worse. It seems to me that they are overestimating the benefits of cold equipment, slotting, and self-production. For their sake, and the sake of their stockholders, I hope they're right. I just hate to see a good brand disappear without full consideration of all of the facts.

I'll wait at this point to let the public offering go through, then consider buying once the dust has settled (and the price is down to $1.50 or so). In the mean time, it is always interesting to read the complete financials for a previously private company.

[sodasommelier]

I think the cooler program and slotting is a complete waste of money. Also they do have a tendency to hire sales reps who have a different position than their distributors; often make direct sales at the expense of distributors' sales. In fact they get more volume moving, but they do this via deep discounting and the incentive that the salesman gets at the expense of the goodwill that the distributor loses. If the distributor ultimately drops the brand in disgust and its price to the retail trade has gone down as a result, then I think they're falling back two steps to try to go ahead one. The cooler program... well it really makes the product look great. But the clientele that drinks their beverages is not really the type that will go running to a cooler, or anyway, not enough to even pay for the coolers and the expense of maintaining them. These are my opinions because of course I could do the same thing for my stuff and I choose not to because I feel it would cause me to lose money. So will someone else with a more narrow variety drinks get away with making a profit on it? Hard to say.

Now as to their manufacturing and the process, I think they may have a good thing going. I've seen how he does it and it's really impressive; I really have respect for the quality of what he does, how he does it, and how much he cares about the finished product. There aren't so many folks in the bevbiz who put so much into making a good product. The sad thing is that the product is worth more than it sells for because of the rush to get those sales figures, and that is the one thing that may spell the longterm downfall. However, I got my shares in the beginning to show my support and also because who knows... I might get lucky.

I'll be curious to see what you think of the trends with Reed's and whether or not you yourself decide to invest in it.

[S3]

SS -
Seems this conversation is only between you & me, so I'll call you directly (if you don't mind) to discuss. I'm very interested in the company and its prospects, just a little weary of this offering.

In fact, I'm very interested in this category (ginger) along with the soy and organic categories, and find the other competitors (Ginger People, Soy Power, Odwalla, Silk, etc.) interesting to watch as well. These categories will go far - but how will each player fare? That is the question for Reed's.

[Ron Swedelson]

I think it is a good idea for the company to start looking into coolers. Slotting fees is just something that companies have to live with in certain areas. Coolers will help their instore sales drasticly. I just saw yesterday that Reeds was in Safeway. But that is only because I happened to go down an isle I normaly don't, and looked on the bottom shelf. Reeds may be a fairly large company and have some good sales numbers, but I almost never see it in my normal routines. I know it is in some borders books and music stores, Nob Hill/Rallies, whole foods and Albertsons, and now Safeway. A cooler in many bigger markets would allow Reeds to appear more main stream and grow their brand into their untouched markets. Their reality is either accept what they have for sales and leave it as it is, or try coolers and new programs and hope that they catch on to more of the public.

[Goldmember]

Im not so sure a cooler program is such a good idea for a company such as Reeds. Heres why: they only have a handful of skus (6 maybe?). I gaurantee that their equipment will get loaded up with other brands and they will be lucky to have 1 shelf in their own coolers (just like Nantucket Nectars).

[fusion]

Yup. You read my mind on that one. Whoever is distributing Reed's will just take the opportunity to cram the rest of their brands in the cooler.

[sodasommelier]

Yes I agree; Reed's would be paying for the merchandising & upkeep along with whatever the store charges, and if they had to have a rep calling on the account and run it through the health food mafia they'd be lucky to come out in the black no matter how much product sold through it. But all of that aside I think they make a really decent product. Sometimes I think it is wise to know your place and your parameters and not to concentrate too much outside your arena til you've built a substantial foundation based on quality, service, loyalty, and respect. Overall there are so many startup companies that come out with something and think that it will be in everyone's fridge at home and at work if they can just put it out there. That's not too realistic, and sometimes people expend too many resources aspiring to something that is not going to happen; they burn bridges while trying to ascend faster than what comes natural, and at the end they end up crashing down hard and ceasing to exist. I think Reed's has built up quite a foundation and certainly some respect as a wholesome product line. I think that if they make the right decisions they will be able to maximize its potential in the realm where it logically fits.

S3, you can e-mail me at kavakaze@yahoo.com if you'd like... curious to hear your twist on ginger products!!

[Ron Swedelson]

What would be wrong with counter top fridges? If the are looking for cooler space, go with counter tops. Its easier to control, less room for others to battle you on. Point blank, Reeds is not around here much at all except a few upscale stores. If thats how they want their busines, cool, I have no problem. But if they want to grow, they need to do something.