Company Analysis: Teavana – the next Starbucks?

[Jackie]

Here’s an interesting analysis & forecast for Teavana, dated Nov 20 – 2011. 

Thesis, valuation and conclusion provided curtesy of “Seeking Alpha,” a stock market blog. Primarily written by investors, it provides free stock analysis for its target audience of investment bankers, analysts and money managers. Whether that’s your profession or not, as a tea drinker this makes for interesting reading. 

Now – do I empty piggy to buy some stock or not? See what you think:

http://seekingalpha.com/article/309171-teavana-the-next-starbucks

[lahikmajoe]

I’m sure @Xavier (@teaconomics) will find this interesting.

If I could stay focused on the data, I would too. It’s late in the evening after a busy weekend. I’ll have to look at this more carefully another time.

[lazyliteratus]

I didn’t understand half that article. I don’t speak Stock-ese. That said, I have a bit of derision towards Teavana for one reason.

One of the managers said, to me: “We’re not exactly used car salesmen, but we walk the fine line.”

[peter]

This is fascinating reading. The best part of it all is that the statistics as presented by the writer really make it sound there is nothing but greatness ahead. Despite this he makes an interesting conclusion at the end:

“Valuation: no margin of safety if you invest in this company. We find it difficult to justify these valuations. If the company misses their revenue or earnings guidance, the price of the stock could suffer. Moreover, you have a private equity investor ready to liquidate as soon as they find the opportunity.“

As a business there will be natural stock growth as the company reinvests into itself in physical growth – doubling the number of stores by 2014. This makes it look attractive, but the other side of this (which the author doesn’t mention) is that while Teavana has slightly increasing same store sales (which translates to store performance over time) the company doesn’t really have a long tail with consumers. Too much competition online for better quality product at better prices. The Teavana consumer connection is for novices and new tea drinkers – the longer someone drinks tea in their lifetime the more likely they will graduate from Teavana. I would even argue that the transition could take less than a year in some areas because of a number of factors associated with driving to the mall for tea ( a commodity item).

The only way for Teavana to increase in value is a rapid geographic expansion of the company. Due to the short tail, to keep themselves present in the minds of consumers, the expansion is necessary – even though they, like everyone else in the industry, benefit from the market’s natural growth.

Here’s a link to the 1 year price chart for Teavana, since they went public. You might consider taking a short-term position now before the Christmas rush (as a mall store there should be a brief rise in value over the season) and cash in January.

From the same website here is another, less rosy, assessment of Teavana written last week.

[Jackie]

From that article you mentioned @peter, here’s another interesting line:

“The main product, loose tea bags, is traditionally a very inelastic and cheap product. Even if consumer income drops dramatically I do not think individuals would stop paying $5 for their large container of tea.”

Tea is cheap, that’s true. But what individual at Teavana pays $5 for a large container of tea. Sounds like the writer never walked into one of their stores.

[Anonymous]

That was interesting to read, but I don’t see it happening. Peter said it – there’s no telling they can keep the same customers in the long run if those people start exploring beyond tea beyond the mall. But I do see their push to expansion – Teavana always gave me the impression that it seeks to open in higher end malls. Now that’s no longer the case; while obviously they avoid dying malls, they go for big centers.

One of the things that really drove me away from them was a salesperson trying to tell my mom she needed to mix a (more expensive, of course) white tea in with yerba mate, otherwise it’s just “parts of a plant.” No way! Even that white tea is parts of a plant, buddy. If they looked to move to try to keep more experienced drinkers instead of just banking on the inexperienced and curious, I think they’d have more of a chance. 

But really, once someone realizes there is tea to purchase online for half the price, I’d think it’d be hard to regularly shop with them. I don’t mind some of their teas, there are 3 Teavana stores within 6 miles of where I live, and I cannot tell you the last time I even went in there. 

[Anonymous]

@jackie – Right.  There’s no such thing as a $5 purchase there.  Not for a large container of loose tea.  Not even 10 years ago when they were relatively new and up-and-coming.  $5 for the first 2 oz.  But try to get out of there with a simple 2 oz.!  Ha!

I gave up on them when they changed their blending ratios.  Everything looks like fruit salad now compared to what it used to be. 

What I think is happening is that more people are walking in the door because they’ve heard about it and they’re present in more places, but they’re not consistent customers.  Once or twice a year for a “splurge” or a purchase of their less-expensive teaware.  But I don’t know anyone who’s ever purchased their cast-iron teapots (have people looked at what they’re asking for those things?) and while I have friends who are still convinced that they’re selling tea vs. fruit chunks, these friends only window shop.  It’s hard to justify paying so much for so little when they figure out they can get good tea cheaper other places.

[Author]

Posts