Pepsi (PEP.US) soda is not selling, and Poppi's $300 million reward is in jeopardy

The Zhitong Finance App learned that Pepsi (PEP.US) said that its prebiotic soda brand Poppi failed to achieve the growth targets required to trigger additional bonus payments.

According to a securities declaration document, as of September 5, Pepsi estimates that the performance-linked amount corresponding to the acquisition of Poppi was approximately US$12 million. This amount is a sharp drop from the $117 million recorded in June, and is also far lower than the December forecast of $278 million.

According to reports, last year, Pepsi spent nearly 2 billion US dollars to acquire Poppi; the two sides agreed that if the brand reaches an undisclosed growth milestone by the third quarter of 2027, Pepsi will pay an additional 300 million US dollars.

Poppi is known for its highly communicative and social media marketing methods, focusing on low-sugar flavors such as Shirley Temple and sour apples. Earlier this year, Pepsi left one of the four Super Bowl commercials to the brand. Recently, the soda brand also reached promotion cooperation with the Dallas Cowboys and the reality show “Love Island (US version)”.

Pepsi did not comment on Poppi's continuing decline in the valuation of future payments. A Pepsi spokesperson said on Monday that Poppi achieved double-digit sales growth in the third quarter and increased its share in the carbonated soft drink market.

PepsiCo has been struggling in the North American sparkling water business. The beverage division's overall third-quarter sales were $7.7 billion, but organic sales growth declined slightly and fell short of Wall Street expectations.

CEO Long Jiade said in an earnings call last week that the company was “not satisfied” with the performance of its soft drink business and said that overall execution needed to be improved. He added that the company will invest more in Poppi as well as Pepsi and Mountain Dew (Mountain Dew).

The valuation of this amount, that is, a contingent consideration liability measured at fair value, represents an enterprise's optimal estimate of the amount to be paid in the future. According to the application documents, the valuation is based on simulated estimates of future operating conditions, including predictions of Poppi's net income and profit margin. Currently, Pepsi has yet to disclose the brand's extensive sales details.

Drink industry analyst Kenneth Shea said, “Judging from the current situation, Poppi probably won't pay any penny of this $300 million unless there is a significant rebound in performance over the next year.” Once paid, this amount will go to Poppi's shareholders and founders Allison and Stephen Ellsworth.

Longguard told analysts in July that the transition of Poppi from its previous distributor to the Pepsi system “had a certain impact” on the soda's performance in the first half of this year. He said at the time that the problem had been solved and the brand was still growing.

Over the past few years, Pepsi has been ramping up the development of a healthier snack and drink product line. To seek further growth, Pepsi is pushing Poppi out of the traditional soft drink category.

Last week, Poppi announced two new products to its drink line: Poppi Lift, an energy drink containing 70 mg of caffeine; Poppi Chill, which contains magnesium and theanine, which focuses on soothing and relaxing effects.