The A2 Milk Company [ASX:A2M] has dropped by 3.6% for the day. A rather large drop from the highs made yesterday.
A2 Milk is a dairy company engaged with producing and commercialising A2 milk and other milk related products, predominantly in New Zealand, Australia and the UK. Also branching out into the US and trying to push through into the Asian markets of Hong Kong, Singapore and South Korea.
Its product base includes liquid milk and infant formula, as well as cream and yoghurt.
Why the share price drop?
The company’s main focus is on the production and marketing of the A2 protein. This is designed to make A2 milk easier and healthier to digest compared to other milk. Plus it has continued to produce the fastest growing infant formula since 2017 — with a market share of 16–26%. So A2 Milk should be enjoying significant.
Why the fall, then?
Well…it could be that A2 is still struggling to earn profits in the US market. A possible reason behind them deciding to increase their marketing investments in the US. Intending to increase their presence in this particular part of the world.
But with trying to expand into the APAC (or Asia Pacific) market, maybe A2 is biting off more than it can chew? Two new markets may be too much for A2 to focus on all at once.
According to Nicklaus Loong of ‘Investments Revolution’,
‘…whether it would be better to increase investments/expansions into the US region as compared to using the amount for expansions in APAC is another factor to consider.
‘In my opinion, it would be better to focus on its expansion in APAC instead of expanding in the US market given the lack of brand awareness and huge potential in the APAC region.’
And he continues to add,
‘…if they choose to expand rapidly in the APAC region (which they are doing now), ATM would be able to leverage on its first-mover advantage and gain market share in the region.’
Perhaps the A2 Milk Company should place more focus on one region at a time.
However, the launch of their new pregnancy formula may help towards improving A2’s share price slump.
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