By John Mylant, founder and CEO of ( OptionsWeekly.Org)
NEW YORK (TheStreet) -- I have often asked myself what are the tobacco companies going to do as their traditional revenue source continues to shrink? My answer may come in the form of the e-cigarette. This technological breakthrough may become the leading revenue source for big tobacco over the next generation if its popularity continues to spike like it is.
One of the biggest smokeless tobacco markets (or techno alternative if you like) that the tobacco industry has been pushing is the e-cigarette market. Presenting itself as a viable alternative to tobacco, the e-cigarette is being aggressively marketed by the tobacco industry.
E-cigarette sales in Great Britain for example have risen tenfold as the tobacco industry pours millions of pounds into "smokeless cigarette commercials." They are labeled as a "healthy alternative" to smoking and are even promoted by celebrities who are now using them. It is estimated there are 1.3 million citizens in the country who use these electronic cigarettes to inhale the "nicotine vapors" created by these battery-powered devices.As this device grows in popularity, governments are taking notice and are beginning to regulate this tobacco alternative. It appears that ethylene glycol, a potentially harmful ingredient when inhaled, is a primal substance in an electronic cigarette. This is also a primary ingredient in brake fluid and antifreeze. For this reason, the ministry of health in Israel plans to apply smoking laws to smokeless e-cigarettes also. Substituting revenue from cigarettes in the form of e-cigarettes is not a short-term task. For example, let's take a look at Altria Group (MO). The company's revenue last year amounted to about $24.6 billion. The e-cigarette market, according to Altria's estimates is about $1 billion. This is only about 4.1% of the company's entire revenue and it would be ridiculous to think that the company will capture 100% of the market even with the launch of the MarkTenk e-cigarette coming up, it will not be a significant revenue increase in the light of the company's overall revenue. The U.S. cigarette market is a $78 billion industry. This is still the meat and potatoes of revenue for companies like Altria; in the short term I do not believe the company's stock price would be significantly influenced by this industry at this point in time. If we estimate that the company will pick up 50% of the e-cigarette market (keeping in line with its regular cigarette market share), that would add about 2.05% to the company's entire revenue. At the writing of this article the stock is trading at $35.55, 2.05% of this is about 72 cents.
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