Five Companies That May Not Survive Past 2014
Wall Street is a sucker for a good comeback story, and it got plenty of them in 2013. Best Buy shares, for example, have zoomed nearly 250 percent higher this year. Hewlett-Packard, the worst performer in the Dow Jones industrial average in 2012, has nearly doubled this year. Companies like E-Trade Financial, GameStop, Rite Aid and Yahoo have all seen their share prices soar 100 percent or more—sometimes much more—as investors bought into their turnaround tales.
Sometimes, though, down-and-out businesses stay that way, or manage to fall even further. The five companies below have struggled for years to turn around their operations and, for whatever reason, have failed to get themselves back on the right track. We're not predicting that they will go out of business tomorrow, or anytime soon. They will, however, continue to face a tough road ahead—and all will have to make significant changes if they're to become Wall Street's darling comeback stories of future years.
Martha Stewart's media empire has been circling the drain for years as the diva of domesticity's popularity fades. Stewart has proven far more adept at fashioning crafts than at developing a coherent, successful corporate strategy. The company's executive offices have seen a revolving cast of managers, but none have managed to get profits blooming. Revenues in Martha Stewart Living's publishing business have fallen year-over-year for seven straight quarters. During the company's third quarter, its only profitable business was merchandising.
Even those profits may be in jeopardy as the company has had to revise its partnership with J.C. Penney after being caught in the middle of a nasty battle between that retailer and Macy's. Investors have complained that Stewart is vastly overpaid and she cut her pay in response. Stewart's best hope is to sell the company but given the trouble she has caused it's hard to imagine who would buy MSO.
Zynga, the creator of FarmVille and Words With Friends, has suffered a serious drought of follow-up hits. As one analyst recently noted to Bloomberg, with the exception of Zynga Poker, the company has failed to produce a sustained mobile hit in ages. For players of Words With Friends, that would be like having only O's and U's.
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New CEO Don Mattrick, the former head of Microsoft's Xbox business, was brought on in July to put some zing back in the game-maker. The company has also slashed jobs and cut back on outside contractors in an effort to reduce costs. Those cuts helped the company post better-than-expected third-quarter results, but unless Mattrick can position Zynga for success in mobile, he's going to have problems gaining traction. He could also play "find the white knight," but that's a dangerous game, too.
When billionaire Edward Lampert engineered the merger of Sears and Kmart in 2004, one analyst described it as a "dream deal." The reality has been more of a nightmare for long-term shareholders.
The ongoing struggles at troubled J.C. Penney may have overshadowed those at Sears, but sales have fallen at the Hoffman Estates, Ill., company for 27 straight quarters. During the first three quarters of 2013, the once-venerable retailer lost $1 billion. Wall Street analysts expect the red ink to continue for the foreseeable future.
Lampert, who became Sears CEO this year, is trying to unload any assets not nailed to the floor as the company's cash begins to dwindle. Sears has announced plans to spin off Lands' End and sell its auto centers, a deal that one analyst estimates could be worth as much as $2.5 billion. But the company has about $2.8 billion in long-term debt.
Sears' struggles are taking a bite out of Lampert's fortune. He was forced to reduce his stake in Sears to under 50 percent because of redemptions from hedge fund clients. As he continues to lose control over Sears, pressure will mount on Lampert to either take the venerable retailer private or sell it to someone else.
Ever since he became CEO earlier this year, Joe Magnacca has vowed to "transform" the business. That's a tall order. Radio Shack has been struggling to keep pace with technology and stave off fiscal oblivion for years. In 1999, the shares sold for $78.50. Now, they sell for $2.66. The company has seen its market capitalization shrink by 98 percent. It now has a value of $270.4 million, which is tiny for a national retail chain.
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Magnacca has tried to breathe new life into the stodgy brand through stunts such as opening a pop-up store in New York's Penn Station. Though Wall Street analysts have welcomed these efforts, many think it's too little, too late.
Radio Shack is in such poor shape that it's unlikely that a buyer would rescue it, at least before it shutters poorly performing stores. Though the company had $613 million in cash as of Sept. 30, its long-term prospects aren't going to improve anytime soon.
Yes, MySpace, once the dominant social network, still exists. It was acquired in 2011 by a group of investors including Panasonic and singer/actor Justin Timberlake. The investors acquired the site from Rupert Murdoch's News Corp., now 21st Century Fox, for $35 million. News Corp. had famously bought the company six years earlier, for $580 million.
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Under its new management, MySpace has tried to reinvent itself as a social music service. It relaunched the website earlier this year and undertook a $20 million advertising campaign. Though it has attracted some 36 million users, profits haven't followed and the company announced in November that it had laid off 5 percent of its staff. According to Business Insider, MySpace lost $43 million in 2012.
Even worse, a group of small, independent record labels called Merlin has accused MySpace of using its members' content without permission—a situation that will have to be addressed. Even if it does reach a deal with Merlin, MySpace still must find a way to compete against a slew of larger, more popular music services such as those from Apple and Spotify. For MySpace, the music may stop before that happens.
—By Jonathan Berr, The Fiscal Times