Five big companies that have lost popularity points

Stocks
By Eleanor O'Neill, CA Today

2 September 2016

With innovative startups and technologies becoming increasingly profitable, Eleanor O'Neill takes a look at some of the big names who might be failing to entice investors like they used to.

1. Netflix

The history of the global video streaming giant has been chequered by intermittent ups and downs. This is hardly surprising when one considers that the entire company transformed from a home-delivery service for DVDs into an icon of the digital landscape in less than a decade.

However, increasing competition from the likes of Amazon and Hulu and a stagnant customer base have contributed to a fall in confidence at Netflix.

Shares took a hit in April 2016 after Q2 guidance reported fewer new subscribers than expected and stock prices have yet to recover, sitting at approximately 13% lower than its highest second quarter point.

Increasing its customer base seems to be key in improving the company's future outlook. The non-US demographic currently accounts for about 40% of the streaming service's business and Netflix has spent heavily to increase that figure to 50% with varied success.

Still, the growing number of people who are forgoing cable television services in favour of online subscriptions suggests strong potential for gains. Some investors are predicting a turnaround on the horizon.

2. Yahoo

Once a titan of the online community, Yahoo has struggled to keep up with behemoths like Google and Facebook in recent years. Originally a hand-picked website directory, the business today resembles a mismatched collection of products and apps, many of which have failed to take off.

Marissa Mayer, formerly of Google, was brought in as CEO in 2012 to try to revitalise the fledgeling brand. She made several high-profile acquisitions, including Tumblr and Polyvore, but failed to bring the company together and generate the kind of revenue it needed to survive.

Yahoo recently made headlines for selling to Verizon for $4.8bn. The deal included its core mail, editorial, social media and advertising products but not its hugely profitable stakes in Chinese marketplace Alibaba or Yahoo Japan, that have a combined market value of about $40bn.

A boost to share prices would suggest that the sale was the right move as stock in the company brand is currently worth around 37% more than at its lowest point six months ago.

Yahoo never fully recovered from the tech bubble burst in 2000. Analyses of the business' misfortunes blame an incoherent model and mission, the company caught between media and technology and unable to propel completely in either.

3. Uber

Though still relatively new and valued on par with the likes of General Motors and Ford, Uber Technologies may have a challenging future ahead. The ride-sharing app has an enviable level of popularity but growing competition, impending regulation and investor apathy are looming.

The problem with a fresh, disruptive idea is engineering a suitable system for converting revenue to profit. Companies like Uber have to start from scratch and soon reach a point where need for growth is overtaken by need for return. Uber reached profitability in the US and Canada markets earlier this year but also sold the Chinese arm of its business, a potential nest-egg for the future, to competitor Didi Chuxing.

Also, as ride-sharing grows in popularity, so does the likelihood of competition. Lyft and Curb in the US, Grab in Southeast Asia and Ola in India all pose a threat to Uber's international customer base. Both Apple and Google have also hinted at getting in on the game.

The industry expansion necessitates the development of official regulations and legislation. A recent ruling in Seattle, Washington gave Uber and Lyft drivers the right to unionise, despite the fact their companies do not record them as official employees. That practice may need to change if other cities adopt the precedent.

Uber is still a private company. Speculation of an initial public offering (IPO) for this year was rife at the end of 2015 but after a $1.2bn loss in the first quarter, a date in the calendar seems to be getting further away. Private investors, including Microsoft and Google owners Alphabet, can't cash out until it happens and the true value of the company remains an uncertainty.

4. Volkswagen

Recent controversies surrounding emissions tests at Volkswagen have caused a considerable amount of damage to the company's reputation and value. After news of the carmaker's Clean Air Act violations became public, shares dropped by almost 30% in less than a week.

The company's US business took an especially hard hit. Sales of the German branded cars dropped 15% in the first half of 2016 and in July, US sales fell another 8.1%. Now it has also emerged that the Australian government are suing the company over the scandal.

Today, shares in Volkswagen are still sitting at approximately 26% lower than prior to the emission scandal in September last year. Some hope for recovery was rekindled when second quarter earnings came in higher than expected. Revenues rose 3.7% to €98.7bn in the first half of 2016 compared to the same period last year.

Focus has shifted to a reorganisation of the business with approximately 60 projects being implemented internally, including an initiative to encourage cooperation between departments.

These new strategies to cut costs, update technologies and revamp the business have been put in place by Volkswagen AG Chief Executive Officer Matthias Mueller in an effort to repair the damage to the brand.

5. Apple

Even the seemingly indestructible Apple Inc has been facing doubts about the future of the company. Stock plummeted after the tech giant posted its first revenue decline in 13 years at the end of April.

Shares have only just recovered, regaining the value they held before the report last month. But stock value is still ailing at around 20% lower than the highest point last year.

Along with declining iPhone sales and subsequent poor predictions, a lot of Apple's problems are coming from its international markets. In China, the company's second-largest customer base, Apple's growth dropped 26% in the first quarter of 2016. Not to mention the recent EU ruling on Apple's tax deal in Ireland that has a bill of €13bn.

Should the expected appeal on the verdict fail, such a large lump sum could have a tremendous impact on the business. Once long-term securities are subtracted, Apple holds just €15bn ($16.7bn) in cash and equivalents.

However, the iPhone 7 is due for launch next week (7 September) and once can only assume it will bring in a boost to the company.


Please note: All share prices and currencies correct at time of writing.

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