January 19, 2016
The technology sector is known for companies that explode onto the scene only to later go bust when new pressures emerge. To get a sense for tech companies that might not have long-term futures, we asked three Motley Fool contributors to each forecast one that may no longer be around in 2020. Read on to learn their names.
January 19, 2016
The technology sector is known for companies that explode onto the scene only to later go bust when new pressures emerge. To get a sense for tech companies that might not have long-term futures, we asked three Motley Fool contributors to each forecast one that may no longer be around in 2020. Read on to learn their names.
Tim Brugger: When former Twitter(NYSE: TWTR) CEO Dick Costolo stepped aside for Jack Dorsey in October of last year, there was a sense that the winds of change would light a much-needed fire. Alas, after the initial euphoria, Twitter's stock has since given up about a third of its value, with no end to its woes in sight.
The problems are well-documented — anemic monthly average user (MAU) growth and a lack of engagement top the list — and they remain front and center in investors' minds. Last quarter, it announced a paltry 3 million additional MAUs compared to 2015's Q2, which was a mere 8% improvement.
As for engagement, Costolo let the cat out of the bag prior to his departure when he shared the news that Twitter has some 500 million folks visiting the site each month, none of which became users. That was viewed as an opportunity by some, but it's actually indicative of Twitter's problems in luring, engaging, and retaining MAUs.
That said, Twitter completely going under by 2020 is possible, though not likely thanks to its brand recognition. The bigger question revolves around whether it can survive in its current form? Institutional investors will almost certainly demand change long before 2020 rolls around. One possible outcome could end with Twitter on the auction blocks.
Daniel B. Kline: For a brief moment, Groupon (NASDAQ: GRPN) had the hot new business model. The public had a seemingly insatiable appetite for daily deals, and companies were eager to get into business with the leader in the category.
Then, as so often happens when a star burns too bright, competitors got into the game. Major shopping websites offered daily deals, as did nearly every local newspaper. That led to a burnout in interest in the concept, which caused major damage to Groupon.
To its credit, the company has stabilized its business, buying itself time. Former CEO and current Chairman Eric Lefkofsky explained as much in the company's Q3 earnings release:
Over the past few years, we've repositioned the business for success and strengthened our foundation. On a trailing twelve-month basis, we generated $3.1 billion in revenue, $1.4 billion in gross profit, $283 million in adjusted EBITDA and $228 million in free cash flow.
That sounds good, but Groupon's core business is still daily deals, and the audience for those has proven that it will be interested for a while — maybe even intently — then fall away. The same is true for businesses. Companies will be happy to offer big savings to get people in the door, but they'll be much less willing to do so a second time, when those people turn out to be mostly deal-chasers, not repeat customers.
Over time, I believe Groupon will exhaust its user base, a trend that will accelerate as it becomes harder for the company to offer good deals. But that's not why Groupon is at risk of not surviving. The biggest problem the company has is that technology makes it so retailers really don't need a middleman.
Currently, the deal site asks business to offer at least 50% off their regular price, with Groupon taking about half of the sale price. That leaves the company with a very small piece of revenue. This is fine if it leads to new customers or blows out dead inventory, but it's bad news more generally.
If a company can offer a deal directly through social media, it can cut prices but not have to share with Groupon. That will become increasingly easier to do in the years ahead, and good offers will go viral, giving them reach without a middleman.
Groupon was a good idea, but it's a one-trick pony whose trick is no longer all that impressive.
Keith Noonan: Yelp (NYSE: YELP) is still synonymous with the online review space, but that could change almost overnight if the brand slips and other review platforms get a foothold. If that happens, it's doubtful Yelp has what it takes to survive strong competition. Right now, the big threat looks to be Facebook.
The social media giant is getting into the local reviews game, and its deep pockets and huge network advantage could spell trouble for Yelp. Even if Facebook isn't the one to knock Yelp off its perch, and others, including IBM, are vying for the space, the roughly $1.75 billion company has image and structural problems that could make surviving to 2020 impossible.
Yelp faces ongoing criticism for filtering negative reviews in exchange for the listings from its subscriber businesses. And it's doing so at a time when trust in online reviews is on the decline. If people are losing faith in online reviews because they feel they can't trust the content, as appears to be the case, Facebook is a natural Yelp disruptor, because it can tap into networks that are more personal and trustworthy to the user. Facebook also doesn't need to generate much or any profit from its review platform, whereas Yelp is under a lot of pressure from investors and needs a path to profitability as growth is slowing and costs are rising.
Of all the issues Yelp faces, this is probably the most ironic: Bad word of mouth about online reviews could help kill the company.
Courtesy: The Motley Fool
