One-hit wonders. They are a phenomenon of music that we all know well. Artists who come out with one hit song, enjoy a moment in the limelight, and then fail to repeat the success. (I’d list a few, but you honestly wouldn’t recall most unless you heard the hit song they were responsible for.)
Well the same phenomenon occurs with some publicly-traded companies: Companies that go public, have exciting products and hot stocks, experience lofty gains, and then struggle as their businesses become increasingly less relevant, with stock prices to reflect the declines.
In the accompanying video, Yahoo!Finance Senior Columnist Mike Santoli walks us through three cautionary tales of corporate one-hit wonders.
- Crocs (CROX). Not only are Crocs responsible for what fashion-conscious folks would consider hideous rubber shoes, the company is also responsible for a stock that debuted at around $14 per share in February of 2006, surged to $68.98 at its height in October of 2007, and then took a steep fall down to where it sits now at about $13. While the rubber clogs admittedly enjoyed a moment as a major fad, the company reported a 43% decline in profits for its most recent quarter.
- TiVo (TIVO). There was a time when it seemed everyone had to have one, and at TiVo’s peak subscriber point in 2007, 4.4 million people did. But just as the verb “TiVo” has been replaced in our vocabularies with “DVR”, so too has TiVo been replaced in our homes with a host of other options. The stock, for its part, peaked at $57.88 in January of 2000 and was $5.75 by December of that year. It has flatlined for the last decade and is now around $11.
- Boston Market. This company, once “synonymous with hot IPO,” according to Santoli, isn’t even publicly traded anymore. It went public as Boston Chicken in the early 1990s, ascended from its IPO price of $10 a share to $41 in 1996, before a death spiral sent it plummeting 97%. It was acquired by McDonald’s (MCD) in 2000 and later sold to the private equity firm Sun Capital Partners. In the video above, Santoli explains how it went from hero to zero (or at least, from hot IPO to Onion headline fodder).
So what’s the lesson for companies and investors in avoiding the curse of the one-hit wonder? Check out the video for Santoli’s answer and the antidote he sees in the example of Netflix (NFLX).
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