These once-revered names are taking a beating.
After the financial success of major market disruptors like Amazon.com (AMZN), investors have been on the hunt for other potential market disruptor stocks to buy. Unfortunately, despite their long-term disruptive potential, many disruptive stocks have taken a beating in recent months, suggesting investor enthusiasm for these stocks may have gotten a bit out of hand relative to the value of their underlying businesses. DataTrek Research co-founder Nicholas Colas recently compiled a list of disruptive investment themes that have not worked lately. While some of these investments may eventually come back, here are seven disruptive companies that are underperforming.
The We Company
Fortunately, public investors seemingly ended up dodging a major bullet with The We Company, previously known as WeWork. The We Company filed its initial public offering paperwork in August and was given a $47 billion valuation in the private markets thanks to backer SoftBank. But it immediately faced media scrutiny surrounding its finances and its management. On Sept. 17, the company delayed its IPO after considering cutting its targeted valuation by 50%. Then on Sept. 30, it pulled its IPO filing after CEO Adam Neumann resigned. Instead of making a big splash with a high-profile IPO, Colas says the disruptive company is now in a "capital crunch."
Ridesharing companies Uber (UBER) and Lyft both went public with an IPO within weeks of each other earlier this year. Lyft was the first to hit the market and has taken the bigger hit, with shares down 52% since its March 29 IPO date. Colas says Uber and Lyft were praised as the "future of mobility," but they are both operating at steep losses with no clear path to viable business models. To make matters worse, California recently passed AB-5, a new law that would require Lyft to classify its drivers as costly employees rather than independent contractors.
Since its 2010 IPO, Tesla and CEO Elon Musk have been touted as the future of the global auto market. Unfortunately, Tesla has struggled to bring about that future in a timely manner. Not only is Tesla's share price down 27% in 2019, it's down 31% in the past two years. Tesla burned through another $400 million in cash last quarter. Colas said things could get even worse for Tesla investors in the future given larger, more deep-pocketed conventional auto competitors are seemingly committed to selling EVs at a loss for the time being.
Netflix has been one of the most successful market disruptors of the past decade, but competitors like Walt Disney Co. (DIS) may finally start applying pressure to Netflix's business in the next year. Netflix shares are down 27% in the past three months after the company fell short of subscriber growth targets in the second quarter. Colas says Netflix is facing the same types of pressures as Tesla in coming years as competitors with stronger balance sheets undercut Netflix's prices. Disney+ launches in November, with Amazon, Apple (AAPL) and other companies also investing heavily in their own streaming services.
Aurora Cannabis (ACB)
Canadian cannabis producers, including Aurora Cannabis, were all the rage in early 2018 amid a flurry of new U.S. market listings and nationwide recreational marijuana legalization in Canada. However, Aurora shares are down 61% in the past year as reality has started to sink in that scaling up existing cannabis production will be a costly endeavor for companies with challenged balance sheets. Colas says cannabis stocks like Aurora peaked in 2018 on investor hopes for U.S. legalization and expectations for potential new uses for marijuana, neither of which are guaranteed to happen anytime soon.
Altria Group (MO)
Tobacco giant Altria made a bold move by taking a 35% stake in disruptive e-cigarette maker Juul for $12.8 billion in late 2018. Altria was making an aggressive play to join forces with one of the biggest disruptors of the cigarette market, but sales of e-cigarettes have tanked following a new wave of vaping-related illnesses and regulatory scrutiny. Hedge fund Darsana recently estimated the value of Altria's Juul stake at just $8.4 billion less than a year after its investment. Colas says vaping has gone from "hero to near zero" as a cigarette disruptor.
Grayscale Bitcoin Trust (GBTC)
Bitcoin and Grayscale Bitcoin Trust investors are used to extreme volatility. In the past three years, the Bitcoin Trust is up 873%. Since the beginning of 2018, it's down 53%. Year-to-date in 2019, it's up 150%, but it's down 36% in the past three months. Colas says the latest drop has been an especially sharp one, even for bitcoin. The cryptocurrency hasn't gained as much mainstream traction as bulls had hoped, and regulators have raised investor safety concerns. Even bitcoin's early 2019 rally failed to get prices anywhere near December 2017 highs near $20,000.
Disappointing disruptive stocks:
-- The We Company
-- Lyft (LYFT)
-- Tesla (TSLA)
-- Netflix (NFLX)
-- Aurora Cannabis (ACB)
-- Altria Group (MO)
-- Grayscale Bitcoin Trust (GBTC)
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