While the market is up around 10% this year, there are plenty of stocks that haven't participated in the rally. Some have even tumbled, driven lower by weak performances. Big drops are especially painful in a rising market.
Of all the stocks that have lost 30% or more of their value in 2017, three stand out. Shares of Snap Inc. (NYSE: SNAP), Blue Apron (NYSE: APRN), and Fossil Group (NASDAQ: FOSL) have all been decimated this year, with investors throwing in the towel over terrible results. Here's what happened, and what the future holds for these three companies.
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To call Snap's valuation optimistic when it went public earlier this year is the understatement of the century. Snap made its debut at $17 per share and within days briefly hit an all-time high of around $29 per share, good for a market capitalization of nearly $33 billion.
Today, Snap trades for less than $15 per share, a nearly 50% plunge from its peak. Snap has missed analyst expectations across the board for both of its quarterly reports so far, and the market has been unforgiving. During the second quarter, daily active users rose just 4% compared with the first quarter, not the kind of growth that a company that was once valued at dozens of times annual sales should be putting up.
That's not to say Snap isn't worth something. The Snapchat app sports 173 million daily active users, and it appeals to younger users like no other form of social media. But the company is hemorrhaging cash, hurling money into research and development, cloud infrastructure, and other operating expenses. During the second quarter, Snap produced $181.6 million of revenue but reported a staggering net loss of $443.1 million. There's plenty of IPO cash available, but it won't last all that long at this rate.
Even today, Snap is valued at around $18 billion, about 20 times the average analyst estimate for revenue this year. Facebook and Twitter trade for 15 and 5 times sales, respectively. Another 50% plunge wouldn't be surprising, especially if costs continue to grow faster than revenue.
Blue Apron is the first meal-kit delivery service to go public, and it may be the last given its performance so far. The stock has been hammered since its debut in June, tumbling about 45% from its IPO price. Blue Apron's first quarterly report laid bare the fundamental problem: Winning new customers is expensive, and those customers don't tend to stick around very long.
The total number of customers slumped 9% during the second quarter compared with the first quarter, despite putting 14.5% of revenue toward marketing. Those customers placed just 4.3 weekly orders on average during the quarter, meaning that many are trying and dumping the service after a few weeks. The company has now reportedly fired 14 of its recruiters and implemented a hiring freeze of salaried employees.
The cause of Blue Apron's woes is probably the price of its service. At $8.99 to $9.99 per person per meal, Blue Apron is outrageously expensive compared with the grocery store and in line with a meal at a fast-casual restaurant. Its's no wonder, then, that customers aren't sticking with the service.
For Blue Apron to be successful, it's going to need to find a way to lower its costs enough to bring its prices down. Grocery stores, particularly Whole Foods under Amazon.com's ownership, are almost certainly going to push into the meal-kit business, and almost certainly offer a better value than Blue Apron. The pioneering meal-kit company is going to get run over if it can't adapt.
Watch, jewelry, and accessory seller Fossil Group is having a rough year. The stock is down nearly 70% year to date, driven by an accelerating sales decline and growing losses. During the second quarter, revenue plunged 13% year over year, with every category showing declines. Global retail comparable sales, including e-commerce, were down 11%, and the company wrote off $407 million of intangible assets because of the precipitous decline in the stock price.
Fossil's turnaround plan revolves around wearables. The company acquired wearable maker Misfit in 2015 for $260 million, more than half of Fossil's current market capitalization, and it plans to launch a total of 300 models of hybrid and touchscreen wearables this year. Fossil is betting that a focus on fashion and variety will allow it to carve out a piece of the wearables market for itself. The company will be using Android Wear for its smart watches, a smart move given the difficulty of building up its own ecosystem.
With all Apple Watches looking the same, save for different colors and different bands, selling a wide variety of products makes sense. Whether it will be enough to turn the tide for Fossil is another question entirely. In the smartwatch arena, the soon-to-be-launched Misfit Vapor looks promising, priced at $199 and powered by Android Wear. But going toe-to-toe with Apple will not be a walk in the park.
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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Facebook, and Twitter. The Motley Fool owns shares of Whole Foods Market. The Motley Fool recommends Fossil Group, Inc. The Motley Fool has a disclosure policy.
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