When it comes to tech stocks, there is often quite a bit of buzz about how these companies are major threats to traditional players. Yes, this is all about disruption. And a prime example of this is Amazon.com, Inc. (NASDAQ:AMZN), which has wreaked havoc on the traditional brick-and-mortar retail industry. In fact, investors are now trying to find companies that are Amazon-proof!
Yet technology companies can be in jeopardy as well. Hey, there are many cases of once-dominant players that have quickly come undone. Just look at Palm, BlackBerry Ltd (NASDAQ:BBRY) and Nokia Oyj (ADR) (NYSE:NOK) — which all failed to innovate fast enough.
Now there could still be opportunities for investors in these situations. After all, the management teams may ultimately sell out to a larger player.
OK then, what are some tech stocks that fit the bill? Which may bow out to the competition and option an M&A transaction? Well, here’s a look at three possibilities:
Tech Stocks Disruption: Fitbit (FIT) vs. Apple (AAPL)
Back in early August, Fitbit Inc (NYSE:FIT) shares jumped by 15% when the company reported its latest earnings. But the shares have since given up some of its gains. Then again, during the quarter, revenues still fell by a whopping 40% to $353.3 million and the net loss came to $58.2 million, compared to a net profit of $6.3 million in the same period a year ago.
Besides, for the past year, FIT stock is still off by about 61%.
So then how did FIT get into this predicament? For the most part, the company has failed to evolve with the market. Customers generally want broad-based smartwatches, not health/activity trackers. This is why Apple Inc. (NASDAQ:AAPL) has quickly eroded the market share of FIT.
Now it’s true that the company plans to launch its own smartwatch for the upcoming holiday season. Yet it will be tough to gain an edge. Note that Apple Watch will be in its next generation. Moreover, there are key advantages for Apple, like a large ecosystem of app developers and partners.
To salvage shareholder value, FIT should consider an exit. The company still has a loyal customer base, key technologies, talented engineers and a well-known brand.
Granted, such things may not be interesting for AAPL. But FIT could still attract other suitors that are interested in tapping the growth in the wearables market, such as Microsoft Corporation (NASDAQ:MSFT) or Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).
Tech Stocks Disruption: Blue Apron (APRN) vs. Amazon (AMZN)
Founded in 2012, Blue Apron Holdings Inc (NYSE:APRN) is a pioneer of the online ingredient-and-recipe meal kits category. And from the start, the growth rate has been robust. APRN has also raised substantial amounts of venture capital along the way.
But lately the situation has gone negative. The company’s IPO — which was launched in late June — was a major disappointment. Note that the shares have lost about 48% to $5.25.
There are certainly many factors that help explain the implosion. For example, the company has to deal with rapidly rising costs for infrastructure and marketing. There have also been ongoing problems with the Jersey City fulfillment facility.
Yet perhaps the biggest issue is the competitive environment. Keep in mind that AMZN has recently made moves into the market, which has certainly worried investors.
So in light of all the problems, why might APRN still be an attractive buyout candidate? There are actually some key factors to consider. The company does have a quality brand, close to a million customers, a sophisticated supply chain (with over 300 partners) and has experience in handling the difficulties with complex recipes. The data is also quite valuable and the revenue base is large, hitting $238.1 million in the latest quarter.
Besides, APRN management is under quite a bit of pressure now – which may make a transaction more urgent. Note that this week the company has implemented a temporary hiring freeze. There has also been an increase with its credit line.
As for potential suitors, AMZN would be a good prospect. But this also goes for traditional operators, such as Kroger Co (NYSE:KR) or Wal-Mart Stores Inc (NYSE:WMT), which are trying to bolster their digital efforts.
Tech Stocks Disruption: Snap (SNAP) vs. Facebook (FB)
Snap Inc (NYSE:SNAP) is yet another prime example of a broken high-profile IPO. Since coming public in March, the shares have gone from a high of near $30 to a current $14.58.
Then again, the company’s two latest earnings reports have shown a deceleration of the user base. While SNAP has blamed this on technical factors — such as seasonality and issues with the Android version — it seems that the real cause is Facebook Inc (NASDAQ:FB). In about a year, the company has leveraged its Instagram Stories platform to capture a sizzling 250 million DAUs (Daily Active Users). By comparison, SNAP has about 173 million.
It’s true that the company’s CEO and cofounder, Evan Spiegel, has rejected multiple buyout offers over the years. But given the recent deterioration of the company’s growth path, there is likely to be some consideration of an exit. Let’s face it, there are plenty examples of once-hot social companies that have cratered, like MySpace, Friendster and Zynga Inc (NASDAQ:ZNGA).
But the good news is that SNAP is still an attractive target — and could fetch a premium. The user base is loyal, highly engaged (with the average time spent about 30 minutes per day) and young.
Oh, and there is an ideal suitor: GOOG. The company needs social media platform to compete against FB, but there should also be leverage with various properties, especially YouTube. It’s also important to note that — according to a report from BusinessInsider — GOOG offered $30-plus billion for SNAP last year. To put this into perspective, the current valuation is about $17.5 billion.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.