Investors generally look at a company’s business prospects, its sector, and the general macroeconomic outlook in deciding whether or not to own an investment. That’s with good reason. However, it’d be a mistake to overlook company CEOs, as well. Sometimes, even a business that is seemingly in the right place at the right time will fail to capitalize on opportunity.
Indeed, that’s what happened in many cases with these companies below.
Despite having tailwinds from pandemic-induced demand or the economic reopening thereafter, several of these companies couldn’t fully realize that potential. Other companies simply lost the thread as management made questionable decisions that alienated employees or customers. Here are seven firms that ended up on a difficult path in 2021 thanks in part to management’s choices:
- Activision Blizzard (NASDAQ:ATVI)
- Aurora Acquisition Corp. (NASDAQ:AURC)
- Peloton (NASDAQ:PTON)
- ContextLogic (NASDAQ:WISH)
- Stitch Fix (NASDAQ:SFIX)
- Lemonade (NYSE:LMND)
- Deere & Company (NYSE:DE)
CEOs Fallen Out of Favor: Activision Blizzard (ATVI)
Activision Blizzard is a quintessential example of a good company that has been dragged down by management concerns. ATVI stock has now fallen more than 35% year-to-date. That’s truly a shocking move, given how the pandemic boosted demand all across the gaming industry.
However, Activision has squandered that opportunity. It stems around a series of sexual harassments claims. A number of employees came forward with claims of sexual harassment, excessive alcohol consumption at company functions, and even alleged rape, among others. Reports suggest that CEO Bobby Kotick was aware of these concerns but failed to take action or inform the Board of Directors of these issues.
Workers staged a major walkout of the company, and are now attempting to unionize. Meanwhile, developers are leaving the company and moving to rival gaming publishers or independent development projects. If you read social media, you’ll see many investors saying they won’t touch ATVI stock again until Mr. Kotick steps down. Coca-Cola (NYSE:KO) shareholders are also attempting to boot Mr. Kotick off their Board of Directors as well.
As for ATVI stock, it looks cheap here at 17x trailing price-to-earnings (P/E)and 15x forward earnings. And gaming continues to have a favorable outlook, particularly as metaverse stocks have gained appeal in recent months. However, if employees remain unhappy, it’s hard to be confident with an investment in Activision shares.
Aurora Acquisition Corp. (AURC)
Aurora Acquisition Corp. is a special purpose acquisition company (SPAC) that intends to merge with Better.com. Better is a digital mortgage lender. It’s name has become ironic, however, as its CEO failed to use better judgment when handling employee staffing decisions.
Specifically, CEO Vishal Garg recently held a web meeting for a sizable portion of Better.com’s employees. In it, Garg abruptly informed them that if they were seeing the webinar, they were being fired. Garg stated: “We are laying off about 15% of the company for a number of reasons — the market, efficiency and performances and productivity.”
Needless to say, citing efficiency and productivity is cold comfort to employees that were fired just a few weeks before Christmas. Adding insult to injury, at the end of the video, the employees’ computers shut down as they were locked out of Better’s systems.
Better had obtained a $6.5 billion valuation in its planned SPAC deal with Aurora. However, it’s unclear if the merger will go on as planned. Better already adjusted its funding to get cash quicker. Perhaps the company is in worse financial shape than realized if it needs to let go of so much of its workforce. Meanwhile, Garg has taken a leave of absence from Better as reports surface showing that he has insulted investors among other regrettable actions in recent months.
CEOs Fallen Out of Favor: Peloton (PTON)
Peloton has gone from cultural icon to a struggling firm in the space of a year. Pelotons were a must-have item during the 2020 holiday shopping season. Now, Pelotons are piling up on secondhand retail sites as people look to unload last year’s fitness fad. Things went from bad to worse recently. A Sex in the City spinoff used a Peloton as a plot device to kill off one of its characters. As an analyst noted, Peloton has lost control of the storytelling around its brand.
In the most recent quarter, Peloton’s revenues grew by just 6%. At this rate, Peloton will struggle to even maintain its current revenue levels. That’s not nearly enough. Peloton admits that it anticipates losing approximately $450 million in fiscal year ’22 on an adjusted EBITDA basis. Simply put, the company isn’t even remotely near profitability and its growth has nearly stopped. That’s a terrible formula.
Peloton’s founder and CEO, John Foley, had become a billionaire thanks to Peloton’s success. Now, however, his net worth has fallen to under the $500 million mark. If he isn’t able to get Peloton’s outlandish expenses under control, the once hot fitness brand may find itself in financial trouble going forward.
A year ago, ContextLogic appeared to be a promising new e-commerce firm. The company’s core Wish shopping app aimed to bring the bargain-hunting mentality to online shoppers. Now, you wouldn’t need to go to garage sales or discount retailers to find cheap but interesting goods.
And, for a couple of quarters, WISH stock looked like a winner. Shares popped nicely following its initial public offering (IPO). WISH stock soon went south, however, as the company’s growth prospects dimmed. Soon, the company admitted that its growth rate had slumped; revenue growth turned outright negative by the middle of the year.
ContextLogic blamed the abrupt reversal of fortunes on higher advertising costs. As the economy reopened, a lot of businesses such as restaurants, travel operators, concert venues and so on started advertising on digital platforms again. This increased competition for ads and made it too expensive for ContextLogic to advertise profitability.
Regardless, if ContextLogic can’t generate sales at an acceptable profit margin, the business model won’t be viable. Investors have totally abandoned WISH stock; shares are now down to a tenth of what their 52-week highs were. CEO Piotr Szulczewski was viewed as an e-commerce visionary last year. Now, he’s planning to step aside as Wish’s leader while the company attempts to come up with a different business plan to reduce its operating losses.
CEOs Fallen Out of Favor: Stitch Fix (SFIX)
Stitch Fix is an online retailer focused on offering customized apparel shopping for its customers. The idea is that people sign up and receive clothing specifically tailored to their body type and preferences. Stitch Fix sold investors on the idea that its predictive AI system would give customers a game-changing experience.
So far, however, this has not appeared to be the case. The company has sky-high churn, as people order from the company once or twice and then decide it’s not worth it maintaining their membership. The firm also has low online customer review ratings. While the product seems to work well for its niche audience, Stitch Fix’s efforts to become a more mainstream product have largely failed to succeed.
Stitch Fix enjoyed an upturn in demand during the pandemic. With shopping malls closed, people had to order online, and Stitch Fix was something new and interesting. Now, however, most of Stitch Fix’s addressable audience has already become aware of the product. And given a churn rate over 50%, most people that tried the product end up moving on fairly quickly.
CEO Elizabeth Spaulding blamed the company’s issues on other factors. Spaulding highlighted supply chain issues as one source of problems. Another is that Stitch Fix is pushing its new Freestyle shopping model and it hasn’t fully “educated” customers about the change yet. Time will tell if that’s true. More likely, however, is that the core product simply isn’t living up to most people’s expectations. In any case, Stitch Fix squandered a golden opportunity during 2020 to become a top-tier apparel business.
Lemonade is a tech company attempting to disrupt the insurance industry. LMND started off with high hopes; shares initially tripled and hit a peak of $188 earlier this year. Since then, the stock has fallen nearly 80% to hit just $44.50 today.
Some of this is due to market conditions–speculative tech companies have had a bad year, with insurance tech firms faring particularly badly. That said, Lemonade’s management brought a lot of this on itself.
In this case, it’s co-founder and co-CEO Shai Wininger that attracted unwanted attention. In a now-deleted tweet, Wininger wrote that: “Most of the negative #content in places like @SeekingAlpha is written by random #short traders trying to push #stocks down using scare tactics and disinformation.” Much of the “negative” content Wininger referred to was simply authors pointing out risk factors from the company’s prospectus, such as the company’s history of operating losses.
It’s generally a bad look for management to bash public authors and journalists. And things were about to get much worse for Lemonade. Just hours after Wininger lashed out at critics, Lemonade dumped a massive secondary stock offering on its shareholders. It seems Wininger was frustrated that people were calling LMND stock overvalued at the same time Lemonade wanted to sell more of said stock to the public. LMND stock was trading above $150 per share at this point; it seems the bears had a good argument.
Attacking critics is the easiest way to attract short sellers. In part, thanks to Wininger’s Twitter antics, skeptics put Lemonade under the microscope. Muddy Waters Research then slammed Lemonade in May, exposing an alleged massive security breach in the company’s software that exposed customers’ personal information. LMND stock has continued its long and steady decline since that point.
CEOs Fallen Out of Favor: Deere & Company (DE)
Like Activision, Deere & Company is another company that wasted an amazing opportunity. As the economy reopened, commodity prices shot upward. That includes agricultural products such as grains. In this environment, farmers are planting as much acreage as they can and are willing to invest in new equipment to get the best results.
Unfortunately, there’s been a shortage in some of that equipment. Deere has struggled to meet demand due to an extended employee strike at the company’s locations. Deere workers had long complained about a multi-tiered pay system that penalized newer hires. A lack of a traditional pension and wages that failed to keep up with inflation were among other concerns.
Deere initially didn’t take the strike too seriously, and offered stingy contracts, despite the firm earning record profits in the post-pandemic period.
CEO John May became an example of corporate America’s tone-deafness on labor relations. As critics noted, May himself got a 160% raise this year, which was awkward timing given what was about to follow. The strike did finally end in November, but the company lost production for five key weeks amid a historic boom in the agricultural sector.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.