Five Companies Technology Could Bankrupt Within Five Years
New technologies can disrupt long-standing industries and cast aside companies standing in the way.
These five companies may find themselves on the wrong side of the disruption. The unfortunate result? Without major changes to their business models, they may be bankrupt within five years.
GameStop (NYSE: GME): With the advent of Facebook games and major gaming consoles' online game distribution, the need for physical copies of video games seems to be fading. Why would gamers travel to a GameStop store to purchase a new game when they could download it from the comfort of their own homes? Consumer demand for retro or old-school games may persist, but will it be enough to keep this game retailer afloat?
Shares of GameStop are currently trading for around $21.00, very similar to their price during the depths of the financial crisis. Unlike Best Buy (NYSE: BBY), GameStop is currently profitable, with earnings per share of $2.43. It also offers a dividend yield of approximately 2.87%. But how long will this success last? The company is set to report first quarter earnings a week from today, on Thursday, May 17th.
Coinstar (NASDAQ: CSTR): Facing similar headwinds to Gamestop, Coinstar is likely concerned about its Redbox segment's online competitors. With Netflix's (NASDAQ: NFLX) movie streaming service, and other streaming services like Hulu, who needs to trudge over to a Redbox location to rent their favorite video content? Coinstar's original change conversion service could still remain relevant, but can Coinstar survive on Coinstar alone? The company's latest attempt to team up with Verizon (NYSE: VZ) and challenge Netflix's online streaming business may be its last hope for long term viability.
Shares of Coinstar are currently trading around $62.50, placing its market capitalization near $2 billion. The company has full-year earnings per share totaling $4.80, after reporting Q1 EPS of $1.39 on April 26th. These Q1 earnings per share outshined analyst estimates by $0.05, or close to 4%. Short sellers might disagree with the firm's year to date run-up of around 35%, as short sales comprise around 25% of the company's floating shares. Perhaps, these short sellers are focusing on the potentially dire long term outlook of Coinstar.
Barnes & Noble (NYSE: BKS) Borders' bankruptcy last year drew attention to the continuously increasing vulnerability of the brick-and-mortar book selling business model. Products like Amazon's (NASDAQ: AMZN) Kindle, Barnes & Noble's own Nook, and smart phones all have the capability to display e-books downloaded online. Once readers have more time to adjust to these technologies, brick-and-mortar book stores will likely see even profits decline even further.
When it no longer makes sense to run a chain of physical book stores, Barnes & Noble will likely be left with its Nook business and online book sales. Unfortunately for Barnes & Noble, the Nook business may not be enough to keep the company afloat, but could be an attractive asset for large technology companies to purchase.
Barnes & Noble shares have spiked upward around 35% since April 30th, after the company announced that it would partner with Microsoft to progress its e-reading business. This spike was likely quite painful for short sellers, whose positions represent close to a whopping 71% of floating shares. The stock has responded positively, but will this partnership be enough to save currently loss-making Barnes & Noble?
Sirius XM Radio (NASDAQ: SIRI) New car stereo systems are now increasing integration with online services such as Pandora (NYSE: P) and Last.fm. These online services, unlike satellite radio, allow listeners to custom-tailor their radio stations to play their favorite music. Sirius' commercial free model with more station choices did represent an improvement over traditional AM/FM radio, but if the company remains complacent, online music streaming companies could leave it in the dust.
Shares of Sirius XM Radio are trading approximately 19% higher year to date vs. around 8% for the S&P 500 Index. Sirius reported Q1 earnings per share of $0.02 on May 1st, in line with analyst expectations. This brings the company's full-year EPS to $0.07, placing its P/E multiple near 31. The company has a PEG ratio near 1.5 and a short interest close to 8% of floating shares. Perhaps, Sirius' long term bear case is what has driven company insiders to sell off around 20% of their aggregate stake within the past six months.
Radioshack (NYSE: RSH): This electronics retailer may have cornered itself into the niche market of obscure cords and adapters. Online retailers such as Amazon offer a markedly greater selection than Radioshack, and even offer many of the same products as Radioshack at drastically lower prices. So, if you need a cord for your stereo system, but can't wait for shipping, Radioshack may be your best bet. Otherwise, online retailers or even brick-and-mortar retailers like Best Buy may be better options.
The company currently has full year EPS of $0.27, but how long can its positive earnings last? The stock is currently down more than 50% for the year, and has a market capitalization of around half of a billion dollars. Analysts expect EPS of $0.31 for fiscal year 2012, and $0.39 for fiscal year 2012, but are these consensus estimates realistic? Radioshack earnings per share have negatively surprised analysts by margins greater than 35% for three of the past four quarters.
Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.
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