A dominant theme for the 2020s will be “the disrupters versus the disrupted.”
The disrupters are the companies and industries that are changing the landscape with new technology, new business models, and new market dominance (if not a combination of all three).
The disrupted are the companies and industries caught in the path of the disrupters, waiting to get steamrolled by technological change. The disrupted are likely to face declining revenue and profits, falling share prices, and possibly even bankruptcy and oblivion.
A worthy poster child for death-by-disruption is Eastman Kodak, which trades under the symbol KODK.
In January 2014, Eastman Kodak shares traded above $37 per share. Today, they are $3 and change. That amounts to a 90% loss over the past five years.
But the Kodak story is darker still, because the company went bankrupt in 2012.
The Eastman Kodak company was founded on Sept. 4, 1888. For roughly a hundred years, Kodak was the dominant player in photographic film. Everyone knew what a “Kodak Moment” was.
In 1975, Kodak introduced the first handheld digital camera. But short-sighted executives killed the product, for fear of hurting the bread-and-butter photographic film business.
By the late 1990s, Kodak realized it had to take digital photography seriously. In 2002, Kodak was just behind Sony for U.S. digital camera sales, but lost money on every camera sold.
Things only got worse from there: Kodak’s digital camera position slipped to seventh.
And then, from the iPhone onward, smartphone-embedded cameras were a kind of finishing blow. In January 2012, Kodak’s 104th year, the company filed for bankruptcy. It emerged from bankruptcy 20 months later, only to see the share price decline 90% or so over the next five years.
When we look around and ask who is going to get disrupted — and possibly join the Kodak club for horrific shareholder losses — one potential candidate is FedEx.
FedEx announced its earnings on Tuesday, Dec. 17. This is how ugly they were: A Deutsche Bank analyst called them “breathtakingly bad.”
“As I look out there, I’m frustrated,” said Alan Graf, FedEx’s CFO, on the quarterly earnings call. “I’m sure our investors are frustrated. We are here at the bottom, but we can see the way out.”
Can they see a way out, though? Kodak executives likely saw a way out, too — but the light at the end of the tunnel turned out to be a train.
FedEx is now facing a pain train called Amazon. The e-commerce juggernaut, once a major FedEx customer, is stepping up efforts to deliver its own packages and has cut all FedEx business ties.
The relationship has grown so poisoned that Amazon is forbidding third-party merchants it transacts with from using FedEx — on the rationale that FedEx ground has become unreliable — and FedEx employees have reportedly been told not to order from Amazon (not even for personal items).
Having Amazon breathing down its neck is bad enough. But worse still, FedEx seems poorly positioned for the 2020s landscape.
The FedEx business model is under threat as more shipments go digital: With the availability of electronic signature for important documents, for example, there is less need to rush physical deliveries back and forth. At the same time, gig economy couriers are cutting into the volume that remains.
FedEx is also being forced to spend heavily on e-commerce logistics just to stay competitive. In pressing to make one-day shipping a new customer expectation standard, Amazon is turning the screws on all of its rivals, who have to scramble and spend heavily just to keep pace. This gives FedEx the horrible combination of heavy capital expenditures and a shrinking bottom line simultaneously.
Will FedEx turn it around? Maybe. But they could also wind up like Kodak. The future doesn’t look great for third-party shippers. The “going digital” trend could take another scalp (Kodak being an earlier one). At least one thing is clear: In this era of disrupters and disrupted, value stock propositions must be scrutinized very carefully. If a cheap-looking stock is getting cheaper, it could be happening for a reason — especially now, in this era of disrupters and disrupted, when the disrupters (e.g. Amazon) are stomping around like Godzilla.
