In the past we have discussed the often difficult plight of first to market disruptors in general detail. In this article we will take a look at an array of specific companies who have been extremely disruptive but are currently paying the price. There is no doubt that these types of innovative companies are required but how can they benefit as much as those who follow?
Tesla
You only need to look at the Tesla share price see the extreme volatility in this groundbreaking electric car manufacturer. Under the guidance of Elon Musk the company had initially gone from strength to strength creating a multibillion-dollar business which has only once ventured into profit. Musk was once seen as the main reason for buying Tesla shares then very quickly his entrepreneurial/controversial approach backfired. He brought unwanted attention to the company as a consequence of his personal social media interactions and making unsubstantiated promises.
At this moment in time the company is under real pressure, rumours of funding shortages in the short to medium term and difficulties in hitting targets. Will it survive?
Uber
Uber, the hail a ride company has done exceptionally well to get where it is today. Having posted billions of dollars in losses investors had initially seemed keen to remain for the long term. However, the company recently posted disappointing figures and a number of investors jumped ship. In this relatively early stage of development, turnover and profit forecasts are extremely difficult to predict with any real confidence. As a consequence, like Tesla, we can expect significant volatility from the Uber share price.
While others have followed Uber into this area of the market it will be interesting to see whether the headline making act makes it to the final day.
Netflix
Over the years we have seen a massive increase in Netflix subscriber numbers. Very recently it became a huge favourite amongst younger viewers as well as attracting the older generation. The share price had gone from strength to strength until recent figures showed a slowdown in subscriber numbers. Since then the shares have plummeted with the short to medium term direction on a knife edge. One more set of results could tip the balance either way and investors are waiting with anticipation.
One of the main problems for Netflix is the fact there are relatively few barriers to entry. Improvements in the Internet, broadband capacity and download speeds have seen the company’s business model morphed by many others. While not as successful on an individual basis the cumulative impact of competition seems to be hitting Netflix hard.
Conclusion
As we touched on above, first to market disruptors tend to grab the headlines, take the plaudits but once the dust settles it is down to good old-fashioned business. Investors are by definition extremely impatient when it comes to companies switching from losses to profits. Yes, as we saw with social media companies, they will fund companies as they continue to grow and their prospects remain strong. However, the first sign of a slowdown, funding issues and any “outside chatter” impacting focus can have a seriously detrimental impact on the share price.