Chapter 8: These companies failed on the Stock Exchange: why?
The events and mistakes that gave these public companies more trouble than benefit
As explained in the previous chapters, listing a company on the stock exchange is a process that not only needs to be closely observed in the registration, but also in its trajectory and closure. The brokerage houses and brokers they make are professionals and probably have years of experience and study. A person who lacks knowledge of threats can mishandle a company in the marketplace, as as has always been said, an IPO always comes with a risk.
However, the history of other companies helps us today to understand what they did wrong and thus avoid their mistakes at all costs. In this chapter, we will tell you about some of the most famous cases.
Get to know your investors and be realistic with the amount of money you want to get from them:
This pet food and accessories company had a business model that was not sustainable, although they were a company recognized in the United States for their commercials and their participation in the Thanksgiving parade of wholesaler Macy’s in New York.
In February 2000, the company was listed on the Stock Exchange. Its shares were initially priced at one dollar and had a brief rise to $ 14 dollars, however, shortly after they continued to fall to even less than one dollar. The company never managed to get the necessary cash from its investors. In November 2000, after nine months of listing, pets.com closed and laid off about 300 employees.
Always think of your customers and your competition:
Disney, in alliance with its online properties ABC.com and Espn.com, created GO.com in ’98 to compete with Yahoo and AOL. It went public but it could never be really launched, since Disney did not take into account that it would never have a greater user base than Yahoo or AOL. Users preferred the other two search engines not only because they already knew the, but also because Go.com, being a Disney company, restricted content for adults.
In January 2001, Disney announced that it would shut down Go.com, and the company recorded a total loss of $ 790 million. Disney never actually closed the site, which now only functions as a hosting site for ESPN.com and ABC.com.
Do not act impulsively:
We all know the Readers Digest magazine, but what you surely did not know is that in addition to being a global magazine, the corporate also manages 60 different websites. In 2007, the company was acquired by Ripplewood Holdings, and it was privatized. Since then, the company had its strongest decline. The company already had financial limitations since it was listed, but when it became private its problems worsened. Since then, RD declared bankruptcy twice: in 2009 and 2013. In February 2014, Mike Luckell bought the company for one euro.
If your company is not ready, neither are you:
Privatization has its benefits, but it can also increase pressure from the new private owners, as it was in the case of DELL. Most agreements for public companies to be private are through investment conglomerates, which can set strict business objectives with tight deadlines for company management. It can also be a red flag for employees in mergers or acquisitions.
Dell was one of the technology pioneers with computers, tablets, cell phones, and other hardware accessories. In 2013, Michael Dell, the owner, sold the company in 2013 for $ 24.4 billion. Before that, its shares were listed on Nasdaq and on the Hong Kong Stock Exchange. After five years of being private, in 2018 it was listed again since it admitted that they first had to fix their internal problems so that these were not worsened by the stock market.
The company fell sharply in 2013 due to strong competition from Apple, Amazon and Microsoft.
In the face of adversity, never give up:
JC Penney Company Inc, the US department store chain, still stands despite having seen sharp declines since 2006 in its shares, which are down 96% since April 2007, its best time.
The fall of this company is mainly due to popular online trading platforms like Amazon. However, JCPenney has taken actions to counter the loss, such as its omnichannel presence, its business in women’s clothing, and is increasingly immersing itself in its private brands. They have been trying to get out of the danger zone, unlike a similar company that is now in financial trouble as well: Sears.
Sears was not only affected by the new competition, but also by its lack of adaptation to the market and the tastes of its customers.
Don´t give false expectations about your company: Gilead
A more recent case: The pharmaceutical company Gilead had promised to be the solution in the fight against the coronavirus in already infected patients. Its actions rose in the market when the news broke out, however in April 2020 data was leaked about a clinical trial in China that indicated that the drug was not effective in what it promised. It fell 7 per cent, although today it has recovered its fall to 4 per cent.
Now, you already know some of the biggest mistakes that have been made in the stock market. Additionally, it is recommended that you check the movement of the listed stocks daily, noting which ones have fallen the most and consulting information on the company (which must be public by definition) so that you can understand the reason why some go up. while others go down.
Keep learning from PR1ME Capital
We talked about that listing on the stock market can be in many ways, and we share with you some tools to achieve it . We also show you that your company can also be successful like Google, Amazon or Facebook.
And we teach a little about the rights and obligations as an investor or issuer in the Stock Market
Continue reading our series on financial exchanges so you can learn from PR1ME Capital .
Sources: CNN, New York Times, Investopedia.com,