Will These Companies Even Be Around in 10 Years?

If you think about it, today's marketplace mimics the evolutionary process quite well. Companies that do a great job survive, companies that don't ... don't. The bonus for us is that instead of nature being the natural selector, the consumer -- you and I -- is the one that winnows out the losers.

Use a time machine
In evolution classic The Selfish Gene, author Richard Dawkins offers up an interesting thought experiment: "If you had sampled the [evolutionary] soup at two different times, the later sample would have contained a higher proportion of varieties with high longevity/fecundity/copying-fidelity."

In investing terms, what he's saying is clear: The companies [evolutionary soup] that will still be around years from now will all share.

Below, I'll be taking seven of the Fool's most popular consumer stocks and running them through a test to see if they are built to survive our natural selection. You can do the same with any stocks of your choosing.

High longevity: I'm gonna live forever!
The only way for an organism to reproduce is if it's around long enough to do so.

Looking at this from a business perspective, companies need to be built to last -- both in their markets and on their balance sheets. For my money, to pass this test, companies needed more cash on hand than debt.

Company

What It Does

Got Longevity?

Reasoning

E*TRADE (Nasdaq: ETFC  )

Stock trading brokerage

No

It has four times more debt than cash and is reportedly looking for a buyer.

Sirius XM Radio (Nasdaq: SIRI  )

Satellite radio

No

These folks are survivors, but the company has nearly six times more debt than cash.

SodaStream (Nasdaq: SODA  )

At-home soda machines

Yes

It's still early in the game, but it has just about no debt, a great sign.

Eastman Kodak (NYSE: EK  )

Photographic equipment

No

More debt than cash for this once-formidable company.

Clearwire (Nasdaq: CLWR  )

Portable wireless broadband network provider

No

Things have gone from bad to worse here, and it has almost five times more debt than cash.

Travelzoo (Nasdaq: TZOO  )

Travel and local deals

Yes

Survived the first dot-com bust and has no debt at all.

Coldwater Creek (Nasdaq: CWTR  )

Women's apparel and accessories

Yes

Though some have their doubts, Coldwater passes this test with more cash than debt.

High fecundity: Like rabbits
If organisms don't reproduce on a regular schedule, they'll die out quickly. In the business world, consumer companies that don't have customers coming back on a regular basis are destined for a similar fate.

Let's break down how these seven companies do when we consider their ability to get customers to use their businesses over and over and over again.

Company

Got Fecundity?

Reasoning

E*TRADE

Yes

Customers don't have to trade on a regular basis, but if they've set up their own individual account, they often do.

Sirius

Yes

Subscription model -- 'nuff said.

SodaStream

Yes

When you run out of syrup or CO2 for these things, you've got no choice. Classic razor-and-blades model.

Eastman Kodak

No

People do need to refill their supplies, but there are too many competitors out there to guarantee success.

Clearwire

Yes

The company's "Clear" modems have a subscription model.

Travelzoo

No

Travelzoo has a pretty loyal base, but there's nothing -- especially during tough times -- that'll always keep people coming back.

Coldwater Creek

No

This is a tough category for any retailer to pass, as customers have lots of choices to meet their needs.

High copying fidelity: How reliable is this?
When two whales mate, they're pretty sure the result will be another whale. But what if a kangaroo came out instead? I know, it sounds ridiculous, but if species can't reproduce an accurate copy of themselves, there's little hope for their survival.

The same can be said for businesses. I'm not going to bring my car to a repair shop where I'm not sure if I'm going to get an expert craftsman or a dope with a wrench. Consumers like reliability; it keeps them coming back for more. How reliable are our seven companies?

Company

Got Copying Fidelity?

Reasoning

E*TRADE

Yes

I've been using the company for years, and my experience has always been solid.

Sirius

Yes

Though you can never guarantee what'll come up on talk shows, the best hits of the '60s won't be changing anytime soon.

SodaStream

Yes

Unless someone's tampering with the formulas, this has to be true.

Eastman Kodak

Yes

Supplies are supplies.

Clearwire

No

I've been a customer for a couple of months, and there is a noticeable slowdown in speed at certain hours -- even though we bought its premium connection package.

Travelzoo

No

Though it does a great job ensuring that there are quality deals, it simply doesn't have the same amount of control over the customer's experience as other businesses. The same holds true for all deals-oriented companies.

Coldwater Creek

Yes

Hmmm, the goal is usually to have a diversified and changing collection. But the company still has full control over what it's offering and knows its customers pretty well.

And the winner is...?
Want to know if these companies will still be around 10, 20, or 30 years from now? Of course, these are just predictions, but let's see how the seven companies stack up against the forces of evolution.

Company

Going to Survive?

E*TRADE

Probably (2 of 3)

Sirius

Probably (2 of 3)

SodaStream

Yes (3 of 3)

Eastman Kodak

Probably not (1 of 3)

Clearwire

Probably not (1 of 3)

Travelzoo

Probably not (1 of 3)

Coldwater Creek

Probably (2 of 3)

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Fool contributor Brian Stoffel owns shares of SodaStream and Travelzoo. You can follow him on Twitter at @TMFStoffel.

Motley Fool newsletter services have recommended buying shares of SodaStream International and Travelzoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 11, 2011, at 2:42 PM, chopchop0 wrote:

    SODA? Really? Perhaps you are correct, but it will certainly turn into a fad at some point (if it hasnt already)

  • Report this Comment On October 11, 2011, at 3:11 PM, mhonarvar wrote:

    I looked at a SODA system at the mall the other day, interesting idea and would be fun to make my own drinks...but costs around $100 for starting materials and equipment.

    I'm sure they have sold lots - and it's got growth. But putting money into KO is much safer and still rewards you.

  • Report this Comment On October 11, 2011, at 3:28 PM, Austin77478 wrote:

    Do you know if you will be here in the next 10 years? What a surreptitious way to scare weak hands!

  • Report this Comment On October 11, 2011, at 3:28 PM, TMFCheesehead wrote:

    @mhonarvar-

    No disagreement here, KO is definitely "safer", of course if SODA is still around 10 years from now, it will likely have outperformed SODA.

    Incidentally, I think that if you run KO through the three criteria, it would score 2 of 3, as it has more debt than cash. But I think history tells us not to worry too much about that.

    Brian Stoffel

  • Report this Comment On October 11, 2011, at 4:12 PM, sirifire wrote:

    If the author could see an inch farther than his nose, he would notice that siri is on a clear fool proof path to cash reserves over $700M at the end of this year (4.5). If the author could see two inches farther than his nose, he would notice that at the end of 2012, provided siri does not spend on shares buyback, it will hold about $1.5B (2) in the bank. If the author could apply the most simple logic that even he might grasp, he would see that siri's evolution (comprehensive growth, including revenue, EBIDTA, FCF and profit) in the next three years will be revolutionary due to a number of factors like continued auto industry return to pre-recession numbers; sat radio 2.0/1/2/3, etc.; further penetration into used car market minimizing SAC (subscriber acquisition costs); dramatically reduced capex in the next five years, further merger synergies, including favorable renegotiation of remaining expensive contracts like MLB and so on and so forth. You have to be intentionally blind to fail to see the above and not to see that the company is going to be the most profitable in entertainment industry with one of the best industry margins in principle. Although some folks say that ignorance is bliss but not in this case where ignorance is shameless.

  • Report this Comment On October 11, 2011, at 4:41 PM, SeriousCash wrote:

    The Authors opinions are just that, but I still give respect to them. However, I will gracefully admit I see err in the SIRI analysis. SIRI should survive somewhat on the basis that Coca Cola has. The first and likely one of the best. Speaking of Soda Stream, ...hey .....fly where the cash flies, but be careful. Some ideas dont last long. Some do.

  • Report this Comment On October 11, 2011, at 4:45 PM, brewersfan81 wrote:

    @siri and seriouscash-

    I think the bigger dispute would be with my use of cash-to-debt as the metric for evaluating longevity, rather than with my analysis of SIRI (which still got 2 of 3).

    This is something I came up with on my own after reading Dawkins, so if you have suggestions for better metrics to measure "longevity" I'd love to hear more ideas.

    Best,

    Brian Stoffel

  • Report this Comment On October 11, 2011, at 4:49 PM, talanga wrote:

    Stupid question. I would ask, do you know if YOU would be around tomorrow? Let alone 10 years....

  • Report this Comment On October 11, 2011, at 5:12 PM, mikecart1 wrote:

    SODA may be around just because people are naive enough to buy a device that charges you more per serving just so you can be all fancy fancy. Reminds me of GMCR.

    SIRI will be around because SIRI is where AMZN was just a few years ago idling away trying to hit it big with a great idea. SIRI has the infrastructure to do great things. They just need to tweak the business model and watch SIRI soar like never before!

    E-Trade will not be around next year. No one is signing up with them. They aren't even the best in the niche category of the large category of what they do - online brokerage. There are places that charge just as much but do it a lot better. E-Trade should invest less in commercials and more in intelligence.

    Travelzoo is going to be bought out by Expedia or Priceline most likely.

    These are the facts and they are undisputed!

  • Report this Comment On October 11, 2011, at 5:24 PM, hbofbyu wrote:

    Those mini home soda machines were popular in South Africa when I was there during the 80's. And people would always substitute KoolAid packets for the sodamix flavor because it was cheaper. That was 25 years ago. Sodastream is not on to anything new. The novelty fades and they get shoved under the kitchen cabinet with the Jack Lelane juicer and the George Forman grill. If it really gets popular, they will be run out of business by Walmart. I don't see any barriers there.

  • Report this Comment On October 11, 2011, at 5:31 PM, southernbeachguy wrote:

    Sirus has 21 million paying customers, they had $500 million in free cash flow last year and expect $800 million this year and you question if they will be around in 10 years. The truth is no one knows who will be around in 10 years, but a company that has 21 million paying customers has a better chance than most. They have thrived in a terrible economy.

    Why didn't you ask if Bank of America, Citibank, or GE would be around in 10 years, they owe more money than Sirus! How about Pandora, they have No Paying customers?

  • Report this Comment On October 11, 2011, at 6:33 PM, SeriousCash wrote:

    SouthernBeachGuy has the right idea.

    Why doesnt anyone ask? Companies are never too big to fail. Especially ongoing. The US govt is simply out of usable cash to bail out anything of size.

  • Report this Comment On October 11, 2011, at 9:52 PM, Biff1953 wrote:

    If soda can capture 1 percent of the multi billion dollar soda market, the possibilities are enormous. They don't have to be another KO, just nibble a few crumbs.

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