As we start the looking-back process on 2012, we asked some of our top analysts: "Who or what had the roughest 2012?"
Alex Dumortier: Hewlett-Packard (NYSE:HPQ) CEO Meg Whitman will be delighted to put 2012 behind her. Strictly by the numbers, HP beat its quarterly estimates four out of four times this year, but that doesn't tell the story of serial reductions in guidance (in the space of 90 days, the consensus estimate for the fiscal year ending in October 2013 has fallen from $4.20 to $3.32), the implosion of another disastrous acquisition, complete strategic disarray and a loss of investor confidence with regard to the company's (re-)direction. Aside from that, all is well.
The full scale of the disaster that was the Autonomy acquisition is only now coming to light. While Whitman can at least point to her predecessor Leo Apotheker as the architect of the deal, she was part of the board that gave it the green light.
On behalf of HP shareholders, I'd be delighted if Whitman were equal to the task of righting this ailing vessel in 2013. However, I see scant evidence that is the case. Selecting Whitman as CEO was in itself a measure of the board's incompetence and desperation: What HP needed was a proven, hard-nosed turnaround specialist, not someone with executive experience managing growth businesses riding a healthy tailwind. Meg Whitman looks increasingly like a case study of the “halo effect;” shareholders shouldn't expect this Christmas angel to come bearing gifts.
Dan Caplinger: Initial public offerings as an institution took a huge hit in 2012, with the massive failure of the Facebook (NASDAQ:FB) IPO process going a long way toward destroying ordinary investors' confidence in the way companies give prospective shareholders their first chance to invest. The reputational fallout has encompassed the globe, as investment banks worldwide are suffering from a slowdown in IPOs. In China and other major emerging-market nations, the volume of IPOs year-to-date has fallen by 60% compared to this time last year.
Facebook isn't the only disappointment for IPO investors, and it's far from the biggest one. Several big IPOs from previous years have failed to rebound from initial disappointments. As my fellow panelists will explain later in this roundtable, social-based peers Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) now sport declines of 75% to 85% from their trading levels immediately following their initial public offerings. With the percentage of new IPOs trading above their issue price after 30 days of trading having fallen steadily over the past two decades, the investing public has no reason to believe that buying into a company at the earliest opportunity is an automatic payoff. That knowledge should actually help investors in the long run, but it's a lesson that came at a huge cost for many.
Brian Orelli: Food and Drug Administration approvals are supposed to be a happy time for drugmakers. Companies can't sell their drugs without an approval and without sales, development-stage drugmakers have limited options for bringing in cash.
But drug launches in 2012 have had a rough time. VIVUS (NASDAQ:VVUS) got its obesity drug Qsymia approved in July, but disappointing sales have the biotech trading at less than half of its postapproval high. Arena Pharmaceuticals (NASDAQ:ARNA) and Amarin (NASDAQ:AMRN) gained FDA approval in June and July, respectively, but they haven't even launched their drugs yet. Neither is particularly surprising -- Arena has to wait for DEA clearance and Amarin is looking for a buyer -- but both companies are trading more than 30% off their 52-week highs.
While Qsymia could have performed better and Arena and Amarin could have launched quicker, the real problem here is with investor expectations. They expect every drug to be an instant blockbuster, and when it isn't, they stunningly hit the sell button. Companies such as Regeneron Pharmaceuticals (NASDAQ:REGN), which shot low and consistently outperformed its guidance, have done much better. The biotech has more than tripled this year.
Anders Bylund: Netflix (NASDAQ:NFLX) investors needed steel-lined stomachs in 2012. Coming off the Qwikster debacle in 2011, the stock soared sky-high in January as subscribers started crawling back to the digital video service. Two earnings reports later, all that goodwill was gone due to slow subscriber additions in the summer months and an ambitious but expensive overseas expansion plan.
And things are only getting weirder. Corporate mega-raider Carl Icahn may or may not want to sell Netflix to the highest bidder, competitors are crawling out of the woodwork, and CEO Reed Hastings even gets chastened for signing crucial content deals.
Netflix shares got a boost thanks to the Walt Disney (NYSE:DIS) content agreement, but these gains could evaporate again before you know it. We Netflix owners sleep with one eye open, hoping for a cozier ride in 2013.
Rich Smith: 2012 was the year in which rare-earth elements were finally proven to be not nearly rare enough (to support their miners' stock prices). Molycorp began production at its Project Phoenix mine, just in time to mitigate the same supply bottlenecks that had boosted its share price in 2011. Meanwhile, the folks who own most of the rare earths, and were creating the bottlenecks in the first place (China), upped their export quotas in 2012.
Result: Shares of Molycorp (NASDAQOTH:MCPIQ) are down 64% since the start of the year, Avalon Rare Metals (NASDAQOTH:AVLNF) is down 48%, while Rare Element Resources (UNKNOWN:REE.DL) has given up every cent of the early gains it won in January. Easy come, easy go.
Rick Munarriz: Barring a strong December rally, Baidu (NASDAQ:BIDU) will post only its second losing year since going public in 2005. China's leading search engine isn't necessarily struggling on the growth front. Analysts see revenue and earnings climbing 54% and 57%, respectively, for all of 2012. However, fears of a recent entrant making waves in China's search scene and general skittishness when it comes to Chinese dot-coms find Baidu trading for just 15 times forward earnings. Growth is slowing, but the discarded speedster has never been that cheap.
Baidu isn't alone. SINA Weibo parent SINA (NASDAQ:SINA), leading social networking website operator Renren (NYSE:RENN), and portal pioneer Sohu.com (NASDAQ:SOHU) are all trading lower this year. Are the dips warranted? Sure, China's economy is slowing, but it's still growing at a headier clip than most developed nations. Concerns that China will clamp down on cyberspace beyond its already vigilant stance have proven unfounded. Many of China's leading Internet stocks should bounce back in 2013, but this year has been brutal.
The company took the mantra "if it ain't broke, don't fix it" a little too seriously. It quickly became apparent that FarmVille was little more than a remake of Slashkey’s Farm Town. For that matter, it became apparent that Zynga's entire business model was based off the systematic acquiring and/or copycatting of every slightly successful online social game in existence.
Since its December 2011 IPO at $10, shares have fallen 80%. In the past few months, things have gone from bad to worse. The company’s been plagued with executive departures, from VP to General Manager to COO. In October, Zynga laid off 5% of its total work force when it shut down its Boston office and trimmed its Austin operations by more than 100 employees. Ouchville.
In a bold recent move, the company loosened ties with Facebook, potentially creating $30 million of upside sales. But it also means more competitors on the world's largest social network, and Mr. Market remained unimpressed with Zynga's offerings.
Adding insult to injury for shareholders, CEO Mark Pincus and other executives cashed out at the peak of the stock’s one-time ascent, and Pincus recently retweeted an article describing the value proposition for Zynga going private. Investors, beware 2013.
Alyce Lomax: This has been the worst year for Best Buy (NYSE:BBY). Once part of the cream of the crop in retail, it's now little more than a "showroom" for online retailers, specifically Amazon.com (NASDAQ:AMZN). Even worse, it's showing signs of a declining company, and this situation hasn't been helped by management turmoil in 2012.
Recall the springtime scandal: then-CEO Brian Dunn left the helm due to an improper relationship, yet still departed with millions in severance. Replacement CEO Hubert Joly was imported from France, complete with cushy compensation promises, despite his lack of retail turnaround experience. Meanwhile, founder and Chairman Richard Schulze resigned and then embarked on an ongoing attempt to try to take the company private to try to turn its fortunes around. Shareholders took repeated financial hits the entire time as the retailer's financial performance has deteriorated. Best Buy's 2012 stock chart is a sad picture indeed.
In 2012, Best Buy began invoking a creepy case of déjà vu: Could it be on the same path as Borders? A changing competitive landscape can destroy companies that fail to evolve, and Best Buy stumbled during Dunn's tenure. It should have had the perfect chance to go forth and prosper; however, the demise of rival Circuit City appears to have only inspired complacency. Clearly ownership of the market was not the case. It's been a long, horrible year for Best Buy. Somehow I doubt 2013 will hold any positive surprises.
Tim Beyers: Real life.
Seven years ago, professional rabble-rouser Charlie Todd orchestrated a prank wherein he and a team of dancing "agents" took over the windows of a four-story retail building in New York's Union Square in order to deliver a message: Look Up More.
People did. And before long a slow murmur turned to audible laughter as spectators stopped to share in the absurdity. Todd delivered a TED Talk on this very subject -- i.e., the benefits of play -- last November.
Forget for a moment that we love such Foolishness. The timing of Todd’s presentation makes sense. For what was merely a great prank in 2005 is a somber warning about digital overload in 2012. Consider these jarring statistics from Nielsen:
- Americans spent 121.1 billion minutes using social media in July -- up 37% year over year.
- 17% of consumers' PC time was spent just on Facebook(NASDAQ:FB).
- Our aggregate time spent on PCs and smartphones rose 21% year over year.
- The U.S. population of mobile web users rose 82% while mobile app users climbed 85%, which may help to explain Apple's (NASDAQ:AAPL) dramatic growth in iPhone sales.
The Internet and connected devices have shrunk the world in ways no one could have imagined in 2005, and that's a good thing. But don't we also need to look up once in a while?
How about this for a modest proposal: Let's all unplug at least a week next year. Not all at once. Just a few hours at a time to reclaim the real world we’re ignoring. Enough to remind us why we invest in the first place.
Alex Planes: If any CEO's had a rougher go of it this year than Groupon's(NASDAQ:GRPN) Andrew Mason, you'd be hard-pressed to find them -- they've probably gone into hiding. Groupon went public last November amid a swarm of accounting concerns, and it's been a virtually uninterrupted downhill slide ever since. My colleague Sean Williams nominated Mason as one of the Worst CEOs of 2012, and although he certainly has competition, I can't think of any head honcho whose basic competence has been so openly, loudly, and persistently questioned in the media.
It's gotten so bad that some of my fellow Fools are defending Mason against the wolves that want him out, which I can't really understand except as an act of pity. Sure, Groupon's attempting to branch out, but the problem is that this seems more a business necessity in light of the numerous daily-deal competitors that have all but abandoned the market, and in light of the dramatic slowdown of Groupon's user growth. To top all of this negativity off, the market is clearly more interested in a Mason-less Groupon than in maintaining the status quo. Et tu, shareholders?
Two years ago, Groupon was one of the hottest startups in the country. Now, people question whether it's even fit to survive. Daily deals turned uncool faster than Beanie Babies, and Mason's been the public punching bag for that perception shift all year. Poor guy. Dang, now I'm starting to pity him, too.
This roundtable was organized by Anand Chokkavelu, CFA, who owns shares of Walt Disney, Best Buy, and Apple. The Motley Fool owns shares of Apple, Amazon.com, Best Buy, Baidu, Walt Disney, Facebook, and Netflix and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Amazon.com, Baidu, Walt Disney, Facebook, Netflix, SINA , and Sohu.com. 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.