There are plenty of stocks in the market that have yielded dismal returns this year. However, three of those names stand out because they are very popular with the media and investors in general, thus expectations tend to be higher. The three stocks have been attacked by the bears in the market, resulting in miserable year-to-date returns for investors.
Facebook (FB) shares have declined over 44% since the IPO. Despite a dismal performance, management has been vocal about its market position as a leader; however, I just see it as fluff because nothing has crystallized as it is still struggling with the business model. During Mark Zuckerberg's first public comments since the IPO, he admitted the company wasted two years betting on the wrong mobile technology. Could this happen again? Although the company has a phenomenal product and service, it has yet to discover an advertising strategy that solidifies the fledgling company as a tech giant such as Google (GOOG).
Most surprising was Peter Thiel's (Facebook director and early VC) quick sell-off of shares in such a short period of time before, during, and after the IPO. Is it an alarm bell for investors to sell the stock and run? Ultimately, it is a gloomy picture for Facebook as management did not provide projection details about its future business in the last quarterly report. Most discouraging is that advertisers on the social media platform are said to be reducing the cash spent on Facebook ads. In fact, the average revenue per user has been declining for the past three quarters, implying a significant slowdown in the company's business model.
Zynga (ZNGA) shares have declined more than 67% this year. Zynga seems to be the mother of all evil as more than 10 of its senior executives have departed in the last two months. I strongly believe there is abundant greed, miscommunication, and lack of leadership internally, which is definitely reflected in the stock price. The departures imply employees have dismal expectations about the growth of Zynga (remember that Zynga accounts for about 12% of Facebook's revenue). Thus they are better off seeking greener pastures, especially if a major portion of compensation is in the form of stock, which continues to decline in value.
In regard to Zynga's problems, Director Reid Hoffman said that the company "didn't diversify [its] platform fast enough." Evidently it is going to take some time for the company to recover, if it does at all. For now, co-founder Marc Pincus has a heavy load to lift as copious time, energy, and resources must be utilized in attracting new executives to replace those who resigned. Even if the company attracts new talent, it will be at the expense of shareholders because the additional shares issued to retain talent might dilute earnings.
Hewlett-Packard (HPQ) shares have declined over 30% this year. Recently, management has embarked on an aggressive restructuring strategy by cutting a total of 29,000 jobs over the next two years in an effort to increase profits. Most of the job cuts with this reorganization plan come from the enterprise service division, a division that was launched during Mark Hurd's tenure. In fact, last month the company announced it would write down the value of its enterprise services business by about $8 billion.
I think some of the not-so-wise decisions were made during that period, including the acquisition of EDS. In doing so, management moved Hewlett-Packard into an outsourced IT provider. Rather than making it more competitive and gaining market share, HP moved into a low-margin business. In addition, management totally missed the cloud computing boat, where most of the market has gone and an area where HP has been a laggard. It's a tough business and Meg Whitman is under attack.
Due to these factors, including competitor Apple's (AAPL) solid market share, I do not believe HP will thrive during the highly anticipated holiday season, which is just around the corner and accounts for a major portion of revenue. It will take much longer for this stock to rebound with healthier business prospects and attractive financials. At this point, it is unclear whether HP's restructuring efforts will prove fruitful to shareholders.
Although these stocks have been battered by the market, they also present excellent opportunities to enter long positions as most likely these businesses will rebound within the next five years. However, due to the factors mentioned individually for each stock, I do have a healthy dose of skepticism as I believe these companies might continue to tumble in the next 12 months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.