1 Meme Stock Down – Understanding the Difference Between a Funding Gap and Secular Change

Bed Bath and Beyond closing announcement on door

At the end of 2013, BBBY common stock was worth more than $17B.  Today, as they seek bankruptcy protection, the company sits with a market cap just over $100M.  As Bed Bath and Beyond nears its final act, we find it instructive to reflect on how the once great company came apart and how many mistakes were made in an attempt to fix it.  

Looking back, in 2013, when it was at its peak, revenues were almost $11B and they were growing at a mid-teens growth rate.  They were also trading for an earnings multiple roughly in line with the S&P 500 just over 17x.  Life was good and getting better.  Revenues continued to grow for another 5 years, albeit at a decelerating pace, before ultimately starting to decline in 2019.  Was this just the rule of large numbers?  Was the market for bath towels and countertop kitchen appliances saturated?  No.  Competition emerged and did things WAY better.  Certainly, the continued growth of other big box stores like Target and Walmart contributed because they offered the same products for less, but the real killer was something new.  In the time that BBBY saw its revenues peak and subsequent decline, Amazon grew its revenues nearly 600%.  This is not an apples to apples comparison as Amazon’s Web Services are a bit part of that growth, but the pace of Amazon’s growth made it VERY difficult for other companies to keep up.  They offered the same product to customers in a much easier way and most of the time, they did it cheaper.  Walmart, Target, Home Depot and a handful of others figured out a way to compete in this environment, but Bed Bath and Beyond was never able to figure out how to make themselves more attractive and their very capital and real estate intensive business consumed them.  Frankly, this was well underway before the pandemic started nailing their coffin shut.  

Without getting too deep into the Meme Stock craze and how Robinhood’s emergence encouraged that madness, as stresses emerged on the balance sheet, crazy stock market activity, encouraged by retail investors gave the company an opportunity to capture a capital lifeline.  But unlike some of the other Meme stocks, they never found success in raising capital.  They cycled through C-level executives and none of them were able to latch on to the capital that would get them to the next stage.  By 2023, investors, even the Robinhood types had given up on BBBY and the reason was that the company couldn’t keep up with secular change.  

So why should you as an investor care?  Because Bed Bath and Beyond is like a lot of things that fail.  They got complacent.  The world changed around them, and their investors locked on to a big brand name and what they once were.  Make sure that when you are investing your money, you focus instead on what CAN BE. 

Sources: Wall Street Journal, Quartz


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