Taking Over the Going Unders
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was only about a year ago when high growth stocks OpenTable (NASDAQ: OPEN), Green Mountain Coffee Roasters (NASDAQ: GMCR) and Netflix (NASDAQ: NFLX) were fiercely soaring through the market, perceptually invincible to any woes of the future. Early investors in these momentum companies were raking in multi-bagged profits on what seemingly everyone felt were untouchable commodities. The sun was shining, the birds were chirping and the wealth was flowing--until a cold front last Fall iced them faster than a spouse of Wall Street, albeit a little less fashionably. Fast forwarding to present day NASDAQ--the high fives have been subdued and these companies have spent the first half of the year trying to thaw out from an array of dismal issues. As the companies continue wading near 52 week lows, attempting to stay afloat, thoughts of acquisition only become increasingly feasible.
The Big G
It’s no secret that Google (NASDAQ: GOOG) is a force to be reckoned with in the world of technology, and they’re certainly not shy about breaking the bank to strengthen their arsenal, either. Google has acquired over 100 companies in the last 11 years, amounting to tens of billions of dollars spent on expanding their repertoire. Their copious use of cash is what leads some to believe that struggling companies like OpenTable and Netflix might be in the Goog’s crosshairs. As made aware by Google’s own YouTube, the demand for online content is proliferating, along with its profits. An integration of Netflix’s library into a next generation Google TV or tablet would also help allure consumers from fan favorite Apple, and Amazon who has already delved into online streaming with Prime. Netflix’s 26+ million subscribers and their attribution to record-breaking usage would be a colossal addition to the ever-growing tech behemoth.
Now if Google decided on strolling the town rather than streaming movies all night, they might consider making reservations with OpenTable. This wouldn’t be the first time Google got involved in the restaurant industry-- their acquisition of Zagat last year wove restaurant reviews and ratings into their expanse of services. With Google’s immensity, romancing a service like OpenTable with Zagat would wipe out most, if not all of the competition--RSVPing a seat to feast on monopolistic profits in the restaurant industry. This wouldn’t be a bad deal for OpenTable either, at all. Although their growth exploded in early years, they are now looking to face their first quarter over quarter decline since inception. Competitors have gradually surfaced over the years and with no notable competitive advantage and actually lacking one that a Yelp would have, with its already established ratings and reviews system, OpenTable will likely spend its future fending off competition and sacrificing growth while doing so- therefore, they would probably consider cleaning the dishes for Google if the opportunity arose.
A Whole Latte Coffee
Between rising supply costs, fancy machines and expansion everywhere--the coffee industry has bustled about in the market this year. Up almost 60% on the year at one point and still up about 40%, Starbucks (NASDAQ: SBUX) has probably been the hottest brewer of the bunch. Picking up La Boulange Bakery and Evolution Fresh in the last few months to broaden their horizons, their aggressive acquisition behavior hasn’t been decaffeinated one bit. If they have any more money lined up for this nature of purchases then one company they have surely been eying is none other than the last nose diver on the list, the infamous Green Mountain Coffee Roasters. We all know the story behind Green Mountain by now--expiring patents, Einhorn presentations, skeptical management maneuvers, etc. Anyhow, these aggregated issues have eroded about 80% of their share price since that cold front last Fall, involuntarily icing their coffee while spilling it on their lap all at once. With Green Mountain only valued at about $3 billion these days, Starbucks could be looking to move in on the historic dominator of the $8 billion single serve market and maybe even then take it international with their future international expansion plans. Starbucks, along with Dunkin Donuts, has already become Green Mountain’s virtual lifeline with their strong k-cupped partnership and Green Mountain’s business only gets to wake up everyday and shoulder more burdens than an NFL running back so they might not be too averse to the idea either.
It’s been a rough year for these commodity contenders and if matters don’t start getting better, they might be pushed passed their thresholds and into the embracing arms of stronger companies. These roughed up companies shouldn’t be tossed out immediately though. Champion businesses are often conditioned by hard work, dedication and perseverance--any underdog that can harness the adversity could be the prospect of today, and the hero of tomorrow.
Patrock19 owns shares of Green Mountain and Starbucks. The Motley Fool owns shares of Google, Netflix, and Starbucks and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters, short OCT 2012 $40.00 calls on OpenTable, and long OCT 2012 $40.00 puts on OpenTable. Motley Fool newsletter services recommend Google, Green Mountain Coffee Roasters, Netflix, OpenTable, and Starbucks. 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.If you have questions about this post or the Fool’s blog network, click here for information.