With Halloween less than a week away, I thought there would be no better time to write an article on the undead. Yes, that’s right. This week I am going to opine on the topic of zombies and warn you all that a zombie apocalypse could be right around the corner.
No, I’m not talking about the creatures that seek to eat your brains in horror movies. The kind of zombies I am talking about are more corporate in nature.
Zombie companies are companies that for all-intensive purposes should be dead but aren’t…….yet. These types of companies earn just enough in revenue to service their debts and maintain operations. They have little, to no money, to invest in future growth strategies, and are considered by many to be just a few bad quarters from bankruptcy.
Since 2008, when the Federal Reserve, in all of its wisdom, enacted a policy of artificially low interest rates these zombie corporations have increased in numbers and in size. However, with Fed Chair Jerome Powell now determined to kill inflation through regular interest rate hikes, many of these zombies may finally be meeting their demise.
This week I thought I would focus on just a couple of well-known companies that are the epitome of this definition of the walking dead. I will try to provide a brief summary of how they became this way, and what their chances are of surviving.
A couple of the most commonly thought of undead companies are AMC and Gamestop. These companies made headlines throughout the pandemic. Driven by the combination of the power of social media, increased discretionary income from stimulus checks, and a general dislike of Wall Street, these companies experienced a massive influx of investor dollars, which led to massive spikes in their share prices temporarily. However, their enormous debt liabilities paired with the fact that they are selling analog products in a digital world gives them little hope of remaining a part of the land of the living much longer, in my opinion.
Another well-known company in this same zombie status is the famed creators of such toys as Hot Wheels, and Barbie, Mattel. Unfortunately for this former toymaking powerhouse, their inability to adapt to more tech focused consumer preferences caused Mattel to take on more and more debt to maintain their operations. With the continued fall of brick-and-mortar retail including major distributors such as Toys R Us, their prospects for recovery are also greatly reduced. Time will tell if their new focus on the capitalization of their intellectual properties such as the upcoming live-action Barbie film starring Hollywood “it girl” Margot Robbie will turn around this legendary company or be the final nail in its coffin.
It is not only established companies unable to adapt to a changing world that have become zombiefied however. Years of artificially low interest rates have also kept alive companies that have never turned a single dime of profit. Companies such as Carvana, Peloton, Blue Apron, and Uber all continue to lose money despite continued investment from speculators. For some of these startup companies will the money finally dry up? I believe so. You can only keep throwing money at something based on unfulfilled potential for so long. A coming recession paired with ever rising interest payments could be the catalyst for many of these companies to disappear forever.
A lesson can be learned from these various companies. That lesson is while debt can be a tool used to increase your net worth and turn a dream into reality, it can also drain the life from you and turn that dream into a nightmare. Now is likely the time to reduce your exposure to such risks. If you don’t, you may soon find yourself in a similar state as these companies, financially surviving but just barely, with every dollar coming in going right back out. Being neither dead, nor truly alive.