One week agao, on Saturday night, March 3, 2012, Carbonite announced its decision to break off relations with its key radio endorser. It appears to have been a fateful decision.
From Chuck Jaffe at MarketWatch, Don’t ‘rush’ to Carbonite shares (h/t commenter Eliot Ness):
When Carbonite Inc. stock took a quick plunge this week, there was an obvious consensus about what caused the move: The company pulled advertising from Rush Limbaugh’s talk-radio program after the controversial host made inflammatory remarks about a Georgetown University law student.
Yes, the market could have feared that Limbaugh’s fans would cancel Carbonite’s service, an online back-up solution for consumers and businesses, or mount their own boycott. Or maybe investors assumed Carbonite will suffer because it will no longer have access to Limbaugh’s audience.
Jaffe goes on to point out that Carbonite has underlying business problems which are driving the long term decline in the stock price, but quotes another analyst as pointing out that the result drop likely is attributable to the Rush controversy:
“There is no way Carbonite’s underlying business is changing as much as the stock trading says it is on a daily basis,” said David Trainer, president of New Constructs Inc., a research firm based in Nashville. “That says there is a lot of excessive trading going on; maybe it’s the Rush thing or maybe not. … For the average investor, a stock this young being pushed around by like this traders is a wing and a prayer.”
Reader Zane makes a related point at his blog:
However, the reality is, with the exception of a zealous few, there will be likely little customers to be had amongst the activists – certainly not the amount of customers that were reached by the Limbaugh show. By the time next Valentines day rolls around will the money spent by the activist come close to money spent by listeners of Rush- likely not even close.That being said,
One more thing : I don’t know if boycotting Limbaugh was a good business choice and I think, no one else knows either. What I do know is: making decisions based on the loudest screamers of the moment, does not usually bring about good business results.
That was my first reaction when Carbonite dropped Rush. How many of the DailyKos and Media Matters screamers actually used or were considering using Carbonite. Probably few.
Why did Carbonite make such a precipitous decision?
There are few things that cannot wait for Monday morning, yet Carbonite issued its statement on a Saturday night, in what appears to be a matter of executives’ personal and political opinions outweighing shareholder interests.
Shareholder are getting massacred as a result.
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Comments
I suspect that the Carbonite management is not good at making decisions (in general). Which is driving down its stock (in general). The Rush decision was simply an example of their poor decision making. That explains both the long-term and immediate stock price changes.
The jury is still out, BUT…
this will make an interesting little case history to study in business school.
Especially the marketing side…
The jury was indeed out until last summer when Carbonite published its [confused] financials in order to (sucker the public into a desperation) IPO.
(See this critique from the SEC:
http://www.sec.gov/Archives/edgar/data/1340127/000000000011035410/filename1.pdf)
NASDAQ:CARB was down to $11 million cash (six months’ worth), and was trying to raise a ridiculous $122 million, which would have more than covered their VC investors’ “accumulated deficit” of $88 million:
http://www.sec.gov/Archives/edgar/data/1340127/000095012311072280/b86123a7sv1za.htm
They got a paltry $59 million (after expenses) and a lot of that was apparently funny money from inside investors.
Metaphorically, the Jury is in: this Turkey is Toast.
Limbaugh is better off without them. (As would be Levin.)
I suspect Carbonite was already in trouble and looking for ways to cut costs. Some genius thought that weighing in on the -ahem- right side of a political controversy would help.
That’s what they get for thinking with their prejudices.
The Daily Caller takes the ball and runs for the end zone – touchdown!
http://dailycaller.com/2012/03/05/the-lefts-respect-for-women-a-look-back/
Ironically, Carbonite lacked a back up plan…
The rare apt point. Well written, sir!
For me, HBO is next. I’m going to wait until they show Game Change tonight and then cancel.
I guess I wouldn’t mind so much if there were any BALANCE at HBO, but there’s not. Any good series they run (precious few) can be rented on DVD later. And they don’t show anything else you can’t rent anyway.
The whole Bill Maher/anti conservative theme is intolerable. “Taking Chance’ was the only good HBO endeavor. The political themes are abhorrent.
Make sure they know why your canceling too.
I didn’t subscribe in part because of Maher. Game Change is a game changer. Glad to see people canceling.
You don’t like the Sopranos or the Wire?
I’ve never watched them, to be honest. I liked Curb and Entourage but bleh…
I’m gonna guess those that down-voted my comment are anti-culture Santorum supporters.
No – they are peopke who are disgusted by someone so lacking in principle that he or she won’t take a stand because it means giving up a TV show or two.
Hit them where it hurts. They sell us a service and forget that those who purchase from them may have a different political perspective. We provide them with the money they give hand over fist to Democrats, then they spit in our faces as though we’re morons who will just go along with their idiocy. Hollywood, we will wreck you once and for all.
Professor, you pointed it out yourself last Thursday! In Carbonite’s own Form 10-K they make the key argument:
“Currently, we rely significantly on advertising endorsements by certain radio personalities. The loss of one or more of these endorsement arrangements or our inability to obtain additional effective endorsements could adversely affect our advertising and customer acquisition efforts and our operating results.”
They not only needed to keep Rush as a Sponsor, they needed to obtain MORE personality based endorsements just to survive. The heroes of “Occupy Fantasy Kamp” just do not bring in the business like Conservative voices can. Heck, getting endorsed by Captain Ed Morrissey’s NARN would bring them more business than the Lefty Activist could.
Not only was this “a matter of executives’ personal and political opinions outweighing shareholder interests”, it’s case of said executive forgetting his own business model. THAT is almost always a signal to dump a stock.
Perhaps Carbonite should call the White House for a loan guarantee; it’ll tide them over until the Chapter 11!
Of all the advertisers who were scared into canceling, Carbonite is the worst. Why? Because they do business in the online world, and the net is all about freedom of speech. Understanding this is implicit in their very existence, and they betrayed its very essence.
Their decision tells us, our files are NOT safe with them, they cannot be trusted to stand up for free speech, and everything that has anything to do with the internet requires that you DO understand this and can be trusted to defend it.
I appreciate the list, posted in comments here some threads back, listing alternatives to these cowardly companies, ESPECIALLY Carbonite.
They are Democrats. You cannot be sure that your private files will not be fodder for attacks against you, will not provide the source of blackmail to silence you. Buy a TB HD from Amazon and learn to back up your own computer. Set up your own cloud at home.
And what really frosts the cupcake is that Carbonite’s people support Media Matters…an organization dedicated to removing Rush and others like him from the airwaves…
Talk about both sides of your mouth.
But hey, Libbies are like that…
EVERYTHING is political now. Movies, cartoons, Girl Scouts, food – we are essentially in a civil war, and not one of our making. It comes from the Progressive left, and they will use anything and everything to advance the agenda.
I hate partisanship, but it is obvious that we cannot continue to pretend that those on the left are not fully against us and at war with everything we stand for. They will sacrifice all principles, and their very business, and our files if we trust them with our files, in their partisan support for the activist-in-chief and his phony-baloney memes. No more.
Rose, such good posts. But why do you hate partisanship? I love it. It gives me a chance to express and stand for my principles. It sounds like you might actually agree, or you would not be posting here. Did you really mean that?
I hope it’s not because the lamestream media has convinced you that partisanship is bad – it’s not. In fact it’s what it’s all about. The left understands that, which is why they only brand partisanship as bad when it involves conservatives.
Smart business people know that advertising on Rush is one way a fairly modest business can quickly go national. If that means some socially awkward moments with liberal friends it should just be another price one is willing to pay to assure the future of their business.
“CARBONITE, INC. (CARB) CEO TO RING THE NASDAQ STOCK MARKET CLOSING BELL.”
That was back in December. As they say in football when you suffer a devastating hit, David Friend is going to have his bell rung.
Six analysts cover Carbonite and each rate it a strong buy. For a small cap growth stock … this is a recipe for disaster. If CARB falls short of analysts’ earnings and revenue estimates (and I’d bet it will after what has transpired), the stock price will dive. There is a perfect storm brewing.
Just as fear is a stronger force than greed, and stocks often drop three times faster than they grow over a price interval, so too is anger a stronger force than self-righteousness … I can’t see any way the drop in angry Rush listeners and other conservatives can be made up with smug lefties becoming new CARB customers.
Analysts’ recommendations have nowhere to go but down.
Friend is going to be losing some friends.
Those analysts must be hawking for their employer’s holdings. There is no reason to buy a stock that has consistently lost revenue, and hasn’t shallowed out that deficit yet.
Net Profit Margin (TTM) -38.89%
Return on Investments (TTM) -100.68%
Shares Short (Current Month) 923.4K/25.2M
With only ~4% neg outlook there is a long way this stock could fall. And they have apparently lost more money than has been put into the company via capitalization… that looks bad to me… I wouldn’t touch this one until at least 1 Q of positive change under new CEO/Board.
Analyst’s ratings don’t mean much, especially with a small, closely held stock like Carbonite. They probably only get around to updating their ratings once every few months, or longer.
Add in the fact that analysts are largely clueless, and many months or years behind, when it comes to tech stocks, and it is a recipe for disaster. Nearly all of them missed the 1999-2000 dotcom meltdown. Even as many Internet stocks were plunging, never to recover, many analysts were issuing BUY ratings.
Ok, bringing this back to politics. Quoting from Zane: making decisions based on the loudest screamers of the moment, does not usually bring about good business results.
I see a parallel with us choosing the candidate that can win Republican delegates in really BLUE states. Why are we picking a candidate that can garner the 4 republican votes in Mass? We need the ones that can shore up the base (Red states).
I just e-mailed this to the Carbonite Board of Directors (with a courtesy copy to Prof. Jacobson, MarketWatch’s Chuck Jaffe, and other notables including Limbaugh and Levin).
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=tm&bn=134347&tid=481&mid=481&tof=1&frt=2
[…] HEH: “Ironically, Carbonite lacked a back up plan…” […]
Great post. And I agree, Carbonite’s stock has been sliding for a while. Did they think that was due to Rush? I guess they got their answer: No. It is Carbonite that is the problem.
Unfortunately, the impact to Carbonite’s subsciber count will only be felt over time. Generally, a customer (like me) subscibes for 1, 2, or 3 years. So, like it or not, i will be a Carbonite customer for 27 more months
You don’t need to sit it out waiting for the contract to end. Carbonite materially misrepresented their services. Had they disclosed the CEO and other execs had a leftist bent, you never would have entrusted them with your data.
I suggest informing them of this in writing, and requesting a pro-rata refund. If they refuse, sue them in small claims court. I guarantee they will issue the refund (with your filing fee added in) after receipt of the notice from the court. This is, after all, WAR. Take no prisoners.
I wasn’t a Carbonite user, and dont subscribe to HBO. But I was able to talk my brother and mother into cancelling HBO. I emailed HBO to tell them my thoughts on Bill Maher but haven’t had a response yet. We do have them on the run, we can’t let up!
Carbonite made an egregious error in cancelling its sponsorship with Rush.
The deal they had with Rush was more than just a straight buy. Rush was an endorser of their products. That gave conservative purchasers of Carbonite’s services (off site backup of your complete hard drive) confidence in their promises of privacy. After the cancellation, a number of bloggers have tied Carbonite’s owner to liberal causes. That revelation throws doubt on their promises.
I for one would never back up my hard drive with a third party. Knowing that the political motives of a third party might not be in sync with mine, just confirms my judgemant.
The CEO of Carbonite is an Obama supporter. That’s all you need to know.
http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/carbonite-ceo-david-friend-donated-obama/415321
It’s time to fire everyone with an Obama bumper sticker in the parking lot. Fire them all.
Here’s the full text, sent to CARB Board of Directors
To: Limbaugh, Levin, O’Reilly, Malkin, Powerline Bloggers, Tyrrell, Bozell, Goldberg, Hannity, Jaffe, Jacobson
Cc: Various Carbonite officials and offices, Carbonite Board of Directors
1) CARBONITE = DOT-COM TITANIC
Carbonite’s Home Page boasts that it was “ranked on the Inc. 500 list of America’s fastest-growing companies 2 years in a row, 2010-2011.”
Yeah, well the Titanic was also setting a speed record when it hit the iceberg.
Carbonite CEO David Friend is the Captain a dot-com Titanic — the faster Carbonite goes and grows, the more money it loses!!
This blazing dot-com disaster is “growing” by vaporizing $2 million of cash every month, and it has lost $100+ million since its founding.
2007-2011: -$11-$18-$19-$26-$24 million — for a whopping loss of $100.4 million according to Carbonite’s own Annual Report.
http://www.sec.gov/Archives/edgar/data/1340127/000119312512101462/d277280d10k.htm
In retrospect, Limbaugh and Levin should be embarrassed that they shilled Carbonite … since it is doomed to sink like the Titanic
2) WELCOME TO THE JUNGLE
Carbonite has long since missed its window-of-opportunity to dominate the online backup market.
The marketplace for online backup is now infested with nimble startup competition, informed by Rob Cosgrove’s definitive book “How to Start and Operate an Online Backup Service.”
http://www.amazon.com/Online-Backup-Guide-Service-Providers/dp/0557324254
3) POTEMKIN IPO = TOO LITTLE, TOO LATE
In mid-2011, after years of hemorrhaging cash, Carbonite’s venture capital owners staged a desperation public offering and bought their own stock under murky circumstances. You can read about it at Legal Insurrection and CBS MarketWatch:
https://legalinsurrection.com/2012/03/carbonite-shoots-its-business-model-in-the-foot/
http://www.marketwatch.com/story/dont-rush-to-carbonite-shares-2012-03-09
4) STOCKING-STUFFERS FOR EMPLOYEES — AT SHAREHOLDER EXPENSE
On March 8, 2012, at the height of the recent Limbaugh controversy, Carbonite picked the pockets of its shareholders by conjuring up 1,005,493 more “shares of Common Stock to be reserved for future issuance under the 2011 Equity Award Plan … to employees in employee benefit plans.”
http://www.sec.gov/Archives/edgar/data/1340127/000119312512103879/d309137ds8.htm
The purser of the Carbonite Titanic reports that the ship has $60 million of venture capital IPO cash in its vault, yet it’s going to loot the shareholders in order to reward employees with stock. Beam me up!
5) RESISTANCE IS FUTILE AT $160 MILLION
Without massive new investment, Carbonite’s current unsustainable cash “burn rate” of $2 million per month will perforce empty the company’s piggy bank in 2+ years, resulting a red-ink liquidation fire-sale as the company’s cumulative loss approaches an astronomical $160 million.
6) THE MAN BEHIND THE CURTAIN
Carbonite’s kamikaze left-leaning CEO David Friend hastened his company’s impending implosion by being unable to deal with Rush Limbaugh’s absurdist jokes about Sandra Fluke, a strident 30-year-old political activist who grimly demands that others pay for law students’ contraception at a Catholic institution.
Friend arrogantly dragged the money-losing Carbonite into his personal zone of political correctness, alienating millions of current and potential customers and focusing the national spotlight on his company’s dismal financials. Hence the flight of Carbonite customers and shareholders.
Friend has personally steepened Carbonite’s glide path toward a violent crash landing. Hence the likelihood of his dismissal by his venture capital bosses.
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[…] national conservative talk is dead. The example of what has happened to Carbonite this week is a perfect example of the fact that conservatives do have some power in the […]
[…] “Ironically, Carbonite lacked a back up plan…” […]
Rumor has it that David Friend discovered through past life regression therapy that he was the captain of the Hindenburg in his last life.
It’s scary that his karma should keep gravitating towards disaster.
Metaphorically, Carbonite was the Titanic from Feb 2005 to Mar 2012, slowly taking on massive amounts of water ($100 million of losses).
A week ago it became the Hindenburg — a “spectacular dot-com flameout” whose wounds will not be visible until the next few quarterly reports have been published.
Customers are now fleeing in droves to the (cheaper, better) competition, and the stock price can be expected to trend down from $8-$9 toward the $2-$3 range (representing CARB’s $60 million of venture capital IPO cash-in-the-bank).
Any venture capital investors who held onto their stock after the six-month post-IPO lockout period ended in mid-Feb, are screwed. (The whole point of IPOing a money-loser like Carbonite is precisely to let the VCs slither away by shifting the burden onto the investing public.)
NASDAQ:CARB will die a slow death, however, because it got a fistful of cash last summer during its desperation IPO.
[Probably new] management will likely slash expenses, including advertising, and will likely look to acquire other businesses in order to shuffle the deck.
I expect CEO/founder Friend to “move on” to other opportunities because he is now too much of a lightning rod.
And Rush will be lampooning the Left long after NASDAQ:CARB is a mere blot on the copybook of financial history.
A disastrous money-losing dot-con like Carbonite should never have slapped the face of the audience of the most successful talk radio host in history.
The poetic justice is delicious.
“Pride goes before destruction, and a haughty spirit before a fall.”
Some psychololgical observations are in order here too.
David Friend donates large sums to Obama, Dean, Move On, et al. He is a “Leftist” and it has to have galled his soul to pay huge advertising fees to Limbaugh and Levin.
Friend’s initial statement was conciliatory, talking about a meeting with Limbaugh. Then suddenly, Whack!
Friend is 63-years-old. He’s been working on Carbonite for seven full years, since he was 56. Carbonite should have been his crowning achievement.
Instead, it’s such a disaster that if Phil Kaplan were still running F’dCompany.com, Carbonite would be a snarky ongoing discussion thread (like, for example, the $250 million Printcafe dot-com disaster was).
How do you spend $100 million of other-people’s-money and have nothing to show for it but an increasing “burn rate?”
Ridiculously, Friend is paid $500,000 per year to manage the loss of $500,000 per week. It’s insane (rather like Congress)!
Friend lashed out and flame-threw at Limbaugh. But the ‘backdraft’ is likely going to end his startup career in flames instead, in a sort of “slutwalk” away from the flaming turkey carcass that is NASDAQ:CARB.
(Sic transit Gloria Allred.)
BTW, ‘Kamikaze’ is another good metaphor. In this case, the ‘Zero’ exploded, but it just bounced off the hull of the battleship that it hit.
Oh, the humanity!
Enjoy the show.
[…] Le·gal In·sur·rec·tion: Carbonite’s Saturday Night Massacre […]