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Why Wall Street hates Starbucks

Posted Mar 30 2008, 08:26 PM by Douglas McIntyre
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Starbucks has been a disappointment recently. Same-store sales in the U.S. slowed over the last couple of quarters. The company pushed down its guidance. Founder Howard Schultz kicked out his CEO and took over.

In late 2006, Starbucks traded over $40. It is well below that now -- under $18 on most days.

Right as the stock peaked, then-CEO Jim Donald made the audacious statement that the company would eventually have 40,000 stores. On the day he said that Starbucks had 12,440 stores. Looking back, it is almost certain the his prediction had no chance of becoming a reality. But, the $40 share price had gone to his head. He had become delirious with success.

Schultz and company has to live with echos of that forecast, and they will have to for some time. (For more about Starbucks' troubles, read this and this and this.)

It is not unlike a statement made by AMD in the middle of 2006. It would end up with 40% of the market for server chips by mid-2009. AMD was trading at $36 or so when the company made that prediction. Since then larger rival Intel has beaten it like a red-headed mule. AMD is now a $6 stock and that is not likely to get better. It has about 20% of the server market.

Outsiders say that Wall Street doesn't have a long memory. That may be true in some cases, but it does tend to remember the big promises from big companies. Better to keep your mouth shut and let the numbers speak for themselves.

Comments

 

try a real coffee house and you will see that not only is it better than Starbucks it is often cheaper.  example in Seattle is Darte

Its not just the coffee, its the few minutes of sanctuary to sit there, have a conversation, sip the coffee in an overstuffed chair and not smell old donuts or get your feet stuck on some day old slurpies spill....please, get it right...having a starbucks is taking a break, enjoying a moment and moving on...get over who's coffee is best..if you like sitting in a dunkin donuts, go ahead.

all of the comments are great except the one about the Army.  I work for the Air Force and that little lie was circulated around here for a while.  If you check the facts (www.snopes.com) the entire anti-army thing is a fabrication.

I don't mind anyone liking or not liking a product (I prefer Seattle's Best), but get your facts right and don't be dooped into someone elses lie.

it is what it is. i go there, get a plain coffee, read the newspaper, and leave. where else can i do that??? Mcdonald's???  david

Starbucks had an original concept that made having a coffee drink fun and appealing in the same way having a bartender make your drink just for you and getting to see it made.  Now Starbucks uses larger versions of the machines bought in stores that only require you to push a button; anyone can do that at home.  

hey Jim Kwanyuen and others that think a cup of coffee at starbucks cost $5  maybe ya should check the menu     if yer payin $5 then your not ordering coffee your ordering a specialty drink...it helps to know what you talkin about before ya make a fool of yourself ....but then again you have never been in a starbucks   HAVE YOU???  Ya just like to post

I think Starbucks is over-rated and too expensive for the middle class people.  It has always tasted burnt to me, but I did like the latte drinks that made it creamy and sweeter.  I did enjoy the madaline cookies with my coffee.  I don't think that Mr. Schultz will be able to turn this business around, and make a profit without closing many stores, and revamping the store for the middle-class worker.  

it was only a matter of time before average folks calculated what they were paying for a cup at Starbucks vs McDonalds.  The price difference makes no sense

To Dan about Starbucks not supporting our troops.  It sure makes you look stupid, why don't you check things out with www.snopes.com and hoaxbusters instead of believing everything you read in an email.  I don't drink coffee but I know that the whole thing started with one false emaill and should have ended with the retraction.  Always one in the crowd....

Starbucks to me has always been a great place to hang out and relax. I am not much of a coffee drinker, but from what I have had there, I was not to impressed being such a popular brand. I agree with most peoples opinion on the taste of Starbucks coffee....bitter! Even places like Pete's and Coffee Bean. It seems that all the upscale places to have coffee have been voted the worst tasting. Whereas, places like good old 7-11, Dunkin Donuts, and dare I say McDonald's, have outclassed Starbucks and friends in terms of taste and price.

I do enjoy their ice teas now and again and hope they don't lose focus on that and actually expand their selection. Their baked goods are not half bad either.

For the coffee enthusiast no place will ever be perfect. I have heard debates go on for weeks on which has the better coffee, Starbucks, Dunkin Donuts, or 7-11.

So whats next? I think if Starbucks focuses a bit more on taste, and price, rather than brand image, I think it will be back to that $40 a share in no time.

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