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How The Farmers Edge Operations Negatively Influenced Market Position

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How Farmers Edge Trades Negatively Influenced Market Position

Companies that go public do so with the aim of raising additional funds that will support short-term operations, attract top-tier investors and customers, and increase productivity. IPO is seen as a sign of quality and reliability among investors and the general business environment. But are all listed companies qualitative? What happens when things aren’t handled properly after the public listing? That’s what we’ll explore in this article, using Farmers Edge as an example.

How Farmers Edge Trades Negatively Influenced Market Position

How Farmers Edge Trades Negatively Influenced Market Position

Stock market performance as a sign of company quality

If we start from the premise that stock market performance is the indicator of the quality of a company, it goes without saying that a positive performance is the mark of a successful project. But what happens when things don’t go as planned? Unfortunately, the case study of Farmers edge is a clear example of how public listing can go awry if certain aspects are not taken into account. Here are some of the main reasons for this company’s failure to achieve public success despite promising prospects.

History of Farmers Edge

Established in 2005, Farmers edge is the brainchild of Curtin MacKinnon and Wade Barnes. The two agronomists started the company in the province of Manitoba, Canada, with the aim of providing digital agricultural services to local farmers. What started as an up-and-coming agronomist consultancy turned into an acquisition of other companies like GranDuke Geomatics and CanPlug. Thus, the product has gone from agronomic advice to agricultural software, provided by the acquired companies and their technical expertise.

Farmers Edge’s platform, FarmCommand, provides real-time analytics based on multiple sources for farmers looking for improved farm performance and predictive yield modeling or recommendation alerts.

A good plan on paper that did not face reality

While the idea behind Farmers Market was good and their ambitions to produce better crops and more food for growing demand were noble, their stock prices plummeted shortly after their IPO. Many factors have contributed to the current situation – unsuccessful sales expectations, poor management and low customer satisfaction taking the top spots.

To paint the whole picture, you should know that Farmers Edge flourished through 2020 and enjoyed a period of success soon after listing. However, as of February 2022, the company’s market capitalization is CA$122 million, up from over CA$814 million when it went public. In summary, Farmers Edge has lost almost 85% of its market value and only had $56 million in the accounts at the end of Q3 2021.

As an investor, you are surely wondering what led to such a disastrous track record. And that is exactly what we focus on in the following paragraphs.

Flawed business model

One of the key ingredients to Farmers Edge’s current situation is the unprofitable and unsustainable business model. Even without taking into account the technological costs (field sensors, satellite imagery, etc.), things are questionable to say the least. Rumor has it that the company loses nearly $50 million a year.

Agree, an unsuitable business model can have such negative effects for a listed company. But what are the factors leading to such a negative performance? Well, let’s start with how they projected the user base.

Unsustainable user base

Although they started off on the right foot with many customers interested in the services provided, Farmers Edge reports from early 2019 and 2020 indicate that more than half of their original customers did not choose to renew their subscriptions. . So there is no way for the company to increase its customer base, which would result in the loss of additional revenue through additional subscriptions or sales.

The main reason for this situation is considered to be the high number of freemium accounts offered to new customers. Despite the intention to double their customer base on these freemium accounts, most of these users never became paying customers.

Third party fees

Another reason for Farmers Edge’s malicious performance in the market is the lack of control over the image supply chain. A key aspect of their business model, satellite imagery, was sourced from third-party companies which accounted for nearly $28 million in spend. So, with client numbers not growing as expected and imaging costs continuing to rise whether Farmers Edge could use them or not, the whole operation was beginning to look like a recipe for disaster.

Poor Human Resources Practices

Besides numbers that don’t add up when comparing operating costs to incoming revenue, Farmers Edge was also plagued by other common bad practices – unqualified management staff and nepotism. The United States and Canada suffer from a fundamental weakness in the system that results in people unsuitable for leadership positions.

Key moments that testify to a problematic management system can be seen as the CEO hiring his old friend as COO or his wife as Chief Marketing Officer. Even if these roles were filled by competent managers, there is a gap between the high salaries paid for these positions and the impact on operations.

Needless to say, the aforementioned appointments, coupled with other factors, resulted in poor employee retention and resulted in Farmers Edge having an employee turnover rate of less than 35%. The story of a CFO who left the company less than a year after joining is more than enough to prove it.

More negative signals from investors

As if all of the above weren’t enough to paint the picture of a public listing gone wrong, Farmers Edge offers more evidence that the company is headed for a precarious future. Fairfax, the holding company that invested CAD 376 million in 2016, hasn’t reported any trading results so far. Intercompany revenue estimated at around $0.3 million in one quarter makes it highly unlikely that the parent company will pump more money into Farmers Edge. In fact, Farmers Edge’s below-expected performance may be the main reason the company went public — so Fairfax could mitigate its losses.

Add to that Blackrock’s exit as Farmers Edge investors, and you get the complete picture. It is estimated that the company has $5 million in bank accounts and annual expenses reach up to $55 million. This means that the funds will last until the end of 2022, unless new funding methods are implemented. One solution could be to issue more shares; however, further diluting the share is also not an attractive prospect.

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Final Thoughts

After analyzing the history of Farmers Edge, we can conclude that the public markets show a lot of love for companies with high intrinsic value. If such a prospect cannot be proven within a given period of time, the business simply fails. Of course, poor management decisions and a faulty business plan cannot be overlooked when analyzing the negative performance of Farmers Edge. However, it remains to be hoped that the management will be able to turn things around before it is too late.

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