Tuesday, June 30, 2009

Kodak - Can it reattain the "kodak moment" glory days?

Recently I was at the 140conf and one of the speakers was Jeffrey Hayzlett (Jeff) who is the Chief Marketing Officer at Kodak. He started his talk by saying that Kodak is a turnaround mode for the last 5 years. The points he made in terms of this transformation are;

  • 60% of the company employees are new in the last four years.
  • 70% of the company's business is now B2B where it was B2C before.
  • 19 products drive a 100% of the revenue.
  • 11 of those products are completely digital (& drive 66% of revenue)
  • 1/2 of these digital products did not exist 2 years ago.
Jeff represents the new face of Kodak and some of his initiatives are bold. He said that with the digital transformation of the company, Kodak realizes that it's important to connect with people (product users) directly. A few years ago, they put in a Chief Blogger and now are about to name a new post, get this, a "Chief Listening Officer". They want to get back to the glory days of the "Kodak Moment".

My earliest memories of Kodak always take me back to my childhood days. Taking pictures with the camera a family friend had gifted me and getting the prints developed on kodak paper at the photo studio that he owned. I have always had a fondness for Kodak. The prints on kodak paper came out better than fuji or whatever other japanese product out there. I want to believe Jeff, that Kodak is really turning the corner, but can they?

Here is Kodak's (Eastman Kodak - EK: listed on NYSE) YTD stock ticker. 2 years ago to the date, the stock closed at approximately $28. In march of this year, EK closed at around $2.17. That represents a 92% drop in the stock over 2 years. Yes, EK has taken a direct hit due to the economy at the time of their much needed transformation. As of the end of last year, they had over $ 2B in Cash & Cash Eq's and their current assets were at $5B. Yet earlier this year in april, EK suspended its dividend after posting a wider-than-expected quarterly loss citing a persistent decline in both consumer and corporate demand. This hit the stock hard losing 11% on the day of the announcement.

Kodak's competition is heating up. Kodak's product mix of digital cameras and mini HD video camcorders have competition from multiple fronts. Most people that I know use the Flip video camcorder (myself included). They are all competetively priced. Cisco recently purchased the maker of Flip video, though I am not sure of how exactly Flip fits into Cisco's long term strategy. Mobile phones these days have good cameras built into them and rival some of the standalone cameras. Other camera manufacturers like Canon and Nikon are way ahead of the game in the digital still camera market. On the print side of the business, HP has a great advantage as the incumbent. Their marketing spend seems to currently beat out EK on any given day. I dont really see EK's products on the shelves of any store I visit. Given all this, can Kodak survive this double whammy of competition and recession?

Kodak may have great technology and as much as I want Kodak to survive this, I think that they are going to take a hard hit in the near term. With the dividend cut (Annual savings of $134 Million), maybe they will have enough cash to ride out the storm. For the long term EK will have to make some serious inroads into the competition's business to survive as a company. At $ 3 (closing price 6/30/09) it looks like a good buy. There is the possibility of a significant downside if there are more negative earnings surprises.

My personal take on EK is "SELL". This is purely based on current market conditions, consumer spending trends and the macro indicators. I would pick up the stock at $ 1.50 or lower.