How bad is FedEx Corp. (FDX) ?
As I listened to the call Tuesday night I found myself thinking that Fred Smith is running a 500,000-person start-up that delivers goods on Saturday and Sunday with ever-rising costs and no increase in the price it can charge and that just lost its best client. No, worse; it just lost its best client and that client is now competing with it!
I know everyone wants to blame Fred and the company. but honestly, if you view it as a start-up and you recognize that there's a slowdown in the best line of freight -- the industrial volume -- what the heck are you supposed to do? Then add in a situation where you have tremendous expense with no concomitant revenue in the quarter and a huge misjudgment in the amount of its worst-margin business, the consumer freight business, and you are lucky to make any money at all.
It reminds me very much of when I started thestreet.com. My first big customer was America Online, which paid me several million dollars in return for financial content for their site. Then, one day, Bob Pittman, the CEO at the time, came to see me. He had a handout for an expanded relationship. As I flipped each page of the deck it was getting better and better in terms of integration of our partnership.
Then I got to the last page and it said that I had to pay him $2 million.
I was aghast. I was providing the service and they were taking the service and now I had to pay them to take the service?
It was simple, he said. Either I give them the content or they do the content themselves.
I said I wasn't going to pay.
So they developed the content themselves.
They eviscerated me. I had to start all over again with new and different content and go subscription. not ad.
FedEx is right where I was then. A new business model. No one expected it. Least of all me.
Least of all FedEx.