Judging by the roughly 10% lift that shares in both Pinterest and PayPal received this week after Elliott Management disclosed a stake in each company, investors are confident the activist investor can fix problems quickly at both companies. They may be expecting too much.
How are eHealth’s shares doing? They are trading at about $8, 87% below where they were trading when Starboard first disclosed its stake. The stock prices of eHealth competitors GoHealth and SelectQuote have also dropped over the same period. Each of the companies has been squeezed by big increases in marketing costs, thanks to rising competition, which casts doubt about the business model.
Consider AT&T: Elliott disclosed a stake in the telecom giant in September 2019, saying the stock could more than double to $60 by the end of 2021 if the company reviewed its portfolio and rethought its leadership. At the time, AT&T’s stock had been lagging behind that of its main rival, Verizon Communications.
There’s no doubt it’s better for AT&T to be more focused on its core business, if only so it can properly invest in telecom and better compete with its singularly focused rivals, Verizon and T-Mobile US. But cellular is a slow-growth business that requires huge investment in spectrum and network upgrades, where competition is intense not only from other cellular rivals but cable operators now jumping into the business.
Put succinctly: an activist investor, even one as thoughtful as Elliott, may be able to score some quick successes that temporarily boost a company’s stock price. But those gains often are fleeting. Other activists that jump into industries they don’t understand may not achieve even temporary gains.
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