Farmers Edge is a data-driven technology company aimed at helping farmers run day-to-day farming operations. Among publicly traded space companies, Farmers Edge has shown the deepest dip in 2021, with the initial stock price at CAD 17 (a bit over $13) and the stock price as of February 18, 2022, at around CAD 3.84 (around $3).
This article will analyze the current company’s performance to uncover the strengths and weaknesses of this ambitious publicly traded company.
About Farmers Edge
Farmers Edge was created in 2005 by agronomists Curtis MacKinnon and Wade Barnes. Based in Manitoba, Canada, the company provides digital agriculture services to farmers.
Farmers Edge started with a simple consulting service by agronomists. Then, to scale the business, they acquired CanPlug (formerly Crop Ventures) company. CanPlug’s FarmCommand and sensor are a foundation for Farmers Edge product. Their offer also relies on differential application maps that appeared after purchasing the agro software business GranDuke Geomatics. Thus, Farmers Edge’s core business actually depends on the technical expertise of the acquired companies.
Their FarmCommand platform provides farmers with real-time, acre-by-acre analytics based on data from multiple sources, including their proprietary field sensors. In combination with AI, big data, and satellite imagery, site-specific information allows for predictive yield modeling and recommendation alerts, boosting farm performance.
Dramatic Valuation Decrease: 7 Reasons
While Farmers Edge may have grand ambitions to help produce more food to satisfy the increasing food demand, the company’s stock prices observed a dramatic plunge just a couple of months after entering the stock market. The low stock prices are due to failed sales expectations, poor customer satisfaction, and mediocre management.
1. Public Market Performance
In the initial stages of Farmers Edge’s going public, the company showed signs of success. At the beginning of 2021, the company boasted a significant increase in revenue obtained through 2020. However, after going public, the company’s positive results were hampered by turbulence. The current Farmers Edge stock price of CAD 3.84 seems to point out that the company experiences significant issues.
Farmers Edge market capital crashed from CAD 814 million ($631m) while going public to around CAD 122 million ($96m) as of February 2022. In total, over the last nine months, Farmers Edge has lost around 85% of the company’s overall market value. As of Q3 2021, the company had $56 million in its bank accounts. With the current market cap of $96 million, the real company’s value is around $40 million.
2. Business model
The main reason why Farmers Edge is bleeding money is that the company’s business model is unsustainable and unprofitable. Even before extracting the cost of technology, which includes field sensors, satellite imagery, etc., the company’s profit is questionable. Meanwhile, the information circulates that Farmers Edge is losing around $50m yearly.
3. User Base
Unsurprisingly due to the absorbent subscription fee, reports from 2019 and 2020 show that even though Farmers Edge had a fair stipend from farming clients, more than 50% of the original clients have not renewed their Farmers Edge subscription. This implies that the company can no longer expect to increase its clientele, preventing any income through additional sales and subscriptions.
Reports indicate that the company could not complete the initial KPI set out by investors, despite yearly freemium accounts for new clients. In spite of the expectations, the company failed its plan to at least double the number of users to reach a break-even point. Investors were surprised to see a high turnover rate of freemium account subscribers, which didn’t result in customer retention.
4. Average Check
Neither customer retention, nor the average check increase went as expected. While Farmers Edge clients use freemium services, the company generates losses due to expensive technology and supporting staff costs. Farmers Edge supposed that the average check increase for small service packages would help the company reach a break-even point, while customers’ transition to more expensive packages would even bring profit.
An increase in revenue was expected through transferring freemium accounts to paid and expensive packages. However, the plan didn’t work out. This might serve as an indication of customer dissatisfaction with the product Farmers Edge offers. At the same time, there are no product changes or improvements planned at this moment.
5. Satellite Imagery
Farmers Edge doesn’t control the whole imagery supply chain, control over which is critical for their business model. Without their own sources of satellite imagery, they must purchase the data from third parties. As of the end of 2020, Farmers Edge owed around $27.74 million to suppliers. From that amount, $14.5 million was a debt the company had to pay Planet for the previously obtained imagery.
6. Team and management
And last but not least, Farmers Edge experiences a number of managerial issues. People in management positions don’t have the experience or qualifications needed to ensure the company is successful. The company seems to have lost its technical expertise with people who have left the company (tech experts from CanPlug and Guy Duke) or have changed their specialization significantly (Ron Osborne shifted from business development activities to leading the technical team).
Upon closer inspection of the company management, one can assume that the upper management is filled with nepotism. CEO of Farmers Edge, Wade Barnes, chose to hire high school friend Trevor Armitage as the company COO; his wife, Marina Bares, was appointed as CMO. These appointments, among other factors, have resulted in poor employee retention, and Farmers Edge’s employee turnover rate reaches 35%. Including a CFO who has left less than a year after joining the company.
7. Other Negative Signals for Investors
Fairfax invested in Farmers Edge back in 2016, intending to create a platform for insurance management in the agricultural sector. However, having invested CAD 376 million over five years ago, they haven’t achieved business results yet. With the intercompany revenue of approximately $0.3m in a quarter, it’s unlikely that the mother company is happy to pour more money in Farmers Edge. Possibly, this was a reason for Farmers Edge to go public.
But there’re some other signals troubling Farmers Edge’s investors. Blackrock – one of Farmers Edge’s investors – has recently stepped out as an investor. The situation is complicated by the burn rates the company experiences. With $56m in their bank accounts and annual expenses ranging from $40m to $55m, the company has sufficient money to sustain operations until the end of 2022. To keep running, the company will need more funding, which might result in issuing more shares. Considering the money the company’s investors have already lost after it went public, an additional dilution of 20-30% of the shares isn’t an attractive prospect.
Despite Farmers Edge falling within an attractive business niche, its current stock price points out its struggles with exponential financial issues, customer retention, management, and staffing.
If there are no current changes to their products and management, the potential outcome will result in Farmers Edge permanently closing down and investors losing their money. Hopefully, there’s another way for the company.
