How YouTubers Exposed A $1 Billion Company

Summary

Newegg, once a leading tech retailer, faces a dramatic downfall due to a series of controversies and poor customer service. Despite early success with exceptional prices and user-friendly platform, the company has seen a 99% drop in stock value since its IPO in 2012. Recent financial troubles, including a net loss of $59 million in 2023 and a high debt-to-asset ratio, have raised concerns about its survival. The company's reputation has been further tarnished by widespread customer dissatisfaction and negative publicity, signaling a need for significant change.

Takeaways

• 📉 Newegg's Stock Struggle: The company's stock price has plummeted over 99% since its IPO in 2012.
• 💻 Tech Retail Beginnings: Founded in 2001, Newegg quickly became a leading tech retailer favored by gamers and tech enthusiasts.
• 🛒 User-Friendly Platform: Newegg's interface and shopping process were designed specifically for tech-savvy customers, offering a seamless experience.
• 🏆 Customer Loyalty: Exceptional pricing, fast shipping, and hassle-free returns built strong customer loyalty for Newegg in its early years.
• 📉 Financial Woes: Despite initial success, Newegg has faced significant financial challenges, with net losses increasing in recent years.
• 💼 Management Issues: Newegg has been criticized for poor management practices, contributing to a 2.3-star rating on Glassdoor and high employee turnover.
• 🛑 Return Policy Controversy: A series of negative customer experiences with Newegg's return policy, including denied refunds and damaged goods, have damaged its reputation.
• 🔍 Public Scrutiny: The Gamers Nexus incident brought Newegg's customer service issues to the forefront, sparking widespread public and media attention.
• 📉 Declining Sales: Newegg's sales and repeat purchase rates have declined, indicating a loss of customer trust and loyalty.
• 💡 Reactive vs. Proactive: The company has been characterized as reactive rather than proactive, only addressing issues when under public pressure.
• 🔄 Short-Term Fixes: Newegg's strategies, such as aggressive marketing and cost-cutting measures, seem to be short-term solutions that do not address underlying reputation issues.

Q & A

What was Newegg's initial appeal in the tech market?

Newegg was initially celebrated for its tech offerings and user-friendly platform, becoming the go-to place for gamers due to its competitive prices, seamless shopping process, and exceptional customer service.

How did Newegg's customer experience differ from other retailers in the 2000s?

Newegg's shopping interface was tailor-made for tech enthusiasts, allowing customers to easily sort and find PC components. It also provided compatibility information, which was groundbreaking at the time and contributed to a superior customer experience compared to other retailers like Amazon.

What factors contributed to Newegg's rapid growth in sales?

Newegg's rapid growth was due to its competitive pricing, user-friendly interface, and exceptional customer service, which led to a loyal customer base and surpassing a billion dollars in annual sales by 2005.

What led to Newegg's significant drop in stock price?

Newegg's stock price dropped significantly due to allegations, controversies, and negative customer experiences, which affected the company's reputation and led to a loss of over 99% of its value.

What issues did Newegg face in terms of customer support?

Newegg faced issues with customer support, including denying returns on products they had seemingly damaged themselves, and a pattern of poor customer service experiences that were shared widely by customers.

How did the Gamers Nexus incident impact Newegg's reputation?

The Gamers Nexus incident, where they documented Newegg's poor customer support and return policy in a video, went viral and brought widespread negative attention to Newegg, causing further damage to its reputation.

What was Newegg's financial situation in 2023?

In 2023, Newegg had a total debt of $369.66 million and total assets of $499 million, resulting in a debt-to-asset ratio of 0.74, which indicates a risky financial position for the company.

What steps did Newegg take in response to the controversies?

Newegg released a statement acknowledging some process errors and reached out to impacted customers, including Gamers Nexus and UFD Tech, to resolve their issues after the controversies became public.

How did Newegg's management issues contribute to its downfall?

Newegg's management issues, including high turnover and perceived incompetence, contributed to a lack of proactive measures to address customer concerns and improve the company's reputation.

What strategies did Newegg outline in their 2023 investor report to address the decline in business?

Newegg's 2023 investor report mentioned strategies such as more aggressive marketing and cutting salary and other compensation costs by $12.7 million to address the decline in business.

What is the core issue that Newegg needs to address according to the script?

The core issue that Newegg needs to address is its reputation and customer support, which have been severely damaged by years of neglect, apathy, and bad management practices.

Outlines

00:00

📉 The Fall of Newegg: From Success to Struggle

This paragraph introduces the dramatic decline of Newegg, a once-celebrated online tech retailer. It highlights how the company, which was synonymous with excellent customer service and competitive pricing, has seen its value plummet due to controversies and allegations. The video promises to delve into Newegg's journey from its inception to its current state of financial distress and bankruptcy concerns.

05:01

🛠️ Newegg's Glory Days: Customer Loyalty and Market Dominance

The second paragraph focuses on Newegg's early success and customer loyalty. It explains how Newegg's user-friendly platform, competitive pricing, and exceptional customer service set it apart from competitors like Amazon. The company's growth is underscored by its impressive sales figures, reaching over a billion dollars by 2005. However, the paragraph also foreshadows the company's eventual downturn.

10:05

📉 Newegg's Current State: Financial Woes and Customer Dissatisfaction

This paragraph paints a grim picture of Newegg's current financial state and plummeting customer satisfaction. It details the company's drastic stock price drop, poor employee reviews on Glassdoor, and significant net losses in recent years. The paragraph also reveals Newegg's high debt-to-asset ratio, signaling financial instability and a high risk of bankruptcy.

🔍 The Controversy: Newegg's Customer Service Crisis

The fourth paragraph delves into the controversies that have plagued Newegg, particularly regarding their customer service practices. It recounts numerous instances of customers receiving damaged goods and being denied refunds, leading to a surge in negative reviews and public outcry. The paragraph also discusses the impact of a high-profile incident involving the YouTube channel Gamers Nexus, which brought widespread attention to Newegg's customer service issues.

👥 Newegg's Management and Future Outlook

The final paragraph examines Newegg's management issues, including high executive turnover and a lack of effective leadership. It discusses the company's attempts to address its declining sales and reputation, such as cost-cutting measures and aggressive marketing. However, the paragraph suggests that these strategies may be too little, too late, as Newegg's reputation has suffered significantly, and its customer base has eroded.

Keywords

💡Newegg

Newegg is an online retailer known for its tech offerings, particularly to gamers. It was once celebrated for its user-friendly platform and competitive pricing. In the video, Newegg's fall from grace is discussed, highlighting how the company lost 99% of its value due to controversies and poor customer support.

💡Customer Satisfaction

Customer satisfaction refers to the feeling of contentment or pleasure a customer experiences when using a product or service. In the context of the video, Newegg's initial success was attributed to its exceptional customer service, but later, the company faced a downfall due to a decline in customer satisfaction, primarily due to issues with returns and poor customer support.

💡IPO

An IPO, or Initial Public Offering, is the process by which a private company goes public by offering its shares to be traded on a stock exchange. The video script mentions Newegg's IPO in 2012, after which the company's stock price plummeted, indicating a significant loss in market value.

💡Debt-to-Asset Ratio

The debt-to-asset ratio is a financial metric that indicates the proportion of a company's assets that are financed through debt. In the video, Newegg's debt-to-asset ratio of 0.74 is highlighted as a sign of financial risk, suggesting that a large portion of the company's assets are financed by debt, which is higher than the healthy benchmark of around 0.4.

💡Bankruptcy

Bankruptcy is a legal status for individuals or entities that are unable to repay their outstanding debts. The video discusses the possibility of Newegg going bankrupt within the next two years, with a 35% chance, due to its financial struggles and declining sales.

💡Customer Support

Customer support refers to the assistance provided by a company to its customers in relation to its products or services. In the video, Newegg's customer support is criticized for being unresponsive and unhelpful, with numerous complaints about denied returns and damaged products, which contributed to the company's negative reputation.

💡Gamers Nexus

Gamers Nexus is a YouTube channel that focuses on tech reviews and gaming content. In the video, the channel is mentioned as a significant catalyst in exposing Newegg's poor customer service when they publicized their negative return experience, which went viral and led to a broader discussion about Newegg's customer support issues.

💡E-commerce

E-commerce refers to the buying and selling of goods or services using the internet, as well as the transfer of money and data to execute these transactions. The video script discusses how Newegg was a pioneer in the e-commerce space for tech products, but its reputation suffered as the industry evolved.

💡Stock Price

Stock price is the cost at which a single share of a company's stock is currently trading. The video highlights the dramatic drop in Newegg's stock price from $99 to below 90 cents, reflecting the company's declining value and investor confidence.

💡Reputation

Reputation refers to the beliefs or opinions that are generally held about someone or something. In the context of the video, Newegg's reputation is discussed as a critical factor that has been damaged due to negative customer experiences and public controversies, which has led to a decrease in customer trust and loyalty.

💡Return Policy

A return policy is a company's rules for accepting returns of products by customers. The video script describes issues with Newegg's return policy, where customers reported being denied returns for damaged products, which were often the fault of Newegg, leading to widespread dissatisfaction.

Highlights

Newegg, once a leading online tech retailer, is now struggling due to allegations and controversies.

Newegg was founded in 2001 by Fred Chang with a name symbolizing a new beginning for e-commerce post-dot-com crash.

By 2005, Newegg had reached over a billion dollars in annual sales, becoming a go-to place for tech enthusiasts.

Newegg's user-friendly platform and exceptional customer service were key to its early success.

The company's stock price has plummeted over 99% since its IPO in 2012.

Newegg has a 2.3-star rating on Glassdoor, with reviews citing poor management and high employee turnover.

Despite making profits in 2019 and 2020, Newegg recorded significant net losses in 2022 and 2023.

Newegg's debt-to-asset ratio of 0.74 indicates a risky financial position.

Customer complaints about Newegg's poor return policy and damaged goods have been escalating over the past decade.

The Gamers Nexus incident in 2022, where a YouTuber exposed Newegg's faulty return process, went viral.

Newegg's response to the controversy was perceived as damage control rather than genuine remorse or change.

Newegg's leadership has shown a lack of proactive measures, often only reacting when under public scrutiny.

The company's strategies, such as aggressive marketing and cost-cutting, have not addressed the core issue of customer trust.

Newegg's repeat purchase rate and average order value have declined, indicating a loss of customer loyalty.

The company's 2023 investor report outlines reasons for business decline but avoids addressing the impact of poor customer support.

Newegg's future looks uncertain as it continues to grapple with a tarnished reputation and declining sales.

Transcripts

THE STATE OF NEWEGG: Newegg, the online retailer once  

celebrated for its tech offerings, is fighting  for survival due allegations and controversies.  

Newegg was the go-to place for gamers. But now,  gamers avoid Newegg-like plague. How does a  

company lose 99% of its value, despite its  massive appeal and user-friendly platform. From  

its humble beginnings to becoming a household  name, Newegg's journey is nothing short of  

revolutionary. In this video, we will  explore the incredible story of Newegg,  

from startup to sensation, from CPUs to customer  satisfaction and from Billions to bankruptcy.

WHAT IS NEWEGG: But why was Newegg beloved in the first place?  

When Fred Chang created the company in 2001,  he sought a name that symbolized hope and a new  

beginning for e-commerce, an industry struggling  after the dot-com crash. So, he chose Newegg and  

the name was prophetic. Newegg was one of the  first to take off in the gaming retail market.  

By 2005, Newegg had surpassed a billion dollars  in annual sales, but Newegg wasn’t alone. Many  

companies were selling tech supplies and PC parts.  So why were customers so loyal to Newegg? Well,  

for starters, their prices were often the best you  could find, consistently beating out Best Buy and  

other giant retailers, but good pricing was just  the beginning. In the 2000s, finding the right  

PC part on Amazon was aggravating, but Newegg’s  interface was tailor-made for tech enthusiasts.  

Newegg’s shopping process was seamless. You  could sort by generation, and component, and  

find exactly what you needed. Newegg would even  tell you if your PC components were compatible  

with each other. This is common today, but in  the 2000s, it was groundbreaking, and customers  

loved it. “Shopping for electronics on Amazon  is frustrating and time-consuming. Newegg has  

extremely powerful search tools optimized for  electronics and computer parts.” “10 years ago,  

Newegg had everything easy to find on their site.  They had great deals, friendly in-house support,  

and it was as close as one could get to a one-stop  shop for computer hardware.” (From 2016) This last  

comment also hints at the third thing Newegg did  well. Their customer service was exceptional.  

Shipping was always fast, and returns were  hassle-free. Gamers shopped at Newegg because  

it was built for them. It served tech customers  better than Amazon or any other retail giant  

could. Newegg was clearly the dominant player,  but since then things have turned for the worse.

NEWEGG TODAY: If you visit their website today,  

things might seem fine, but zooming out to the  bigger picture tells us a different story. Since  

their IPO in 2012, their stock price has crashed  from $99 to below 90 cents—a drop of over 99%. On  

websites like Glassdoor, Newegg sits at a 2.3-star  rating from over 600 reviews. Past employees cite  

terrible, incompetent management, high risks of  layoffs, high stress, and lower salaries than  

competitors. Even loyal employees share these  troubles. In terms of positives, reviewers say  

there are “really none except some of the people  there are great." and “Lots of great people and  

coworkers who will share your plight and agony.”  Not a good look. But putting their stock and  

management issues aside, the most important  question to ask is regarding their financials.  

Is the company making money? Well, up until 2019,  they were a money-burning startup. But afterward,  

they started to make good profits, surpassing  $30 million in 2020 and $36 million in 2021. This  

was likely due to the pandemic, but they were  nonetheless on an upward trajectory. But then,  

things made a worse turn. Newegg started  losing money again. But this was different.  

These losses were big and sudden. In 2022 they  recorded a net loss of $57 million. In 2023,  

their net loss grew to $59 million. But that’s not  even the full picture. Looking deeper, in 2023,  

their total assets are $499 million, and their  total debt is $369.66 million. This gives Newegg  

a debt-to-asset ratio of 0.74. For reference,  a healthy company is around 0.4 meaning that  

Newegg is in a risky position. They carry a  large proportion of debt, and their assets  

seem to be shrinking faster than their debt.  As such, Macroaxis gives them a 35% chance of  

going bankrupt within the next 2 years. What’s so  fascinating, is that things were very different  

just a few years ago. So why did their profits go  into free-fall just one year later? What happened?

CONTROVERSY & DOWNFALL: For the past decade, a storm was slowly brewing.  

Negative comments about Newegg started to pop up  here and there. People began reporting strange  

support experiences most of which had a consistent  theme. One customer purchased two motherboards  

and received a faulty one, and another in poor  condition. But when they began the return process,  

their refunds were denied, with Newegg citing  “customer-caused damage to CPU pins” before  

sending the motherboards back to the customer. The  only issue is that these pins were perfectly fine  

when the customer sent in the motherboards. Now,  of course, even the best retailers can’t get 100%  

customer satisfaction, but this was different.  Newegg was denying returns on products they had  

seemingly damaged themselves. This story wasn’t  out of the ordinary either. Customers began  

compiling and sharing negative reviews of terrible  customer support with similar themes. ”I spent  

close to $2,000 with them to build a system for  a client... Never worked. Determined it was a bad  

stick of RAM. I specifically mentioned the damage  to the rep on the phone. Was told it would be no  

problem. Sent back and they denied the return.  Told me that they do not accept damaged returns.  

It arrived damaged!!” But Newegg didn’t change,  perhaps because of incompetence, but maybe for  

another reason: In their eyes, they didn’t need  to. ”They hold all the cards in this situation  

and there's absolutely nothing I can do.” But  everything was about to change for Newegg. One  

incident would catapult this negligence into the  spotlight, which brings us back to 2022 when they  

stumbled onto one customer who would level the  playing field. In 2022, the YouTube channel Gamers  

Nexus returned an unused motherboard, which fell  within Newegg's 30-day return policy, and Newegg’s  

customer support reared its ugly head once again.  Newegg denied the return, and cited “customer  

damage” just like all the other complaints. But  the thing was, Steve, the face of Gamer’s Nexus,  

never opened the box. Which meant the product was  damaged when Newegg sent it, or worse. This was  

the pebble that caused the avalanche. In a video  that to date has over 1.5 million views, Gamers  

Nexus showed the aggravating customer support.  But it gets even worse. In a follow-up video,  

Steve opened the returned motherboard and dug  deeper. The return history showed that this  

was a faulty item sent to a supplier for a repair  quote, only for it to be sold back to consumers.  

The snowball was now in motion. Customers  began to weigh in with their own experiences,  

eerily similar to Steve’s. They were finally  getting a platform to share their voices, and not  

just regular consumers either. Other YouTubers  began sharing their terrible Newegg stories.  

Then other YouTube channels and commentators all  began to report on the story. Everyone was looking  

at Newegg, and they went into panic mode. So they  released a statement on Twitter: “A very small  

number of returns may not have been thoroughly  inspected,” and “these were unintentional process  

errors and isolated incidents.” This only added  fuel to the fire because these weren’t isolated  

incidents. There was a pattern across all  the returns, one that everyone could see.  

Newegg reached out to the impacted customers,  including Gamers Nexus and UFD Tech,  

but ironically, this reveals one of the biggest  issues with Newegg. Throughout the past decade,  

most customers would only get their issues  resolved and their money back if they made enough  

noise. This wasn’t Newegg changing. It was just  damage control. Newegg only began to resolve the  

issues with Gamers Nexus and UFD Tech after they  made public statements. “They're not 'sorry' for  

what happened, they're sorry they got caught and  exposed.” Newegg’s fall came down to one thing.

AN AUTOPSY: Newegg wasn’t proactive; they were reactive.  

They only appeared to make things right when  under the spotlight. And even then, people aren’t  

so sure. During the peak of the drama, Newegg’s  leadership agreed to meet Gamers Nexus in person.  

While a great gesture, most of the conversation  had heavy corporate-speak, with little promise  

of real change. But things aren’t so simple. It’s  hard to blame leadership because the turnover is  

so high. Most of the executives had only been  with the company for a matter of months. And  

it appears this trend of poor retention hasn’t  improved much either. And that brings us back to  

Newegg today. Has their reputation improved at  all? With Newegg’s declining sales, the repeat  

purchase rate decreased from 31.3% to 29.2%. The  average order value declined from $411 to $379.  

Which tells us one thing. Customers aren’t coming  back. They don’t trust Newegg with important  

purchases anymore. Motherboards, graphics cards,  CPUs, all of which are fragile and expensive and  

often well over $379. The saddest part is  that customers want Newegg to succeed. So,  

can Newegg bounce back? Well, in their 2023  investor report, they outlined the reasons  

for this decline in business. Which included  *“conservative consumer spending in technology  

products,*” as well as lower profit margins and  higher costs. While these factors are likely true,  

all of it dances around the most important issue.  Somewhere along the road, Newegg neglected the  

most important thing: customers. Customer support  is the backbone of these companies. It can turn an  

annoyed customer into a brand advocate. But it  can also turn customers into brand detractors,  

publicly shaming and advocating for others to  avoid them. The controversy and bad publicity are  

because of Newegg’s negligence, apathy, and bad  management. A decade of it at that. Despite this,  

Newegg set out some strategies. In 2022, they  enacted more aggressive marketing and cut “salary  

and other compensation costs by $12.7 million,”  the biggest reduction they made, which seems to be  

a step backward. Because as we know, their sales  continued to drop the following year. With their  

terrible turnover, reputation, and bad customer  experiences, the future doesn’t look bright for  

Newegg. Newegg may have saved money with sloppy  customer support and by cutting salaries and  

benefits, but long term, these are just short-term  solutions that don’t address the root problem:  

their reputation. Ironic as it sounds, people miss  the old Newegg. If you’re interested in deeper  

dives, interviews with insiders, and exclusive  tech analysis, you can sign up to our free weekly  

newsletter, link is below. But until then, I’m  Hari, and I’ll see you guys on the next one.