Last Week's Biggest Head Scratchers: Netflix's Nutty Hikes, IPO Pillow Talk, Google Rocks


Last week, video buffet provider Netflix (NFLX) surprised investors and couch potatoes alike with its move to split its flagship DVD plans from its streaming service. Come September, those who want to take advantage of both optical discs by mail and a more slender streaming selection will have to pay as much as 60% more to keep the two plans going.

The move divided analysts, though the bulls seemed to gain the upper hand, given the new all-time highs the company hit last week. Still, if the old Netflix model wasn't broken, why fix it?

Forcing subscribers to choose between the two delivery options or pay up will likely reduce the number of users for either service. Those who aren't happy with the move are flooding cyberspace with nasty Tweets, blog posts, and poll votes. Even if Netflix comes out ahead financially, its reputation has taken a blow.

Ideally, Netflix would have us all move away from DVDs, which are costly to mail out and maintain. But does it really want to hitch its wagon to digital delivery? Its slim streaming catalog and buffering concerns, coupled with an increasing number of Internet service providers capping bandwidth consumption, suggest that this offering may not be ready for primetime just yet.

Netflix's price hike wasn't the only headscratcher last week. These four stories also left us somewhat bewildered:

Norwegian Cruise Sets Sale

Norwegian Cruise Lines filed to go public on Friday, hoping to raise as much as $250 million in the IPO.

NCL is an amazing cruise ship operator, but its timing could be better. It wouldn't dare schedule a midnight buffet at noon, but that's essentially what it's doing by going public now.

High fuel prices and political unease abroad forced industry leader Carnival (CCL) to hose down its near-term outlook last month. The economy is also as rough as the open seas during hurricane season, dimming the prospects of an uptick in bookings at higher rates.

NCL, with its 11-ship fleet, is holding up reasonably well. It topped $2 billion in total revenue last year, and it's been profitable in each of the past two years. However, the company will have a hard time mustering investors' excitement when its two larger publicly traded rivals trade closer to their 52-week lows than their 52-week highs.

Zillow Talk: IPO Price Patter

As real estate prices continue to slide, one particular housing play is on the rise.

Online real estate database Zillow revealed on Friday that its underwriters plan to price its IPO this week between $16 and $18 per share. Zillow was originally expecting to go public at no more than $14 a share.

If NCL's IPO seems to have left the dock prematurely, Zillow's debut is staging its fiscal open house too late. Zillow arrived at the peak of the housing speculation bubble. Addicted homeowners would routinely check the site to see how much their homesteads were worth. The "Zestimate" was occasionally way off, but it provided a fun diversion at a time when real estate prices kept heading higher.

Zillow will end up with 27 million shares outstanding, valuing the company at nearly $500 million at the high end of its range. The price seems a bit steep for a fast-growing company that nonetheless generated just $30.5 million in profitless revenue last year.

Silly Rabbit, Trex Is for Skids!

If you've ever priced an outdoor deck project, you've probably considered Trex (TREX). The company recycles plastic grocery bags, plastic film, and waste wood fiber into stylish deck planks that are more weather-resistant than wood itself.

Unfortunately, the stock can't hold up as well as its decking under a deluge. Trex tanked last week after warning that it generated roughly $78 million in revenue during the seasonally potent springtime quarter, which ended a couple of weeks ago. Analysts expected Trex to essentially match last year's $115.5 million.

Investors should have seen this coming, especially since hardwood flooring retailer Lumber Liquidators (LL) got pummeled a week earlier for a similar warning. Outdoor patios and interior flooring are entirely different beasts, but they both appeal to homeowners investing in home improvement projects. Until house prices stabilize, creditors relax their lending standards, and foreclosure fears ease, few people will spring for major upgrades.

Gaga for Google

The scorecard is in! Last week, I took analysts at Morgan Stanley (MS) to task in this column for downgrading shares of Google (GOOG). Slashing its rating and its price target just days ahead of the leading search engine giant's quarterly results seemed dangerous, regardless of Morgan Stanley's valid concerns.

"Google has trounced Wall Street profit targets in nine of the past 11 quarters," I wrote here last week. "Does Morgan Stanley really want to get in front of that kind of batting average?"

Well, shares of Google soared 13% on Friday -- at one point even surpassing Morgan Stanley's new $600 target -- after blowing past analyst profit projections. Will someone make the same mistake in three months, now that Google's hit it out of the park in 10 of the past 12 quarters?

Longtime Fool contributor Rick Munarriz does own shares in Netflix. The Motley Fool owns shares of Google and Lumber Liquidators.