This Week's 5 Dumbest Stock Moves
Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.
- Revenue came in lighter than expected.
- Netflix's profit guidance for the current quarter was well below Wall Street's target, as operating margins are expected to contract.
- At its midpoint, Netflix is expecting just 400,000 net subscriber additions domestically during the current quarter, its worst showing since the spring of 2009.
- Net additions in Canada shrank sequentially for the second consecutive quarter.
However, the part of Netflix's report that really got me scratching my chin was its product mix for the 25 million stateside subscribers it expects to have by the end of September. Netflix is estimating that 10 million of its subs will be signed up only to its $7.99-a-month streaming plan. It pegs another 12 million subscribing with both streaming and disc-based plans. Finally, it's forecasting that just 3 million of its 25 million subs -- or 12% -- will trade down to "DVD only" plans.
Really? Are 88% of its users even streaming right now? If so, how many are doing so only because it's included at no additional cost with traditional disc-based plans? It seems overly aggressive to believe that 22 million people will be paying Netflix $7.99 a month by the end of September for streaming.
2. Cracking open Pandora's box
In predictable fashion, the underwriters that took Pandora Media (NYS: P) public rallied around the stock they sold to their prized accounts with largely bullish accolades. Citigroup had the gall to slap a $25 price target and a "buy" rating on the stock, even as it concedes that Pandora won't be profitable until 2014.
Really Citi? Three years is an eternity in this fast-moving marketplace.
I should applaud Morgan Stanley and Stifel Nicolaus, which broke from tradition by offering only the ho-hum equivalent of "hold" ratings on the music-discovery site. However, won't investors take Stifel Nicolaus to task for declaring an $18 price target on a stock that it helped take public at $16? That doesn't seem like a lot of room for growth given the risky nature of running a popular yet profitless streaming service.
3. 2,000 reasons to trade in that BlackBerry
Every wave of layoffs tells a story, and it's rarely a good one.
A realist would argue that this is the right approach. Analysts see revenue clocking in lower over the next couple of quarters, so the BlackBerry maker may as well begin adjusting its corporate overhead accordingly.
Is this the smartest move, though? RIM needs to instill confidence in buyers of its corporate-geared wireless handsets. How else is it going to get consumers and entire companies to commit to its two-year contracts through wireless carriers? Here is where the layoffs sting. RIM doesn't have to send out pink slips. It's consistently profitable and closed out its latest quarter with $2.4 billion in cash and short-term investments. The layoffs send a grim message to its tens of millions of subscribers, leading them to consider switching to Android or iPhones. Nobody wants to be anchored to a shrinking company.
4. Killer apps
Adobe Systems (NAS: ADBE) is shutting down two of its app stores.
The desktop publishing giant announced that it would no longer be taking applications for its mobile Adobe InMarket and desktop application AIR Marketplace platforms.
What's that? You didn't even know Adobe was helping developers get applications published? You're not alone -- and I guess that's pretty much the point.
5. The Finnish line
Things continue to get worse for Finland's Nokia (NYS: NOK) . Moody's is downgrading the handset maker's credit rating.
Really? What happened to Nokia's claim that its deal to support Microsoft's (NAS: MSFT) fledgling mobile operating system on its smartphones would generate billions -- yes, billions -- in easy revenue?
There's something rotten in Finland.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
At the time this article was published The Motley Fool owns shares of Microsoft and Research In Motion. Motley Fool newsletter services have recommended buying shares of Adobe Systems, Microsoft, and Netflix, buying puts on Netflix, and creating diagonal call positions on Adobe Systems and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.