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.
1. Stripped-down streaming
Insignia Connected TV hit Best Buy (NYS: BBY) stores on Monday. The Web-friendly high-def televisions incorporate TiVo's (NAS: TIVO) user interface to scour the Internet and a cable provider's channels for something to watch.
This seems cool at first glance. The price point is fair, at $500 for a 32-inch unit and $700 for the 40-inch model. However, TiVo and Best Buy announced that they would be teaming up to "transform the digital home entertainment experience" 25 months ago.
Is this really a transformation? Internet-ready televisions have been around for some time, and all we're getting here is TiVo's user interface slapped on to Best Buy's house brand.
Did I mention that this thing doesn't come with a DVR, the one thing that everyone associates with the TiVo brand? TiVo does have a slick interface, but how many people are going to buy this thinking that they're getting a DVR (even if the box explicitly spells that out)? How many shoppers will sidestep the low price, figuring that TiVo normally sells home theater appliances cheap because couch potatoes get hit with monthly subscriptions (which don't apply here because -- again -- this is not a DVR).
The product is going to confuse people and blur brand identities. I'm a fan of TiVo, but this is like asking Pamela Anderson to come in as a hand model.
2. Cracking open Pandora's box
It took Nintendo (OTC: NTDOY) years before it had to cut prices on the Wii. The 3DS lasted less than five months at $250.
I realize that the upcoming 3DS price cut is last week's news. However, shares of Nintendo plunged to fresh five-year lows this week after the market had more time to digest the ramifications of the 3DS handheld systems being dropped to $170 a week from today.
Nintendo is trying to make it up to early buyers by offering them 20 -- yes, 20 -- digital downloads of handheld gaming classics. This is a move that should soothe early adopters who certainly didn't expect a price cut this soon, but what will it mean for Nintendo?
Slashing hardware prices by 32% will crush margins, but won't gamers with 20 free titles be less likely to buy higher margin software releases in the near term? New buyers may also be hesitant to jump at the new $170 price point. If Nintendo is that desperate, what assurances do they have that the platform will continue to be supported?
China's leading travel portal has a history of providing conservative outlooks.
Three months ago, it delivered 30% top-line growth after initially targeting revenue to grow by 20%. When it projected 30% to 35% growth the quarter before that -- and a 35% to 40% surge the previous quarter -- it landed comfortably ahead of its marks in the sand.
Some investors may be concerned that that the actual guidance rates are decelerating, but what's worrisome to me is that Ctrip this week grew revenue by just 20% after forecasting a 15% to 20% uptick. It may be on the high end, but it's certainly not like the company to stick its landings.
Is Ctrip done with teasing analysts through sandbagged outlooks, or did the fundamentals deteriorate quickly toward the end of the period? Neither scenario is a positive one for investors.
Really? Is anyone surprised that a bricks-and-mortar bookseller is a depreciating asset? Barnes & Noble has the Nook, but will it ever be a profitable business in a market that's mired with perpetual price cuts?
Malone may simply be trying to get a better price by negotiating in public, but it's a risky move for longs until a deal is finalized.
5. Sirius discounts
There were more things right than wrong in Sirius XM Radio's (NAS: SIRI) latest quarter. The satellite radio giant came through with better than expected results, bumping its subscriber and free cash flow targets for all of 2011.
However, there is a troublesome nugget. The average subscriber is paying less. Average revenue per user shrank from $11.81 a month a year ago to $11.53 in its latest quarter.
One explanation would be that the company slashed the music royalty fee it charges on some accounts several months ago, but that's not right. There are more people paying that fee now than were a year earlier, and the actual revenue received from these fees actually grew faster than Sirius XM's total revenue during the period.
The main culprit here is "subscriber retention programs," which basically means that Sirius XM is offering more discounted deals to listeners that it feels it would otherwise lose. The move makes sense, but is this a dicey proposition for a company that's about to test the pricing elasticity of its 21 million subscribers when it boosts its pricing plans early next year?
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 Ctrip.com and Best Buy. Motley Fool newsletter services have recommended buying shares of Nintendo, Ctrip.com, and Best Buy. 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. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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