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. Not flicks
A million families of couch potatoes have vanished into thin air.
The video rental giant figured that it would close out the three-month period ending this month with 25 million subscribers. It is now forecasting only 24 million accounts on its rolls.
It's uglier than you think, and not just because Netflix is a company that has historically provided conservative guidance. It's not scaling back its expectations on the 12 million accounts that this month began paying for both streams and discs. Netflix is talking down its streaming-exclusive accounts (from 10 million to 9.8 million) and its disc-only subscribers (from 3 million to 2.2 million). Surprisingly, the shortfalls are coming from the two groups that weren't affected by the company's controversial pricing tweak.
Netflix has to be worried that it lost 200,000 more streaming customers than it signed up during the period. Wasn't this the company's future? Will it be able to continue to pay more for streaming content if the subscriber count continues to contract?
After years of stellar growth, Netflix is coming to grips with being a mere dot-com mortal after all.
2. Restoration's hard wear
The IPO pipeline is so dry that only the best-vetted deals are getting through, right?
Well, maybe not.
Restoration Hardwarefiled to go public on Monday. Maybe it's just me, but if you've posted losses in each of your four previous fiscal years, it may be too soon to go public. The upscale retailer of home furnishings also operates fewer stores than it did when it went private three years ago.
Now it's also true that the company has posted strong comps after three years of negative store-level sales. It has also been profitable in recent quarters. However, this is the kind of IPO that would struggle out of the gate during merrier times. What's going to happen now that investors aren't hungry for something new?
Sirius XM Radio (NAS: SIRI) finally spilled the beans on its plans to hike rates next year. The satellite radio giant will jack up its basic monthly rate by nearly 12% to $14.49 a month. I was expecting a higher bump, but I'm sure that subscribers are happy that I was wrong.
However, Sirius XM initiated its guidance for 2012, and it sees revenue growing by just 10% to $3.3 billion next year. It gets worse. If you go by the annual run rate implied by the $784.4 million in revenue that analysts are targeting for this year's fourth quarter -- or a base of $3.138 billion -- guidance is actually hinting at a mere 5% top-line increase despite the 12% price hike in January.
Obviously not everyone will be paying $14.49, at least not right away. However, this kind of guidance doesn't seem to leave a whole lot of room for subscriber growth -- which the company conveniently left out of its 2012 guidance.
As comforting as it may be to see Sirius XM formalize its rate-hike plans and provide healthy free cash flow and adjusted EBITDA projections, the stock has climbed nearly 10% since the company announced its plans on Wednesday. The market's euphoric response is misplaced, at least in the near term.
4. Like shooting fish in a cracker barrel
You can't spell "chicken and dumplings" without d-u-m-p, and that's just what Cracker Barrel Old Country Store (NAS: CBRL) did when it dumped uninspiring quarterly results on its investors this week. Earnings fell 34%, and the casual-dining and throwback-gift-shop chain posted declining comps at both the restaurant and country store level.
Companies post disappointing results in an economic lull, but all eyes are on Cracker Barrel after Biglari Holdings (NYS: BH) took a 9.3% stake in it with an eye on shaking things up at the meandering company.
If there was ever a time for Cracker Barrel to make it seem as if it were at the top of its game, it would be now, with an activist shareholder slinging verbal arrows and vying for a board seat. Can Cracker Barrel add some color to the situation that will make everything seem better?
"To continue to compete successfully in this environment, we plan to introduce more accessible entry price points on our menu and reinforce our affordability with more price-oriented marketing messages," CEO Sandra Cochran notes in the company's earnings release. "We also are improving the guest experience through changes to the operating platform that address the order accuracy and server friendliness issues that emerged in our guest research this year."
In other words, Cracker Barrel is admitting that it's charging too much, messing up orders, and that its wait staff is surly.
Way to not clean up nicely, Cracker Barrel.
Revenue targets that stood at 12% to 17% growth goals for years have finally been publicly taken down to a more manageable 5% to 7% range through at least the next three years.
It's about time, Cisco. The market isn't surprised. Analysts were already targeting net revenue to climb by just shy of 5% in fiscal 2012 and roughly 6% come fiscal 2013. The reason Cisco makes the cut this week -- by making the cut this week (get it?) -- is that it's so unfashionably late to the realization.
If you want to track these companies to make sure that they don't make another dumb mistake soon, consider adding them to My Watchlist.
- AddSirius XM Radioto My Watchlist.
- AddNetflixto My Watchlist.
- AddCisco Systemsto My Watchlist.
- AddCracker Barrel Old Country Storeto My Watchlist.
At the time this article was published The Motley Fool owns shares of Biglari Holdings. The Fool owns shares of and has created a bull call spread position on Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Cisco Systems and Netflix.Motley Fool newsletter serviceshave recommended buying puts in Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributorRick Munarrizcalls them as he sees them. 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.
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