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. Sell on the rumor
Shares of Electronic Arts (Nasdaq: ERTS ) took off on Wednesday, climbing 7% on a rumor that Microsoft (Nasdaq: MSFT ) would buy out the video game giant.
How does this bogus chatter even get to the point where it moves the markets? What would Microsoft do with EA? Would it make all of its games Xbox-exclusive, slashing the developer's profitability by a third? How would this pass antitrust muster, since EA has exclusive NFL video gaming rights, and there's no way that rival consoles would put up with that?
It's one thing to buy a small studio with a hot franchise that can become a platform exclusive, but no console maker is going to buy a well-rounded juggernaut.
Microsoft eventually shot down the rumor, to which any thinking investor that knows the gaming industry responded, "Well, duh."
2. There's a barista in my iPhone
Starbucks (Nasdaq: SBUX ) is finally an App Store resident. The java heavy released its first two applications for the iPhone and iPod touch. One program simply allows you to seek out your nearest Starbucks (something that a gazillion apps do already), as well as a few more Starbucks-centric features like offering up nutritional information and the ability to bookmark your favorite locations.
The second app is way cooler. It turns your iPhone into a refillable Starbucks card that displays a bar code that can be scanned by the barista. It's only being tested in 16 stores, but it's definitely cool.
Why is Starbucks on the "dumb" list for pushing the envelope? Well, there are a few things wrong here.
- Where is the mobile ordering functionality? Pizza Hut and Chipotle Mexican Grill already offer that much.
- Why are these two separate apps? Shouldn't one bleed seamlessly into the other?
- Why did it take Starbucks so long? There are way too many unofficial Starbucks locators already.
3. Nintendon't
For the first time in the revolutionary Wii's history, it's going in for a haircut. Nintendo (OTC BB: NTDOY.PK) is slashing the price of its console by 20% to $199. It's the right thing to do. Wii consoles would have been $249 paperweights next to the recently reduced $299 PS3s that play back DVDs and Blu-rays.
The Wii raised the bar with its motion-based controllers and family friendly diversions but it clung to the $249 price point for too long.
So even if this is what Nintendo has to do to survive, it still makes the cut on the "dumb" list. If console makers believe that they will make up these deep holiday price cuts in software royalties, they're flunking out of game theory.
It's not just the economy keeping gamers away this year. Folks are perfectly happy playing free ad-supported games on Facebook or on their iPods. The game game has evolved, and it's no longed boxed in..
4. Bean there, done that
Shares of Diedrich Coffee (Nasdaq: DDRX ) fell 18% after posting its fiscal fourth-quarter results. The company presumably spooked investors when it issued guidance calling for revenue to grow by 44% to 52% in fiscal 2010.
How can that not be impressive? Well, Diedrich has unloaded its retail operations to dedicate itself primarily as a provider of K-Cups for Green Mountain Coffee Roasters' (Nasdaq: GMCR ) Keurig single-cup brewers. Green Mountain sees a 65% to 70% surge in K-Cup shipments next year.
Investors who hopped on Diedrich as a coattail play forgot to consider that other coffee companies can hop on those same coattails. The moral of the story: Don't place all of your eggs in one K-Cup.
5. When the E*TRADE Baby turns three
The only thing worse than a nonsensical buyout rumor is putting a timeline on one that makes perfect sense.
BMO Capital Markets analyst Michael Vinciquerra shot down the notion that E*TRADE (Nasdaq: ETFC ) isn't an attractive acquisition target until it gets past its mortgage lending uncertainties.
"Buying on a takeover possibility might be a good idea 10-12 months from now, but we think it's foolhardy in the near term," he noted earlier this week.
The problem with that kind of projection is that it's a lose-lose call. If a rival discount broker really wants E*TRADE for its growing brokerage business, they're going to jump in now while the uncertainty creates an attractive price point, and a desperate management team would be more likely to accept a deal. If they wait for the clouds to clear, E*TRADE will be trading much higher and have much less reason to cash out.
Even the E*TRADE Baby knows that.
Let's beat the dumb drum:
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