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. Palm in search of branches
What do surge protectors, remote-controlled dog toys, and 9-volt batteries have that Palm (Nasdaq: PALM ) does not? Distribution through RadioShack (NYSE: RSH ) , for starters. The small-box electronics retailer is phasing out Palm smartphones.
RadioShack may not be the coolest shop in the suburban strip mall, but maybe that's even more ominous for Palm's future. It also doesn't help that Palm is losing a key executive. Today will be Michael Abbott's last day at Palm. He headed up the company's software and services operations
2. Vita-lost
Shares of Vitacost.com (Nasdaq: VITC ) tumbled this week after the company hosed down its outlook. This happens all the time, so why pick on the Web-based vitamin retailer? Well, the failure is in the delivery.
Vitacost's revised outlook began with a longwinded story about a manufacturing logistics issue at a plant. Production hiccups resulted in pushing into the current quarter $1 million to $1.2 million in back orders that would normally have been recognized during the first quarter.
Fair enough. Rob Peter to pay Paul, but Peter, Paul, and Mary can go on with the set list in zero-sum fashion. Right?
Wrong. A paragraph later, Vitacost slashes its full-year revenue outlook by $10 million, and talks down its profit guidance to less than it earned a year ago, on an adjusted basis.
Isn't that the real story? How old does Vitacost think its investors are? Five? This is a birthday party clown trying to pull off some parlor magic through lame distraction. It doesn't work.
3. Pandora's box
How many Netflix (Nasdaq: NFLX ) subscribers received Avatar in bright-red mailers yesterday? None. The highest-grossing flick of all time hit the market yesterday, but it's just the latest blockbuster affected by Netflix's agreement with the studio to delay sending movies.
Netflix shareholders got something a lot better, though. Shares of the movie lender hit a new all-time high yesterday, barreling through the $100 mark. No doubt about it. Netflix put out a great quarterly report Wednesday night. However, the reason that one of my favorite investments makes this week's "dumb" list is that revenue growth of 25% fell well short of the 35% year-over-year growth in subscribers.
In other words, the average subscriber is paying less for Netflix's service. This isn't necessarily a bad thing. If folks are trading down instead of quitting the service altogether -- wooed by the value proposition of unlimited streaming -- that would be good. However, if folks are trading down to cheaper plans because they now need a second source to provide them with flicks like Avatar, The Blind Side, and Sherlock Holmes within the first four weeks of rental availability, the 28-day release block would be a bad idea.
4. Hulu hoops
The rumors of Hulu charging for its service are true. The studio-bankrolled streaming service will be introducing a $9.95 monthly premium subscription service, according to the Los Angeles Times.
Thankfully, Hulu will keep the free site running. The premium service will simply dig deeper into catalogs of shows that stream their more recent episodes through the site.
This is still a dumb idea because it won't take off. Netflix charges less -- $8.99 a month -- for a plan that includes streaming of several shows and thousands of movies. Netflix subscribers also get unlimited DVD rentals (as long as they only have one out at a time).
So whom will this Hulu plan ultimately threaten? For starters, it will impact the studios themselves. Why buy a show's entire season on DVD if it can be streamed via Hulu? And what happens if cable subscribers ax their bills in favor of this streaming service? Cable and satellite television royalties to the studios will dry up. Hulu investors and content producers include Disney (NYSE: DIS ) and General Electric (NYSE: GE ) . These media giants have a ton of cable properties that will get slammed if folks wean themselves from chunky programming bills.
In short, it's a lose-lose deal. Hulu better hope it fails.
5. Goldman's fit to be bronzed
As fraud allegations against Goldman Sachs (NYSE: GS ) heat up, the stock is essentially down to where it was at the beginning of March.
Really? That's it? Win or lose, Goldman's reputation is going to take a hit, and that may cause it to lose a fair amount of business. It may also be just the beginning if other investment bankers get caught up in the wave.
Financial services have been hot since the market bottomed out last year, but it remains to be seen what many of these "too big to fail" giants will look like after the inevitable regulation goes through and investors grow to expect more than the fixed-income trading profits that are driving results these days.
Why are investors bidding up a sector that will never resemble what it was in its prime?
Which of these five moves do you think is the dumbest? Share your thoughts in the comments box below.
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