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. Baidu states the obvious
Shares of China's leading search engine took a 6% hit on Wednesday, after a Baidu
You think? Baidu's earnings are projected to soar 135% by the time this year is through, as an improving economy, widening market share after Google's partial retreat, and new monetization platform led to accelerating growth.
Everyone knows that the 135% growth clip isn't sustainable. In fact, analysts only saw earnings growing 62% in 2011 before the Baidu executive spoke at the Reuters summit. News moves stock, and rightfully so. This wasn't news.
2. A plague of pink slips
Yahoo!
"[I]t's no secret that we're cutting investment in underperforming and non-core products so we can focus on our strengths," CEO Carol Bartz wrote in an internal memo that was leaked to AllThingsD.
"Product rollouts are accelerating as we modernize our infrastructure," she goes on to write later.
Wait a minute. If rollouts are accelerating, shouldn't you have more hires in that department?
Either way, after several waves of layoffs over the past couple of years, Yahoo!'s morale problem may be bigger than a chunky payroll.
Seriously. How do you outbid the competition on buying needle-moving Web 2.0 darlings when your company has a reputation for hacking away employees when something isn't a material contributor right away?
3. Best bye
Maybe Best Buy
The consumer electronics retailer stunned investors by posting lower earnings, sales, and comps than it did during the same quarter a year earlier.
Wow! What happened to Best Buy cleaning house after Circuit City liquidated last year? In retrospect, it's starting to feel more like Blockbuster after Movie Gallery died.
4. In charge but not as large
Shares of Visa
Now, those in the know would be quick to point out that Visa and MasterCard simply market the plastic. It's the issuing banks that will have to deal with the lower interchange fees. That's right, but there's no free passing of the buck. If it becomes too cost prohibitive for issuing banks to deal with plastic, they'll simply scale back their operations and get even pickier about who gets a card. In the end, Visa and MasterCard still pay the price.
5. Bears in red mailers
Netflix
This week's basher was Hudson Square Research analyst Daniel Ernst, offering up three knocks on Netflix during a CNBC segment.
One of his points -- arguing that average revenue per subscriber will continue to shrink -- may seem odd a month before Netflix's first rate hike in six years. However, if the point is that couch potatoes will flock to the cheaper "streaming only" plan that Netflix just rolled out for $7.99 a month, it will also mean an end to DVD purchases, roundtrip shipping, and swallowing scratched discs.
However, his other two points are flawed because they're mutually exclusive. Ernst predicts that content costs will continue to escalate and that competition will intensify. Well, if digital licensing deals get dramatically more expensive, how will a competitor starting with nearly 20 million fewer subscribers be able to take on Netflix?
I have no beef with bears that argue that Netflix is vulnerable based on its lofty valuation, but the model is more secure than the latest breed of worrywarts suggest.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
