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. Serious slide
Shares of Sirius XM Radio (Nasdaq: SIRI ) took a nearly 8% tumble after posting mixed -- and initially misunderstood -- quarterly results on Tuesday.
The first wave of news reports indicated that Sirius XM posted a loss for the quarter. The claims may be technically correct, but the loss was the handiwork of one-time charges related largely to paying down its debt. If a company's going to take a charge, "debt extinguishment" is a good enough reason. Sirius XM delivered a small profit on an adjusted basis.
The market was also spooked by CEO Mel Karmazin's guidance for 2011. Revenue growth of 6%? EBITDA growth of 14%? Sirius XM investors prefer a little more octane in the tank of their growth stocks.
However, Karmazin has been brutally conservative in the past. At this point last year, he was targeting $2.7 billion in revenue on $550 million in adjusted EBITDA. Sirius XM was also hoping to close out the year adding 500,000 net subscribers. Reality proved a whole lot kinder. Sirius XM wound up adding 1.4 million more subs in 2010. Revenue clocked in at $2.8 billion on $626 million in adjusted EBITDA.
A wave of bullish analyst comments -- and Mr. Market waking up to these realities -- helped the stock make back most of its gains the following day.
2. Thinking outside the Redbox
Coinstar (Nasdaq: CSTR ) hosted a pow-wow for analysts on Wednesday, but it was surprisingly skimpy on details for the digital strategy that it hopes to bundle with its DVD-flinging Redbox kiosks.
Coinstar was looking for a Redbox partner when it had initially promised to have a digital strategy in place by October of last year. It's still looking.
"[W]e're just not prepared today to talk about that," CEO Paul Davis told analysts. "[W]e are far better off to be in the position of talking to multiple parties to optimize the best deal, not for our consumers but also for our shareholders."
How is Coinstar better off exactly? DVD costs are inching higher. More homes are streaming. Netflix (Nasdaq: NFLX ) has tacked on more than 7 million subscribers over the past year on the strength of its streaming product. Would Netflix shareholders be better off if the company had held off on streaming until it found the perfect partner that may not exist?
3. Bears get stuffed
Build-A-Bear Workshop's (NYSE: BBW ) latest quarter delivered wider margins and improving profitability, but the toy retailer is still struggling with getting bear-cuddling buyers into its colorful stores.
Comps fell for the sixth consecutive year in 2010. Add up the carnage, and things get ugly.
|
Year
|
Comps
|
| 2006 |
(6.5%) |
| 2007 |
(9.9%) |
| 2008 |
(16.8%) |
| 2009 |
(13.4%) |
| 2010 |
(2%) |
When the average store has seen sales drop more than 40% in the past five years ago, it's hard to shake the faddish tag. In other words, there's no Build-A-Bull Workshop in sight.
4. Respect the cord cutters
How is it that Comcast (Nasdaq: CMCSA ) loses 135,000 video customers during the fourth quarter, yet the stock rallies?
The market chose to overlook the continuing cable defections. Initially, it's easy to see why. Revenue and earnings are still inching higher. The country's largest cable provider also hiked its dividend. Comcast has also been able to migrate its old-school video customers into its higher-priced digital service. Bundling cable with data and voice plans has also padded results.
However, losing 135,000 video customers over the past three months -- and 757,000 over the past year -- shouldn't be ignored.
This isn't the recession anymore. Most of the premium subscriber-based entertainment services are growing their membership rolls. Smaller rival Cablevision (NYSE: CVC ) also posted a sequential organic dip in both basic and digital video subscribers.
How can one not be worried about this very troubling trend? Selling connectivity and Internet telephone service to a dwindling base of video customers is not a sustainable model for obvious reasons. Milking more out of every remaining couch potato may please shareholders for now, but it's also likely to be the reason that Comcast and Cablevision subscribers will continue to bolt.
5. OfficeMax is the real world's Dunder-Mifflin
Office supplies aren't glamorous, but tracking the superstores that sell them is often a good bellwether for the economy as a whole.
Let's hope that OfficeMax (NYSE: OMX ) is wrong!
The office-goods retailer spooked the market by warning that the year ahead will be rocky. Aggressive promotions and an iffy economy will pressure sales and margins. Now we know why these aren't the guys with the "easy" button.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
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