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. There's no initiation without a hazing ritual
Just when gravity was starting to take its toll on Youku.com (NYSE: YOKU ) , Goldman Sachs is here to man the inflator pump. Goldman Sachs analyst James Mitchell upgraded Youku to a "buy" on Wednesday, arguing that China's leading video-sharing site can be profitable as early as next year. He is establishing a $40 price target.
I have two problems with that move. For starters, profitability for a company serving up chunky video files is going to be a challenge. Even with Youku hiking its advertising rates by 15% to 20% this year and getting booming traffic, this is still a company that posted negative gross margins through the first nine months of 2010, according to its own offering prospectus. This market is also getting crowded quickly, so I'm not sure how long rate hikes will be able to stick.
My second beef with this move is that Goldman Sachs was the lead underwriter in taking Youku public at $12.80 just two months ago. Isn't establishing a price target that is more than three times its IPO price an admission that its client left a lot of money on the table?
2. Cord cutting becomes dish dissing
It's not just cable providers feeling the pinch of defecting couch potatoes. DISH Network (Nasdaq: DISH ) suffered a net loss of 156,000 subscribers during the final three months of 2010.
This is merely a sliver of the satellite television provider's 14.1 million accounts, but it follows net defections revealed last week at the country's largest cable television providers.
There is one major exception to the rule. DIRECTV (Nasdaq: DTV ) is still growing. However, it seems that the trend that began during last year's second quarter -- the pay television industry's first quarterly loss of subscribers in this country's history -- continues. Cords are being cut. Dishes are being dissed.
3. Overstepping its bounds
Overstock.com's (Nasdaq: OSTK ) tactically brilliant yet ethically deficient plan to game Google's (Nasdaq: GOOG ) search engine has blown up in its face.
The popular online discounter had struck deals with several universities, offering students and faculty 10% off in certain categories in exchange for a product-based link from campus websites. Google has been known to rank sites higher if they are linked to from the authoritative vantage point of .edu domains.
Smart move by Overstock? Not so fast. Google's been coming under fire for the sneaky ways that content farms and some e-tailers are trying to rank higher on popular search queries. One can argue whether Overstock's ploy was white-hat or black-hat, but the correct answer is that the closeouts specialist was donning a gray hat here.
Google doesn't like to be embarrassed this way, so it's penalizing Overstock's organic results by backing out the PageRank gains resulting from its .edu campus invasion.
I guess the scholar just got schooled.
4. The HP weigh
Where have you gone, Mark Hurd?
Hewlett-Packard (NYSE: HPQ ) continues to waffle in the wake of Hurd's controversial departure last summer. The tech bellwether took another blow to the noggin after posting bleak guidance for the current quarter.
HP is targeting an adjusted profit per share of $1.19 to $1.21 on $31.4 billion to $31.6 billion in revenue. Analysts were perched considerably higher. How bad is this outlook? Well, it implies that revenue and earnings will advance a mere 2% and 10%, respectively. Can you imagine what HP's top line would look like if it hadn't gone acquisition-happy last year?
It may be true that HP has a history of lowballing its actual performance, but a company rarely does that when it means establishing targets well short of where the pros were parked. Given the competitive climate and cutthroat pricing in some of its businesses, I would take the hosed-down guidance seriously this time.
5. The ugliest bookends I know
Shares of Barnes & Noble (NYSE: BKS ) suffered back-to-back days of double-digit percentage declines after the bookseller posted weak quarterly results and suspended its dividend to bankroll iffy digital initiatives.
I tried to warn you last week.
"… stiff margins on its e-readers will find the chain likely posting a lower profit this holiday quarter," I wrote. "Even the $1.13 a share that analysts are targeting seems ambitious in this climate."
Indeed. The superstore chain only earned $1.00 a share during the potent holiday quarter. Coming up short on the top line also means that the company's having a hard time moving real books and/or that it's struggling to sell pricey Nook e-readers. I'd wager that it's weak on both fronts.
B&N didn't have the financial fortitude to keep paying a dividend anyway, but throwing good money after bad in digital will only accelerate its eventual obsolescence.
What? Did you really think that the bankruptcy of rival Borders was an opportunity and not an obvious case of foreshadowing?
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
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