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. Scrapping the PlayBook
Tuesday's rollout of Research In Motion's (Nasdaq: RIMM ) PlayBook wasn't the winner that battered RIM investors were expecting.
Instead of a stand-alone tablet that would make up for lost time by slaying the existing competition, RIM gave us an overpriced BlackBerry accessory. Third-party reports have BlackBerry moving 30,000 to 50,000 units on the first day, a far cry from being a legitimate threat to the iconic iPad 2.
My friend Anders Bylund calls the PlayBook a mullet, but I think it's more of a crew cut. At least a mullet combined business in the front with party in the back. Unless RIM acts quickly to beef up reviewer shortcomings, there won't be a party here.
2. Check it out
Don't be surprised if you see more Kindle-toting book lovers at your local library.
In a move that some would argue is long overdue but bears a financial price, Amazon.com (Nasdaq: AMZN ) will finally allow its device to be used for digital rentals that can be checked out at the local library.
Kindle's rivals already do that, but Amazon was holding out. Price wars have driven e-reader prices down to ridiculous levels, and the real margins rest in e-book purchases. The last thing Amazon wants is for someone to buy a possibly subsidized Kindle without having to purchase any books. Analysts are already expecting margins to get crushed when Amazon reports its first quarter results next week. This is a pro-consumer move that should be commended on principle, but margins may very well contract even more.
Millions of Kindles have already been sold, so it's not as if Amazon needed this move to succeed. Did Amazon really need to open up the floodgates of free books to go mainstream?
3. I've seen how this story ends
Shares of Chinese online gaming pioneer Shanda Interactive (Nasdaq: SNDA ) popped 17% higher on Monday after revealing plans to spin off its online literature subsidiary.
I'm all for spinoffs when a stock is undervalued because its sum is not greater than its parts, but this isn't Shanda's predicament.
Here are just a few of the reasons why the investor enthusiasm doesn't make sense:
- Shanda Interactive is already trading at a healthy earnings multiple relative to its peers.
- Online literature in China remains a fledgling niche that is difficult to monetize.
- Shanda's only other spinoff is trading more than 40% below its 2009 IPO price.
- Shanda itself has been a financial disappointment, sorely missing Wall Street's profit targets in each and every quarter last year.
4. Buy now or later
In a move that seems evolutionary at first glance, Netflix (Nasdaq: NFLX ) has a "Buy now" link on its website under the Little Fockers movie listing.
The movie is available as a rental or purchase through nearly every retailer, DVD shop, and piecemeal downloading site in the country outside of Netflix and Coinstar's (Nasdaq: CSTR ) Redbox as a result of the 28-day release delay window that the two bargain renters agreed to. Is Netflix finally waking up to the opportunity of offering third-party sources for flicks it doesn't carry?
Not exactly. The ad simply links to the official Little Fockers website, whose landing page mocks Redbox and Netflix for its lack of availability.
Netflix loses points for agreeing to link to a belittling site, but the real crime here is that Netflix is leaving money on the table by not giving subscribers a one-stop shop for all celluloid.
5. At the pump
BP (NYSE: BP ) is suing Transocean (NYSE: RIG ) for tens of billions of dollars in damages related to last year's catastrophic rig explosion and oil spill.
It's easy to see why BP doesn't want to be the fall guy. It has already recorded more than $40 billion in liabilities stemming from the accident, and the hits keep on coming. We're talking about a lot of money.
However, this isn't going to go well with Joe and Jane Unleaded. BP is ripping at an old wound that seemed to be healing. The "boycott BP" movement has been forgotten by most. Why would BP want to drum up renewed public accusations of greed in a case that may further muddy up its image and that it probably won't win?
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
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