Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. Let's take a look at five dumb financial events from this week that may make your head spin.
1. Scorn this way
A brilliant plan executed poorly is a shoo-in for this weekly column.
Amazon.com (Nasdaq: AMZN ) thought it had the perfect promotion on its hands. It would offer Lady Gaga's new album -- Born This Way -- for a mere $0.99 as a digital download on the day of its release.
The move would promote both Amazon's fledgling MP3 service and its new cloud-based music locker service.
Unfortunately, pricing a hot CD by an artist with 10 million Twitter followers for 92% less than its larger digital rival was too much for Amazon's servers to take. Downloads took hours, and cyberspace lit up with fans complaining about incomplete purchases.
This is in the "dumb" camp because what should have been Amazon's coming-out party actually hurt it in three distinct ways.
- Amazon prides itself on its Amazon Web Services for heavy-duty hosting. It publicly failed.
- Instead of a winning stunt that appeals to deal-seeking music fans, it cast Amazon as a flawed digital storefront.
- Frustrated customers began leaving negative one-star reviews about the fiasco on the CD's product page, which is intended for critiques of the music itself, dinging the reliability of Amazon's user review ratings.
Amazon's doing its best to bounce back. It is still taking a financial hit by selling the digital CD at $6.99, $5 cheaper than what iTunes sold it for earlier this week. This should help bring new fans over after Monday's stumble, but the negative first impressions of those hitting Amazon's MP3 store for the first time earlier this week may take some time to undo.
2. Cheap is talk
The same discounters that were cashing in during the recession are finding it harder to smoke out buyers now that consumers are trading up.
We saw Sam Walton's retail empire post its eighth consecutive quarter of negative same-store sales last week. Big Lots (NYSE: BIG ) and Collective Brands (NYSE: PSS ) are simply confirming the trend this week.
Closeout specialist Big Lots and Payless ShoeSource operator Collective Brands posted declining net income in their latest quarters. Big Lots also hosed down near-term expectations.
Saving money isn't cool anymore? That may be stretching things, but investors should have seen the weakness at Big Lots and Collective Brands coming after the apathetic registers at the world's largest discounter a week earlier.
3. Red -- as if
India's Rediff.com (Nasdaq: REDF ) posted another round of uninspiring quarterly results Tuesday.
Revenue climbed just 14%, to $5.6 million, as the second-tier Indian portal posted another quarterly loss. Growth improves only marginally if you key in on only the company's online growth in India.
"Why is Rediff being valued as a $250 million company?" I wondered in January. "It's a small player generating less than $2 million of profitless revenue a month." The only thing that's changed is that Rediff's market cap is now closing in on $300 million. There is obviously long-term potential in India as an Internet market, but Rediff has yet to prove that it will be anything more than a bit player.
4. Putting the "oh" in IPO
It wasn't a good week to go public.
Spirit Airlines (Nasdaq: SAVE ) went public yesterday. The bargain-priced air carrier was initially hoping to price its shares between $14 and $16. It had to settle for $12, and it opened even lower than that. I guess investors took the cheesy ticker symbol to heart!
Earlier in the week, it was Active Network (NYSE: ACTV ) settling for less on its IPO. It was initially targeting a price of $16 to $18, but underwriters didn't find enough buyers until it went down to $15. At least the cloud-based company, which helps organizers promote events and manage registrations, wasn't officially a busted IPO in its debut, but it's hard to get too excited about a profitless company growing its top line at a mere 15% clip.
5. Playing hardball with Mr. Softy
Shares of Microsoft (Nasdaq: MSFT ) rallied after hedge fund rock star David Einhorn publicly suggested it was time for CEO Steve Ballmer to go.
After Einhorn's move this week to purchase a minority stake in the perennially underachieving New York Mets, maybe he should be more worried about ball than Ballmer.
It's OK to complain about Ballmer, but it's hard to blame the guy for the success of iOS and Android as the operating systems of choice for the smartphones and tablets that everyone is buying at the expense of traditional computing devices. Microsoft's profitability would take a jab to the gut if it followed Android's open model. Ballmer's doing the best he can in a climate that no Microsoft CEO could excel in.
Folks buying into Microsoft yesterday based on the notion that Ballmer may actually get canned based on Einhorn's remarks -- or that the next CEO would be materially better -- will have a rude awakening at the other end of reality.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
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