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. Splitting the smorgasbord in two
Netflix (Nasdaq: NFLX ) is taking the biggest risk of its life with an aggressive pricing strategy that splits its DVD and streams into two distinct services. The company and some of its more bullish analysts seem to believe that raising prices by as much as 60% for plans that include unlimited optical discs and Internet video will push couch potatoes toward high-margin streams.
I'm not so sure. Despite virtually stocking tens of thousands of streaming titles, Netflix's digital catalog is sadly incomplete. It's missing most of the new releases that studios don't want to devalue on the buffet line. Customers haven't raised much of a stink since it was simply a perk included with disc-based subscriptions, but expect Netflix's sterling reputation to come under fire in the coming months. In the end, I think way too many people will realize that they prefer the DVD service over the similarly priced streams.
As a longtime shareholder and customer, I hope I'm wrong. If this pans out, Netflix is going to be making a ton of more money and the studios will be happy to see the perceived value of physical and digital celluloid improve dramatically.
However, I think Netflix is rolling out this move before many movie buffs are sold on the premise of premium streaming.
2. What's that smell, Dell?
The computer isn't dead, but its pulse is fading in this country. Industry watcher IDC claims that while PC shipments inched higher worldwide during the second quarter, stateside shipments actually fell by 4.2% over last year's quarterly showing.
The weakness isn't universal. We're buying more Macs than we used to. Unfortunately, we're just not so hot on watching Windows. Dell (Nasdaq: DELL ) and Acer were the biggest losers, combining to ship fewer units than the net decline itself.
Dell has been a piece of work. It missed the netbook craze two years ago, and it has struggled to make a difference in the smartphones and tablets that appear to be replacing the demand for larger computing devices.
3. Big G gets even bigger
It's always dangerous to get in the way of a market darling, but that's just what Morgan Stanley analyst Scott Devitt did last Friday, hosing down his profit targets on Google (Nasdaq: GOOG ) just ahead of last night's quarterly report.
I wasn't any better. I went over the three reasons to worry heading into the search giant's quarterly report, repeating the bearish margin-thinning scenario that was beginning to trouble some Google watchers given its expansion into less lucrative areas. Google may have beaten Wall Street guesstimates in nine of the past 11 quarters, but both of those misses have come in the past year.
Well, Google certainly showed the bears the problem with talking down a company before its quarterly call. The world's leading online search company blew past analyst expectations, earning $8.74 a share before items related to employee stock. The pros were only banking on adjusted net income of $7.84 a share.
Well played, Google. I'm guessing that someone Googled "playing possum" before the report.
Rupert Murdoch's beleaguered media empire shut News of the World -- Britain's biggest selling Sunday publication -- last week over growing accounts of hacking cell phones for stories.
The brash closure was a shock, but the theory was that News Corp. was simply trying to do the right thing in order to win the ability to buy full control of British satellite broadcaster BSkyB.
Well, things only got worse this week. New scandals and shareholder lawsuits broke this week, and snapping up all of BSkyB may never materialize now.
5. Another home improvement specialist walks the plank
It's not easy to make a living selling home improvements lately.
Shares of Trex (Nasdaq: TREX ) tumbled 15% on Tuesday, after the wood-alternative decking leader warned that it came up short in its recently concluded quarter. Its original guidance was calling for $115 million in revenue, roughly in line with the $115.5 million it rang up during last year's telltale springtime quarter. Now it's telling investors to expect something closer to $78 million.
Investors should have seen this coming. Didn't they see Lumber Liquidators (NYSE: LL ) get crushed after hosing down its near-term outlook last week? Hardwood flooring planks for the home and weather-resistant decking for the patio aren't the same thing, but they both appeal to the same audience of homeowners with the means and desire to spruce up their digs. Sympathy plays are the real deal, and Trex shareholders who missed the Lumber Liquidators memo hit the deck hard this week.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.