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. Zynga draws something -- blood
Shares of Zynga (Nasdaq: ZNGA ) climbed higher after the social gaming leader acquired OMGPOP, the developer behind the wildly popular Draw Something game.
Terms of the deal weren't disclosed, though TechCrunch has heard that the deal is for $180 million with as much as $30 million more in potential performance bonuses.
There's nothing wrong with Zynga making an acquisition to get its hands on a hot title. Its 2010 purchase of Words With Friends creator Newtoy obviously paid off. However, the concern here is with the precedent that Zynga is setting. OMGPOP was an obscure developer until Draw Something raced to the top of the App Store charts. Yes, the game is more popular right now than any of Zynga's own diversions, but what will it do when something else muscles Draw Something out of the top spot?
Zynga can't buy everything.
Fittingly enough, Rovio's Angry Birds Space -- the latest installment in the Angry Birds series -- overtook Draw Something as the top App Store paid app a day after the buyout was announced.
How do you draw buyer's remorse?
2. Not the best buy
Goldman Sachs analyst Matthew Fassler is reinitiating coverage of Best Buy (NYSE: BBY ) with a "neutral" rating, though some of the points raised are more bearish than neutral.
After all, Fassler points to government data showing that consumer electronics are lagging most of the other consumer segments. He sees negative sales growth for the industry this year and for Best Buy to continue to lose market share in that space as online retailers continue to gain ground with their lower prices.
Fassler sees a 30% pop in tablet sales at Best Buy, but expects that to be offset by a 7% drop in PC sales.
C'mon, Goldman Sachs! Tell us how you really feel ahead of next week's earnings report. I wish that outside of sugarcoating things in the hopes of lining up some underwriting business out of Best Buy in the near future, more analysts would be bold enough to offer "sell" ratings when it's warranted in the language of their assumptions.
3. Game over
Shares of GameStop (NYSE: GME ) opened 2% higher yesterday -- but closed 6% lower – after the company posted weak sales during the holiday quarter and offered up a bleak outlook for the current quarter.
I'm not sure what the first wave of buyers on Thursday were looking at, but the report was a dud. Sales tumbled 3% when analysts were expecting a marginal increase. The only reason that GameStop hit Wall Street's target of 10% earnings-per-share growth is that the video game retailer has been buying back a ton of shares. There's nothing necessarily wrong with that, but actual net income grew by a mere 0.3% during the period.
The current quarter is going to be even worse. GameStop sees comps falling by as much as 9%, with sales and earnings -- even on a per-share basis -- falling. The retailer also plans to close 50 more stores than it's opening this year.
Yes, digital sales are strong, but that's still less than 5% of last year's total sales mix. GameStop may be doing great things with its free cash flow by snapping up shares and shelling out a dividend, but the model is showing signs of peaking.
4. Juiced up
Starbucks (Nasdaq: SBUX ) opened the first of its Evolution Fresh juice bars on Monday, but have you seen the prices at the Bellevue, Wash., location?
I'm not a cheapskate, but $7.99 for a 16-ounce serving of juice or $6.99 for a 16-ounce smoothie is outrageous.
Sure, let Evolution educate the market. Folks initially balked at paying $2 to $3 for a European coffee drink at Starbucks when a cup of joe went for pocket change everywhere else. Quality wins out and commands a premium. However, Evolution is pricing out a lot of repeat customers despite its handcrafted appeal.
If Evolution Fresh ever has plans of matching Starbucks in expansion, it will have to come at more mainstream pricing.
5. The Finnish line
Knocking Nokia (NYSE: NOK ) has been a popular sport over the past two years, and the Finnish handset maker is making it easy. The company announced another 1,000 in layoffs this week.
However, the move that earns the former mobile darling a spot in this week's list is a seemingly unbelievable report on a bizarre patent application. Nokia is trying to get patent protection on a technique for tattooing a vibrating device on the skin of a cellphone user that would vibrate when calls are coming in.
Really? Please tell me that this is an early April Fool's Day joke.
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