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This Week's 5 Dumbest Stock Moves

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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. More manure for FarmVille
Things have just gone from bad to ridiculously worse for Zynga (Nasdaq: ZNGA  ) .

After a summertime rife with managers and executives bolting from the company, some of its employees won't have a choice. The company announced that it would be laying off 5% of its workforce and closing at least one of its offices.

Layoffs happen a lot, but the reason Zynga's move makes the cut is because the company is also announcing that it will stop developing 13 of its older games and scale back its investment in the poorly received The Ville. This is a dumb move -- especially since CEO Mark Pincus' memo didn't single out the 13 games -- because it will alienate players. Folks who have given time and in many cases actual money for virtual goods to play these games won't be happy with the titles being discontinued.

Social gaming companies aren't under any obligation to keep improving on existing games, but don't blame gamers if they grow to distrust and eventually avoid the Zynga brand.

Shares of Zynga may have popped a day later after it announced a buyback and a partnership for real online gambling, but the problem is still about the here and now. Zynga posted a small adjusted loss on an 11% drop in bookings. Something just isn't right at the bottom of the publicly traded alphabet.

2. Being the Best isn't good enough
Best Buy
(NYSE: BBY  ) isn't any closer to turning things around.

The company announced a managerial shakeup this week, but that didn't stop the shares from hitting a nearly 12-year low on Thursday.

The struggling consumer electronics superstore chain is reeling after warning that comps for the current quarter will be negative, gross profits will shrink, and adjusted earnings will be "significantly" below what it earned a year earlier.

Investors shouldn't be surprised by weakness at Best Buy. That's unlikely to change in the near term. Best Buy makes the cut this week on the news simply because its founder had approached the retailer earlier this summer to negotiate taking the company private in the mid $20s.

The board refused, going on to overpay for a foreign CEO, dish out retention bonuses to managers who got the chain in the position that it's in, and sit out another debilitating quarter.

Yes, Circuit City also blew off some buyout offers on the way to zero.

3. Reed the letter
Netflix (Nasdaq: NFLX  ) rolled out a disappointing quarterly report, and CEO Reed Hastings has some explaining to do.

The video service landed on the low end of its guidance for domestic subscribers. Yes, Netflix's international accounts and disc-based subs came in at the high end of its range, but since the company has been emphasizing streaming over DVDs -- and willing to take hits on the bottom line as it rolls out this digital platform overseas -- it's the metric that matters the most.

However, one of the more intriguing parts of the report details how voluntary churn -- the folks choosing to quit -- is at an all-time low. Involuntary churn is the problem. What would make up "involuntary" churn? Well, this is when Netflix tries to collect that monthly ransom of $7.99 on a credit or debit card in an account file, is denied, and closes an account.

If Netflix is down to relying on deadbeat streaming customers for incremental growth, it may be time to revisit the company's stance against tiered pricing or offering pay-per-stream rentals of current content.

4. All's well that ends Mel
Sirius XM Radio (Nasdaq: SIRI  ) will have a new CEO come February.

Mel Karmazin is leaving the company. Did he want to leave all along or did negotiations break down? In the end, it doesn't matter. Karmazin moving on is not good for the satellite radio provider.

Karmazin was able to not only orchestrate the game-changing merger between Sirius and XM, but also to squeeze costs without sacrificing subscriber growth or satisfaction. One can argue that Karmazin had taken the company as far as he could. One can suggest that the company needs less of an old-school radio guy these days and more of a dot-com streaming visionary.

It's still hard to argue against results. Sirius XM may not have been much of an investment during Karmazin's early days, but you won't find too many stocks that fared better since the shares bottomed out in early 2009.

5. It was Professor Plum in the library with the Kindle shtick
(Nasdaq: AMZN  ) may have a problem.

The leading online retailer posted disappointing quarterly results last night. It's not about the wider-than-expected adjusted deficit. Amazon has made it clear that it's trading near-term profits for long-term opportunities by pricing its Kindle e-readers and Kindle Fire tablets aggressively. The real concern here is that net sales of $13.8 billion narrowly missed the $13.9 billion that analysts were targeting.

Coming up short on both ends of the income statement isn't going to win Amazon too many friends. Now don't be surprised if the otherwise patient investors who have sat through the past few quarters of margin contractions begin holding the company more accountable for its near-term performance.

Get smart
The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

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  • Report this Comment On October 26, 2012, at 8:30 PM, BILLMON wrote:

    As a Netflix streaming only customer and stockholder (ouch!), I doubt I would be willing to pay for individual movies from them, perhaps for irrational human reasons.

    By example, I enjoy the Wakarusa music festival, where for $150 you have access to 100 bands. When these same bands come through town, unless it is someone I love like Grace Potter, I can not see paying $40 to go see the one band I saw at Waka for effectively $1.50.

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