This Week's 5 Dumbest Stock Moves

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. DVDs aren't what they used to be
It's almost time to bid farewell to the optical disc.

Redbox parent Coinstar (NASDAQ: OUTR  ) -- the only company that's growing as a DVD rentals provider these days -- posted disappointing quarterly results last night.

Revenue rose 8% to $564.1 million during the holiday quarter, but that was well shy of the $580.2 million that analysts were expecting. This is particularly problematic because Coinstar added thousands of Blockbuster Express kiosks last year. There was also a 20% DVD rental price increase that kicked in a third of the way into Coinstar's fourth quarter, and the company notes that pricier Blu-ray rentals have doubled over the past year.

Despite all of these favorable headwinds, the average Redbox rental rose from $2.52 to $2.57 over the past year.

Falling short of expectations isn't the only reason that Coinstar makes the cut this week. The kiosk operator appears to be overly optimistic with its guidance. Calling for 8% to 16% in top-line growth for all of 2013 doesn't seem right, especially with Coinstar eyeing revenue growth of no more than 4% for the current quarter.

There are too many factors here weighing on the company. DVD rentals in general are fading in popularity. Video game rentals are falling. The average renter is returning discs sooner.

Coinstar seems to be buying itself some time until it inevitably has to lower its 2013 outlook again.

2. DreamWorks sees its shadow
Things aren't playing out the way that DreamWorks Animation (NASDAQ: DWA  ) drew it up.

The computer animation studio had several pieces of bad news for its shareholders and its staff.

  • Mr. Peabody & Sherman -- the film that should've been the studio's third release this year -- is being bumped from November to next March.
  • Me and My Shadow -- the movie slated for March of next year -- is being returned to development. That usually isn't a good sign.
  • Finally, the Los Angeles Times is reporting that DreamWorks Animation will let go as many as 20% of its workforce as a result of the scheduling moves.

There's probably more to that last point. You don't reduce headcount by as many as 450 animators and other employees when the studio's returning to its schedule of putting out three movies every year next year.

3. No more Mr. Softy
Microsoft
(NASDAQ: MSFT  ) had a busy week of smart and dumb moves.

Its new Scroogled attack on Gmail is a smart move. Critics knocking the Surface Pro's storage capacity and battery life ahead of tomorrow's launch is a dumb move.

Bailing out the country's second-largest PC maker by kicking in $2 billion for the privatization effort is a mixed bag. Yes, it may be enough to keep Michael Dell from embracing Android, but it also should make other hardware partners suspicious given the conflict of interest.

However, what could prove to be Microsoft's dumbest move of the week is a report indicating that the new Xbox that may hit the market later this year won't play used games. New purchases will come with activation codes that can only be used once. Zapping the resale and rental markets with this brazen move at a time when video game industry sales have been falling for three years could be catastrophic.

Forcing original owners to stick to their $60 games may be the last straw. Yes, Microsoft's Xbox 360 has been the top-selling console over the past two years, but its rivals also enjoyed time at the top before that. Greed always gets the best of the temporary kings of the hill.

4. Facebook takes over the Web
For a brief moment in time on Thursday night, Facebook (NASDAQ: FB  ) was taking over the Web.

Several major websites with Facebook Connect buttons -- Fool.com included -- were taking folks logged in to the social networking website back to Facebook with an error message. Was it a hack? Did everyone spring a flat on the information superhighway? No.

Facebook provided a brief explanation shortly after the redirections ceased: "For a short period of time, there was a bug that redirected people logging in with Facebook from third party sites to Facebook.com. The issue was quickly resolved, and Login with Facebook is now working as usual."

The matter was resolved quickly, but it's not looking good for Facebook. It's a glitch that may force leading websites to reconsider their alliances with Facebook Connect, especially if it repeats itself.

5. Ay, robot
Shares of iRobot (NASDAQ: IRBT  ) rebooted yesterday, falling 13% after the company behind the Roomba and military robotics offered weak guidance.

iRobot's guidance for the current quarter is short of where Wall Street was perched, and it's a mixed outlook for all of 2013.

The problem at iRobot is the sharp drop in military robot orders. Given government spending cutbacks, many defense contractors have been sputtering. iRobot does have its line of consumer products doing well. The home robotics segment rose 28% during the holiday quarter and iRobot's CEO expects that division to grow at a 20% clip this year and account for 90% of the overall revenue. This should make comparisons easier come 2014, but for now the market's worried about iRobot's softness for the current quarter.

If you fell behind this week, stay ahead of the pack tomorrow
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.


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