King Digital Crushes the Market, Dow Ends Higher on Disney's Strength

RetailMeNot stock slips slightly; reliance on SEO remains a longer-term concern.

Jun 27, 2014 at 6:19PM
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The stock market continued to more or less hover around breakeven on Friday, as a dearth of economic data left investors with little to get excited about. The Dow Jones Industrial Average (DJINDICES:^DJI), after a tremendous year in 2013 on the back of quantitative easing and soaring corporate profits, is up less than 3% so far in 2014. It remains to be seen what effect the Federal Reserve's tapering process will have on the economy, but if the stock market's sluggishness is any indication, we may be in for a few more years of subdued growth. The Dow Jones added five points today, or less than 0.1%, to end at 16,851.

Walt Disney (NYSE:DIS) finished as one of the Dow's best performers Friday, tacking on 1%. The media and entertainment giant is up more than 3% in the past three days after the Supreme Court reached a six-to-three decision against the online video start-up Aereo. Aereo threatened the entire business model for big-time broadcasters like Disney; the service snatched video signals out of the air and sent them to Aereo subscribers for a monthly fee, while Aereo paid nothing to the broadcasters in return. With the pesky Aereo dilemma now over and done with, Disney-owned ESPN saw its highest ratings for an NBA Draft ever last night, and will likely enjoy high ratings throughout the World Cup, especially with the U.S. advancing for at least one more match.

If there's one thing you can always count on in the stock market it's a sense of uncertainty. Not to disappoint, shares of King Digital Entertainment (NYSE:KING) soared 5.1% on Friday, despite very little substantive developments regarding the Candy Crush game developer. There seems to be something going on behind the scenes here, though: King Digital's July $18 call options saw freakishly high activity today, more than doubling in price. Unusual options activity in and of itself is practically never a reason to be bullish on a stock -- although I do happen to like King Digital relative to its peers, as it trades at less than nine times earnings.

Retailmenot

RetailMeNot's classy logo. Source: RetailMeNot

Lastly, shares of online coupon aggregator RetailMeNot (NASDAQ:SALE) lost 1.8% today. RetailMeNot has a nice little business model going for itself, collecting the latest coupon and discount codes for e-tailers around the web, then taking a percentage of the final sale if discount-seeking shoppers buy products as a result of RetailMeNot's website. While the company has enjoyed enormous success with this model -- sales ballooned from $16 million in 2010 to more than $200 million in 2013 -- the business has one enormous crutch investors shouldn't overlook. RetailMeNot relies overwhelmingly on search engine optimization, or SEO, for traffic, leaving it vulnerable to the ever-changing algorithms at Google and other Internet search engines.

Your cable company is scared, but you can get rich
Aereo was trying to hasten the death of cable. While the Supreme Court squashed Aereo's plans this week, cable's demise remains inevitable. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

John Divine owns shares of Google (C shares). You can follow him on Twitter @divinebizkid and on Motley Fool CAPS @TMFDivine.

The Motley Fool recommends Google (C shares), RetailMeNot, and Walt Disney. The Motley Fool owns shares of Google (C shares) and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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