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 from the week that may make your head spin.
1. Borders patrol
Shares of Barnes & Noble
This doesn't make sense to me. Superficially, I get it. There will be hundreds of vacant bookstores, and it's only natural to expect that the sparse number of bibliophiles still patronizing Borders will find their way to rival superstores. However, this is the same logic that burned investors in CD stores and DVD rental chains.
For starters, Barnes & Noble customers will be the ones hitting Borders stores over the next few weeks to pick those shelves dry. Spoiled by bargains, they will then gravitate to cheaper online booksellers. We can always point to the Nook, but margins and Barnes & Noble's bottom line have been a mess since its e-reader was introduced.
The death of Borders isn't an opportunity for rival bricks-and-mortar chains. It's a snapshot of the future. Why were Barnes & Noble shareholders cheering?
2. It's a jungle out there
Revenue climbing 34% and profitability spiking 51% sounds good, but not when Wall Street is holding out for 42% top-line growth and for net income to nearly double.
Travelzoo's been spending money in growing its Groupon-like Local Deals product, rolling out in more than two dozen new markets during the quarter. It also tested its first television ad, a move that shaved $0.07 a share off its reported earnings. If a company misses on the bottom line because it's spending on growth initiatives, it better make sure that it can justify the expenditures by clocking in ahead on the top line.
Travelzoo failed on both fronts, sending its stock 30% lower at yesterday's open.
3. Crashing an IPO's house party
You know that IPO mania is getting out of hand when a real estate debut triples out of the picket-fence gate! Shares of Zillow
How? Why? Who? Zillow is an intriguing online portal that's growing briskly at a time when the industry itself is in a funk. However, with 27.5 million shares outstanding after the IPO, is this really a $1.65 billion company at the $60 open?
There's a reason why underwriters were originally seeking to price Zillow as low as $12 before market demand juiced it up to $20. Zillow posted a small loss on just $30.5 million in revenue last year. It will take time for Zillow to grow into a 10-figure valuation, and the first wave of public investors diving in with buy orders at any price need to rethink how much they're willing to pay for some of these market newbies.
4. Tell us how you really feel, Steve Wynn
Politics and business go hand in hand, but sometimes it pays to keep your political views out of a company's quarterly conference call.
- "I'm afraid to do anything in the current political environment in the United States."
- "This administration is the greatest wet blanket to business, and progress and job creation in my lifetime."
- "Those of us who have business opportunities and the capital to do it are going to sit in fear of the president. And a lot of people don't want to say that. They'll say, Oh God, don't be attacking Obama. Well, this is Obama's deal, and it's Obama that's responsible for this fear in America."
- "The business community in this country is frightened to death of the weird political philosophy of the president of the United States. And until he's gone, everybody's going to be sitting on their thumbs."
At this point, you are either aghast at Wynn's words or applauding like mad, but that's not the point. Unless this was his ingenious way of launching a new conservative movement --- let's call it the Baccarat Party -- a bold political stand on either side of the fence will only serve to alienate half of a company's investors.
5. Rolling along
It's not easy to make a living rolling burritos.
Chipotle Mexican Grill
However, the stock delivered a rare bottom-line miss by reporting that earnings climbed only 9%, to $1.59 a share, well below the $1.68 a share analysts were expecting. Chipotle had landed well ahead of Wall Street's profit targets in each of the 10 previous quarters, so what went wrong this time?
Higher food costs and a chunky legal tab related to a federal probe into the company's hiring of illegal immigrants ate into its previously expanding margins. Why didn't Chipotle move sooner to raise prices to offset its ballooning expenses? If any counter-service concept has pricing elasticity, I would think it would be Chipotle, with its raving fans and long lines.
Which of these five moves do you think is the dumbest? Share your thoughts in the comments box below.
The Motley Fool owns shares of Chipotle. Motley Fool newsletter services have recommended buying shares of and creating an iron condor position on Chipotle. 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.
Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.