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. Shacking up
The small-box retailer of consumer electronics took a hit on Wednesday after posting disappointing quarterly results and eliminating its dividend.
Why did Wall Street think RadioShack would post a profit? The chain also surprised analysts with a deficit during this year's first quarter. Margins are too thin for wireless resellers, and there was plenty of anecdotal evidence showing that phone sales are decelerating.
Income-chasing investors may have been attracted to RadioShack's juicy yield, which got wider as the company's prospects and share prices got narrower, but investors should never trust a fat yield from a fundamentally flawed company.
The RadioShack model isn't working. Why should the stock be any less of a slacker?
2. Have a nice trip -- see you next fall
Revenue climbed 16% to $197.1 million -- shy of the $202.8 million Wall Street was expecting. It's easy to blame weakness in Europe for global travel website shortcomings, but domestic revenue only grew at half of TripAdvisor's overall rate. It also didn't help that earnings, adjusted earnings, cash flow, free cash flow, and adjusted EBITDA grew even slower than TripAdvisor's top-line advance.
TripAdvisor was essential when it launched a dozen years ago, but the arrival of social-networking websites and more dynamic websites relying on user-generated reviews make it seem less important.
Bulls will argue that TripAdvisor attracted 56 million unique visitors in May alone, but why are they so hard to monetize?
3. Another brick in Best Buy's wall of shame
It's usually not a big deal when an independent consultant moves on, but it was pretty telling when Don Delves decided he had had enough of Best Buy
Delves was an independent consultant for the retailer's compensation committee since 2005, so he had seen plenty at the company before resigning. He didn't elaborate on his reasons for leaving, but three different sources told Bloomberg earlier this week that he left after Best Buy decided to reward 100 managers with retention bonuses that aren't tied to performance objectives.
In other words, they are merely being paid more to stick around. It doesn't matter whether the company succeeds in its turnaround -- beyond the fact that the company may not be around in a few years if they come up short.
A company that recently closed down stores and laid off employees shouldn't be shelling out more money for the managers who weren't able to avoid this mess in the first place.
Forget the fact that revenue and meager earnings fell woefully short of Wall Street expectations. The problematic metric here is bookings. Second-quarter bookings of $302 million were far from the $329 million it recorded during this year's first quarter.
Sequential dips may be understandable in seasonal industries, but not in casual and social online gaming. Making matters worse, the company's outlook for all of 2012 implies that bookings will continue to shrink during the latter half of the year.
Here's how you know how bad matters are: The lead underwriters for the company's December 2011 IPO at $10 per share are downgrading the stock this week, even though it's trading for roughly a third of that price.
5. No thank queue
Another big loser this week was Netflix
Netflix is blaming the Olympics for its uninspiring second-quarter subscriber growth forecast, and it suggests its push into a new European market later this year is the reason for its fourth-quarter loss. However, even good excuses are hard to accept when the near-term horizon looks bumpy.
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