Sat, 11/12/2010 - 10:35 by Rick Aristotle ...
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. Youku Oh no!
China's leading video-sharing site went public on Wednesday. Youku.com (Nasdaq: YOKU) priced its IPO at $12.80, opened at $27, and closed at $42.70 yesterday.
It may seem like one of the biggest two-day debuts in years, but there's a downside to that. If Youku really is worth its current price, underwriters left $30 a share in IPO proceeds on the table.
More to the point, Youku isn't worth it. Too many investors are so captivated by grabbing a piece of China's YouTube that they may not have checked out the grim financial performancein the company's prospectus.
Youku isn't just profitless since launching its site four years ago. It actually continues to sport negative gross margins. In other words, costs of revenue are swallowing more than the net revenue it's collecting -- and that's before we get to the company's actual operating costs.
This is a tricky niche to monetize, and it doesn't help that the majority of Youku's content is licensed. It may take years before it generates enough in video advertising to turn a profit.
2. Throwing the book at this marriage
Shares of Barnes & Noble (NYSE: BKS) popped earlier this week, after an activist investor's buyout proposal that plans to combine the struggling bookstore chain with the even more troubled Borders Group (NYSE: BGP).
Does anyone think that this can save either company? Do you think that if Tower Records had agreed to join forces with Virgin Records that there would still be a thriving bricks-and-mortar record store scene? Digital delivery killed the CD -- and the same thing will eventually do away with the leafy book.
Borders posted a wider quarterly loss last night, on a problematic 18% plunge in sales. This comes a week after Barnes & Noble came out with a wider than expected loss. A merger will simply delay the inevitable.
3. Stupid analyst tricks
In a strange move, Needham & Co. analyst Laura Martin initiated coverage of AOL (NYSE:AOL) with a "buy" rating.
She points out how AOL has fired more than 5,000 hires over the past two years, and is asking remaining hires to cancel their summer vacations. Obviously morale isn't going to be a strong suit at the company.
She sees AOL earning an adjusted profit of $2.73 a share this year on $2.39 billion in revenue, falling to earnings of $1.53 a share on $2.09 billion come 2011. Maybe it's just me, but shouldn't analysts reserve "buy" ratings for companies that are actually improving?
4. Dell makes a deal
Speculators often rush into potential acquisition targets, hoping to cash out if a buyout proposal comes along at a juicy premium. You have to feel sorry for the gamblers who bought into Compellant (NYSE: CML) just before Dell (Nasdaq: DELL) disclosed that it is in talks to buy the data storage specialist for $27.50 a share.
The speculators guessed correctly, but all of the buzz had pushed Compellant to a close of $33.65 the night before. Data storage companies in general have been buoyant in recent months given the niche's consolidative environment.
Speculators can be like Wile E. Coyote sometimes: They both chase a speedy bird too far, only to find themselves heading for a bruising fall after running past the cliff.
5. Buy cell or hold
Geron (Nasdaq: GERN) shares took their lumps after the stem cell therapy specialist raised $87 million in a secondary offering.
Dilutive stock sales happen often, so why is this one so troubling? Well, the company priced its freshly minted shares at $5 apiece, 18% below where the stock was priced the night before. Does the steep markdown mean that Geron is that desperate for new money?
Investors didn't bother to wait for an answer. The stock gave up the difference, actually closing below $5 yesterday.
If there was humor in the investing world, this is where Dell would step in to buy all of Geron at $4 a share.
© 2010 UCLICK L.L.C.