Sometimes the problem with a company can be summed up in one word: Stupid. That seems to be the case with the movie-rental (or is it movie-streaming?) company, Netflix (NASDAQ:NFLX).
The company has stumbled badly of late in myriad ways, notably through its Qwikster nightmare. That has to be one of the very dumbest corporate diasters in recent history. But it was more than that. It was stupid. One bad decision is a mistake. Two or more are a reflection of stupidity.
In Netflix's case, what pushes the company over the stupidity threshold is the company's decision to raise $400 million at a much-diminished price, causing substantial dilution to shareholders and driving down the share price even more.
Netflix just can't seem to get anything right. As GigaOM pointed out:
Netflix has already committed billions of dollars for new streaming deals over the next few years — which would be fine if the company had ample cash in the bank, or was still on an outstanding growth trajectory. Netflix finished the third quarter with just $366 million in cash and short-term investments, however, and with $200 million in long-term debt.
In other words, it's already deeply overextended, and spending its way into the poorhouse.
Netflix is an example of a company that at one point in time had a modest advantage over the competition, which in its early days were video stores, and has since lurched from one failure to another, followed by shareholders who don't know any better.
The quality of stupidity in both instances is quite similar. Both companies made mistakes that a high school business major would know is simply, well, dumb.
Why do companies make dumb mistakes? At both Netflix and Overstock, it appears, the problem is a management team where yes-men dominate, and a board of directors that is asleep at the switch. The two companies are different, however, in that Netflix provides a service valued by thousands of consumers, while, Overstock is just a third-rate Amazon (NASDAQ:AMZN) wanna-be (except for providing considerably worse customer service).
Netflix, I suspect, can survive its recurrent stupidity. Overstock? Forgetaboutit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.