2012 might not have been a terribly exciting one for the overall market — the S&P 500 is up a fairly typical 12% for the year — but there were still a handful of headlines that investors never would have predicted as of late 2011.
We saw Wall Street batter one of America’s most popular companies. We saw Wall Street batter one of Wall Street’s most popular companies. And we saw a firm that runs mostly behind the scenes on Wall Street was thrust into the spotlight — yes, you guessed it, it was battered, too — thanks to someone essentially forgetting to shut off a switch.
Those were among some of the financial world’s most surprising stories for 2012. In no particular order, here are the five that really stood out:
Facebook Comes Full Circle
Facebook (NASDAQ:FB) actually doled out several surprises in just the few months following its May IPO, and though the first round of shock was a disappointing one, the company managed to reverse its fortune in pretty short order.
The initial shock: Facebook isn’t infallible. Yes, revenue was up 32% in the second quarter, but that’s slower growth than investors had been accustomed to. And operating earnings only grew from 11 cents per share a year earlier to 12 cents in the second quarter, despite a 29% jump in users. Zuckerberg never had been worried about the income statement, and early investors were shocked to find that out the hard way, paying the price with a 57% dip in the stock’s price.
The rebound shock: Mark Zuckerberg needed less than one quarter to accept the fact that investors expect bottom line results now, rather than continued sharp growth in the user base. In a complete overhaul of the ad-sales process and by more effectively monetizing mobile, Facebook silenced the critics who assumed the worst after Q2’s numbers were released.
Knight Capital Demonstrates How Robots Rule the Trading World
Knight Capital (NYSE:KCG) called it a glitch, though most glitches don’t cost $400 million and ultimately drive a company to the point of insolvency. The shock, however, isn’t so much the “what” but the “how.”
How did Knight Capital lose $400 million — about a third of the company’s market cap at the time — in just a few hours?
An algorithm that initiated pre-determined, event-based trades had been left turned on when it should have been deleted from the company’s trading program. It’s a scary reminder (and evidence?) that much of the market’s movement is completely unmonitored by human eyes until it’s too late to stop the chain reaction.
It’s still unclear why this was a surprise to anyone, given that it was crystal clear Netflix (NASDAQ:NFLX) was struggling to renegotiate its digital content contracts with the folks who own the movies and TV shows the streaming company offers to its subscribers. Yet, most investors seemed genuinely shocked that Netflix ended up at one point more than 60% off highs hit early in the year.
NFLX still is down 34% from that high, and its content costs continue to rise.
That was news a long time ago, though … even if most investors ignored it.
Sprint Gets Acquired by… Who?
There was a ton of speculation surrounding Sprint Nextel (NYSE:S) earlier in the year, both as a buyer, and a buyee. The wireless service provider was widely expected to buy Clearwire (NASDAQ:CLWR) or another smaller wireless name, or possibly even be acquired by an Apple (NASDAQ:AAPL) or a Microsoft (NASDAQ:MSFT).
While CLWR might yet happen (and soon), the acquisition that happened wasn’t one that had ever been hypothesized — Japan’s biggest wireless carrier, Softbank, plunked down $20.1 billion to own 70% of Sprint.
The acquisition gives the Japanese company its first foothold in North America, but it’s a deal that appears to offer nowhere near as much synergy as any of the other possibilities offered.
Though in many ways Steve Jobs was synonymous with Apple (NASDAQ:AAPL) up until his death on Oct. 5, 2011, most investors figured the company would continue to be a consumer-technology juggernaut, guided by current CEO and ex-COO Tim Cook. After all, Jobs put the iPhone 5 in the queue, and the next iteration of the iPad was a can’t-miss second-generation device.
Sure enough, both were hot-selling smash hits.
As Janet Jackson asked, though, “What have you done for me lately?”
Apple has uncharacteristically failed to wow investors with anything decidedly new in the hopper for more than a year, ultimately sending shares down 25% between September’s high and November’s low. Indeed, AAPL shares suffered their worst one-day loss in years on Dec. 5, falling more than 6% in just one session. It still hasn’t hinted at recovering from that pullback.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.