Tuesday, September 20, 2022
This week, we’ll be doing something a little different in Trend Trader Daily.
Since the Federal Reserve is set to raise interest rates this week, I want to share a list of 15 companies that could end up being the next “busted” tech stocks.
All of them have already started diving in price, and more importantly, they’re diving based on my “bust” scoring system — a brutal combination of bad fundamentals, bad trends, and bad tech.
Here’s a rundown on all the stocks, as well as my research about why each is struggling now, and why each is destined to keep struggling…
Not long ago, during an appearance on Fox Business, I predicted that one of the newest streaming services on the scene, CNN+, was “absolutely doomed.”
Guess what? A day later, news hit that CNN+ would be shuttered… after less than a month of operations!
We couldn’t ask for more compelling proof that consumers are streamed out.
Truth is, we binged too much on all the new content.
As you can see in the chart below, 35% of consumers now pay for four or more streaming services. That’s up from just 11% a few years ago. And it’s just not sustainable.
Remember, the original value proposition for unbundling TV programming was that it would be cheaper for us to consume only the content we wanted. The unbundling went too far, though, and now the combined cost of individual streaming services is starting to outstrip the cost of traditional TV.
Simply put, consumers overindulged, signing up for an average of 4.7 services per household, and now they’re cash-strapped as they contend with soaring inflation and a potential recession.
What’s more, there are no more low-hanging subscribers for leading streaming-service providers to sign up to make up for the cancellations.
Look no further than Netflix, Inc. (NFLX) for proof of the flailing industry growth dynamics:
Against this low growth and intensely competitive backdrop, of course, streaming companies keep stubbornly spending too much on content. Netflix alone plans to spend $17 billion this year.
Overspending on content while struggling to add new subscribers is not a recipe for soaring profit growth and stock prices.
And while analysts at Morgan Stanley want to downplay the latest trends in the industry as the “first streaming recession,” it’s much more severe than that. Streaming has become a commoditized product, with so many competitors that all the margins are about to be squeezed out of the industry.
Add in runaway inflation and the additional strain it puts on discretionary spending, and the subscriber trends will only accelerate from here. In the wrong direction.
Sure, streaming companies want investors to believe they can reinvigorate growth with ad-supported tiers and finally start charging for households that are using someone else’s account, among other things.
But such moves smack of desperation. And in the end, they won’t be able to overcome the underlying problem of saturated markets, too many streaming choices, and no switching costs.
Add it all up, and it spells more trouble ahead for these three particularly vulnerable streaming companies, and in turn, their stock prices:
By the way, remember to keep an eye on your inbox…
To continue my “busted tech” theme this week, on Thursday, I’ll show you which Social Media stocks are set to bust. Write down the names I give you — and look out below!
Ahead of the tape,