The repeal of net neutrality rules was met with outrage and disappointment by many.
Those widely considered to be the founding fathers of the modern web say the Federal Communications Commission doesn’t understand the internet. And dissenting democrats like FCC Commissioner Mignon Clyburn called the ruling a “fiercely spun, legally lightweight, consumer-harming, corporate-enabling Destroying Internet Freedom Order.”
But it wasn’t all gnashing of teeth.
Anti-regulation Republicans claimed a victory for freedom. And a number of companies, optimistic over that newfound freedom to focus on profits, saw their share prices rise steadily on an otherwise down day for the S&P 500
I’ll let the angry Redditors and corporate cronies of Big Telecom argue over the finer points of the decision, and whether the internet is, in fact, a public utility.
Instead, I’d like to explore which stocks stand to win or lose from the potentially game-changing ruling that will affect communications and tech companies in the months to come.
Here are three big winners and three big losers under the recent net neutrality repeal.
Winner — Verizon
is the largest wireless carrier in the U.S., so it has the most to gain from the idea of “freedom” to runs its networks as it pleases. The company’s so-called “unlimited” plans were already throttling playback quality for many customers, and now it quite literally has nothing to stop it from similar tactics in the future.
Read:Why the end of net neutrality isn’t the end of the internet
Furthermore, there will be less pressure to keep spending some $15 billion annually on capital expenditures to upgrade and maintain its network. The ability to prioritize data usage and use its existing network better means more cash for things like dividends or buying back shares instead.
As the largest wireless-mobile network, any throttling efforts that reduce data usage by even a small amount per customer will add up in a very big way. And if people want faster speeds, of course, Verizon will certainly allow them to pay for that privilege.
The icing on the cake is content tie-ins with its Oath brand that contains AOL, the Huffington Post and Yahoo! If ISPs can give certain domains preference over others, it’s pretty obvious which sites Verizon is going to bias toward.
Winner — Amazon.com
CEO Jeff Bezos and other execs have publicly expressed displeasure with the FCC ruling. But, on balance, the end of net neutrality is almost clearly a net positive for the company.
For starters, competition for services will more than likely be on the decline, thanks to the notion of “paid prioritization.” Without net neutrality protections, data-rich service providers end up paying higher rates to telecoms to guarantee their content gets there in the way they want.
Some companies will pass on this added cost to end users, and others won’t even bother to compete in these “fast lanes” as a result. But Amazon has a long history of putting scale before profits with rock-bottom pricing, so you can expect it to be the discount leader in how it operates as a consumer-facing internet company with its e-commerce operations, its Prime video and just about everything else it offers.
Furthermore, the end of net neutrality likely means web hosts may see fees rise, particularly for data-heavy destinations they maintain. Again, Bezos will happily let his Amazon Web Services arm shoulder that cost as it continues to help businesses with storage and content delivery. That’s something Amazon shareholders can deal with in the short term as it waits out the competitors.
Silicon Valley, in general, may see a lot of increased costs, but Amazon’s stock thrives in a low-margin world. While startups face higher barriers to entry and more uncertainty, Amazon.com stock has a clear vision and Wall Street’s trust that it will come out ahead.
Winner — Citrix Systems
is an enterprise-tech company with its fingers in many of the pies that are so appetizing to investors these days, including cloud computing and cybersecurity.
But of particular note is that roughly a third of the company’s revenue comes from its network-delivery division that includes its NetScaler product. This technology balances the load of data on a company’s site and makes it easier for companies to use their existing servers and work more efficiently, rather than simply paying for more capacity.
Read:Why you should care that the FCC has put an end to net neutrality
While this is currently a corporate IT offering, the general concept is perfect for an age when data is at a premium for all parties. You can be sure that every e-commerce site or media company is going to think very seriously about their outward-facing metrics as much as internal efficiencies. Page-load times and the “weight” of a site could make it much more difficult to reach customers or operate a business profitably.
Who better to help companies navigate this dynamic than an established tech-services company that already offers a robust menu of valuable enterprise tech products?
Loser — Netflix
is one of the obvious losers in the recent vote, but not simply because of the risk of internet service providers (ISPs) throttling streaming video in this new world.
Sure, the risk of constant buffering and perpetually unreliable streams are an existential crisis for Netflix’s stock. But the vote couldn’t have come at a worse time than now.
The stock is down about 8% from its October highs and struggling mightily to build on past gains. And while investors have had concerns lately about its international growth, it’s important to remember that nearly every penny of profit comes from its domestic business that has seen flat-lining user growth. Thinner margins there would be a most unwelcome development.
Adding fuel to the fire is a real fear of competition as media giant Walt Disney
has consumers abuzz with anticipation over its own over-the-top streaming service that will be a direct competitor in many ways. As a diversified media company with deep pockets, Netflix can’t afford to let consumers or investors down in 2018.
Sure, Netflix is always the fashionable pick for a victim of net neutrality. But if you recall all those articles about how the service represented over a third of internet traffic back in 2015, it’s easy to understand why.
Loser — Frontier Communications
If you want a more obvious victim of the FCC ruing than Netflix, it may be Frontier Communications
This is a company that dropped by roughly 10% on the day of the ruling, proof positive that Wall Street is turning negative.
And that’s saying something, considering that Frontier is down roughly 85% in the last 12 months already.
Of course, there are good reasons for the downside move. Because while the GOP stance continues to be that fewer rules mean more “freedom,” the bottom line is that smaller internet service providers like Frontier simply won’t be able to operate competitively against the ISPs with deep pockets. After all, Verizon and Comcast
can offer slow internet connectivity much cheaper, and premium internet much faster and reliably. Where does that leave the little guy like Frontier?
This is a company that already has been chronically unprofitable, just split 1-for-15 after its share price crashed and burned, and is all but certain to eliminate its dividend in the near future.
There were already a lot of reasons to be skeptical of Frontier. But now, there’s good reason to be terrified of this stock.
Loser — Twitter
I don’t buy the argument that fast lanes will add costs or headaches that are significant for firms like Google parent Alphabet
With massive operations and billions in their back pockets, this is not going to be a game-changer for either firm.
Smaller companies that can’t pay to play, however, may be in a more difficult position. And perpetually unprofitable Twitter Inc. seems as good a company as any to illustrate this trend.
Just think about how Twitter
lost its rights to stream the NFL after Amazon outbid it earlier this year. That’s proof positive of how bigger companies have the resources to outbid the little guys. And you can be sure that ISPs are going to make their “fast lanes” accessible only to the big guys who are willing to pay the most premium pricing.
It’s a no-win situation. Twitter has a long history of struggling to find growth, so throttled data on the consumer side may fuel this problem. And if the company decides to pay to avoid any headaches, it risks reminding investors that it is still a long way from a comfortably profitable and sustainable business model.
Just scroll through the sponsored videos and preponderance of pictures in the most popular streams and you’ll see for yourself that data is a big deal regardless of character count. And once again, that model is running at break-even, at best. The end of net neutrality is sure to make Twitter’s evolution much harder.
View more information: https://www.marketwatch.com/story/three-stock-winners-three-losers-in-net-neutrality-ruling-2017-12-15