The Next Big Internet Trend

You're receiving this email as part of your subscription to Lou Basenese’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] The Next Big Internet Trend Thursday, July 14, 2022 With inflation soaring 9.1% in the most recent report and essential items like food and gas taking a bigger bite out of Americans' budget, the unavoidable is upon us — cutbacks! That’s nothing but bad news for publicly traded companies selling non-essential services in saturated markets (i.e., slow to no growth). But for investors looking to profit in a volatile market, it’s nothing but good news. Let me explain… > ADVERTISEMENT < [Bad Omen for July 19]( If you have serious assets in the market, [read this warning by July 19](. The man who predicted the 2020 Crash warns that a July 19 announcement could hugely accelerate this year's historic sell-off. "Move your money by 4:00pm ET on July 19," he says. The last time he issued a public warning, the market saw its biggest one-day drop in history. [Click here to learn more.]( No More Streamers? When a turning point in consumer-spending trends hits in any specific market, the leaders always get hit the hardest. It’s simple economics at work. And that means streaming giant Netflix, Inc. (NFLX) should be preparing for more major losses. Of course, I say that fully aware that shares of Netflix are already down a staggering 71% year-to-date. But remember [a few months ago](, when shares were down about 60%? I told you the stock remained the riskiest FAANG stock of all. And sure enough, shares gave up another 22% (and counting) since then. So trust me (again). There’s still more downside ahead for streaming companies, particularly Netflix, for three major reasons… Bearish Factor #1: No more low-hanging fruit Since the beginning, Netflix has always been an investment in growth. Forget profits — as long as the company kept increasing subscriber counts, its share price would soar. And that investment thesis worked wonderfully when the streaming market was nascent and full of new potential customers. Fast-forward to today, though, and we’re dealing with an entirely different dynamic. A full 85% of American households — the households that generate the most revenue per user for Netflix by a wide margin — already have accounts. That makes generating new customers that much more difficult. Factor in natural customer churn, and Netflix’s growth in the U.S. and Canada has been tapped out since the third quarter of 2020, with total subscriber counts pinned at about 74 million. Making matters worse, growth in the overall advertising-based video on demand market (AVOD) is downshifting, as almost half of all American households use at least one service. More specifically, between now and 2026, year-over-year growth in the AVOD market is expected to slip from 7.8% to 3.7%. Translation: Even Netflix’s decision to start offering lower-priced ad-supported plans later this year won’t unlock any untapped growth. The company’s woes aren’t isolated to finding new customers, though. Not hardly… Bearish Factor #2: Tapped out existing customers Remember, the original value proposition for unbundling TV programming and streaming was that it would be cheaper for us to consume only the content we wanted. The unbundling went too far, though, and now adding up the cost of individual streaming services is starting to outstrip the cost of traditional TV. 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. (click image to enlarge) The end result? After years of steady increases, the number of streaming services per household stalled out at 4.7 in the last two quarters. Persistently high inflation promises to pressure consumers to start cutting back. Bearish Factor #3: Earnings Season Once a quarter, we get an honest, data-based assessment of where every public company’s business stands. JPMorgan Chase & Co. (JPM) kicked-off the second quarter reporting season today and Netflix is scheduled to report next week. In short, look out below! You’ll recall, last quarter the company warned it would lose two million subscribers in the quarter. I fully expect the actual results to be worse. Why? Because the company’s original guidance came back in April before inflation kept climbing and the prospect of an imminent recession drove consumer confidence to an all-time low. (click image to enlarge) In other words, consumer and competitive headwinds have only intensified since management’s initial guidance, which means it’s highly likely Netflix reports a bigger subscriber loss. The more consumers that cut the cord this quarter, the more shares could suffer. How much? For perspective, consider that Netflix’s stock could drop another 43% from current levels before it traded at its cheapest level on a price-to-sales basis. Bottom line: Stay short Netflix, as cutting the (internet streaming) cord promises to be a top trend and profit opportunity for 2022.   FOR TREND TRADER PRO READERS ONLY > [LEARN MORE]( < Ahead of the tape, Lou Basenese Founder & Chief Investment Strategist   Copyright © Trend Trader Daily, All rights reserved. You signed up on []( Our mailing address is: Trend Trader Daily 301 S. Perimeter Park Dr. Suite 100 Nashville, Tennessee 37211 [Update Subscription Preferences]( | [Unsubscribe from this list]( RISK NOTICE: All investing comes with risk. That includes the investments teased in this letter. You should never invest more than you can afford to lose. Please use this research for the purpose that it's intended — as research only. 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