Avoid These Popular Tech Stocks at All Costs

You're receiving this email as part of your subscription to Lou Basenese’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] Avoid These Popular Tech Stocks at All Costs Wednesday, August 31, 2022 In the past week, I’ve made two appearances on Fox Business to talk about beleaguered social media stocks. In case you missed it, these stocks have been in the news nonstop lately for a series of fundamental developments — all of which are negative. From settling privacy violations, to whistleblowers exposing inadequate cybersecurity measures, to laying off a significant 20% of staff. And yet, almost unbelievably, many investors seem to be ignoring these factors and want to suggest social media stocks represent irresistible bargains right now. I’ll concede the obvious… Prices have gotten cheaper, with Twitter, Inc. (TWTR), Meta Platforms, Inc. (META), and Snap Inc. (SNAP) down 58%, 39%, and 87% year-to-date, respectively. But they’re going to get even cheaper. Here’s why… > ADVERTISEMENT < Will This Be the Worst U.S. Crisis Ever? Wealthy 73-year-old U.S. entrepreneur retreats to one of his three European properties to issue serious warning (and 4 recommendations) for Americans. "It falls on someone like me to warn you clearly. I'm too rich to care about money — and too old to care what anyone thinks." [Click here for details...]( Nothing But a Dumpster Fire As I shared yesterday on Varney & Co (replay below), the social media boom has definitely turned into a bust. And for good reason… The market is saturated with too many platforms competing for the same users. (I have two teenagers and can attest that they only regularly use one or possibly two apps at a time.) Hence, the abysmally slow-to-no growth being reported across the industry. (click image to play) Making matters worse, these companies are competing for the same users with increasingly the same feature sets. The latest example comes courtesy of Snap, which just introduced a feature that takes and sends a photo from a user’s front- and back-facing cameras at the same time. For those that don’t know, the exact same feature is at the core of the newest and hottest competitor, France’s [BeReal](. Snap’s ripoff is rich with irony, of course, considering Snap’s rightfully complained about Facebook blatantly ripping off its innovations with impunity for years (see [here](). Candidly, these social media companies are getting what they deserve for failing to protect their innovations with [patents](. But I digress. At the end of the day, the nonstop ripoff culture is a sign of the times in the space. Every company appears desperately committed to holding onto users at all costs. And any dummy knows that’s not a sustainable business model. That’s all the more true when we actually consider the business model. Remember, every social media company relies entirely on advertising to exist. Newsflash: Ad spending doesn’t increase during economic downturns. It decreases. Quickly. And it’s happening, as we speak… Look Out Below! The first hint of a problem came last quarter… Meta reported ad sales growth slowed to the lowest rate since the company went public a decade ago. And management confirmed the slowdown wasn’t a short-term blip, as they simultaneously cut guidance suggesting ad sales could decline by 2% in the second quarter. Fast-forward and sure enough the entire industry is experiencing a widespread and undeniable slowdown. Case in point: Last month, total industry ad spending suffered its worst monthly decline since July 2020, dropping 12.7% year-over-year, per MediaPost and Standard Media Index’s US Ad Market Tracker. Now, with a debate still raging over whether or not the economy’s in a recession, we can expect even more ad cuts ahead. Why is that? It’s simple, really. When economic times get tough and uncertain, the first thing the average company cuts is its advertising budget. The impact of the cuts get magnified when a business is 100% reliant on this spending. We learned this during the last serious recession, when the first internet-based advertising company, Alphabet Inc. (GOOG), suffered a slowdown and 60% stock decline. Don’t expect it to be different this recession. Again, though, we don’t even need to speculate on what’s going to happen. Social media companies are already telling us business is going to get worse. How else do you interpret the news this week that Snap plans to lay off up to 20% of its staff, starting today? I’m sorry, but massive layoffs don’t happen after the worst has passed. They happen when executives fear conditions are going from bad to (way) worse and they don’t know if they can survive it. So while Snap’s layoffs represent the first by a major social media company, they certainly won’t be the last. Add it all up and it doesn’t matter how cheap Meta or any social media stocks get on a price-to-earnings ratio basis: earnings – and in turn, the stocks – are headed lower still. Now, if you’re thinking about scooping up shares of Twitter in the hopes that Elon Musk can save the day and the stock, think again! As I discussed on Maria Bartiromo’s Wall Street (replay below), I can’t think of one positive thing to say about the business. (click image to play) Frankly, it’s overrun with risks, including the newest one. I’m talking about a high level whistleblower that revealed Twitter has major cybersecurity and data protection issues. Even if Musk gets forced to acquire the company, it’ll be at a much lower (and deserved) price. That’s definitely not the ideal trade setup. Just saying. Add it up and we’ve got a perfect bearish storm of slow-to-no user growth and declining ad sales, which means no social media stocks are smart investments right now. Tune in tomorrow, though, as I plan to share the one stock in the space that I’m convinced is headed to zero. In a hurry.   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. You should consult a professional financial advisor before ever taking a position in any securities you see herein. 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