This is the third article on a long series of articles covering and summarizing different investment themes/thesis. These themes are usually very powerful and answer for the moves of stocks, entire sectors or even the entire market. The relevance of themes for specific stocks, sectors and even the entire market is explained in the first article in the series (linked below).
The previous articles on this series (by the order they were published) can be found here:
This article will be the third on a series of articles summarizing themes which are moving specific sectors or markets today. Knowing these themes can help when selecting securities. I'll continue with the following 3 themes:
- Less print, less TV;
- Mobile gaming;
- The tablet/mobile revolution.
Less print, less TV
With people devoting more time to the Internet, they've got to find time somewhere as the day continues to have just 24 hours. That "somewhere" turned out to be TV. At the same, time, with so many free and up-to-date news sources in the internet, print media has to suffer. Both have been strong themes for the last few years.
While print media has already suffered extensively (and should continue to suffer), TV still seems primed for a significant beating. The U.S. statistics of time and ad spend still show TV as the elephant in the room (Source: Mary Meeker's "KPCB Internet Trends 2013", D11 Conference)
Looking towards China, which in this regard is probably ahead of the curve, we already see TV as representing less time and ad spend, and the internet gaining more ground:
Successful internet publishers should be favored. Here the problem might be the sometimes low barriers to entry of new exciting competition. Network effects should be favored as they increase the resiliency of an internet company by creating a large barrier to entry. Examples of companies with decent internet franchises would include IAC/InterActiveCorp (NASDAQ:IACI) and Facebook (NASDAQ:FB), though Facebook trades at a demanding valuation.
One of the companies that is also revolutionizing TV viewing is obviously Netflix (NASDAQ:NFLX), though I will come back to it in another theme (video on demand). The low barriers to distribute media in the internet should over time be favorable for content producers versus distributors.
Obviously anyone selling print media and, over time, TV broadcasts, might find itself in a bit of a problem. This is already very evident in the newspaper sector, which were great cash cows up until not so long ago, and now are mostly just cows. The New York Times Company (NYSE:NYT) is an example of companies being affected by this theme, though it's obviously trying to move online.
As smartphones gain in processing and graphical capacity, they slowly displace other single-purpose gaming devices.
The main positive implication is for new software publishers which get a much larger customer base to work with.
This trend is negative for companies with a large exposure to handheld gaming consoles, where Nintendo could be the greatest victim. It's also somewhat negative for traditional game publishers such as Electronic Arts (NASDAQ:EA) as gaming gets more dispersed and migrates towards mobile platforms where software prices are traditionally much lower or where the freemium model dominates. Activision Blizzard (NASDAQ:ATVI) also seems a victim for the same reason.
The tablet/mobile revolution
The tablet revolution, and mobile revolution in general, is a massive theme. It involves the emergence of smartphones and tablets which are basically keyboardless computers, thus able to do most of the tasks which would previously require a proper desktop or laptop. Additionally, since these touch-enabled devices are conceived for the mass market, they're significantly more attractive to the mainstream consumer than the rather nerdy computers.
Tasks such as e-mail, browsing the internet, gaming, etc, all become possible in these all-purpose, ubiquitous computers.
This theme is so broad that it would take many articles just to touch many of its implications. I have one rather old article which also touches this theme: "The Tablet Effect (On PCs)".
Really there are too many positive implications to name. Practically any company serving the new exploding markets is favored. But the one company which gained the most was Apple (NASDAQ:AAPL), as it dominated the high-end of the smartphone market with the iPhone, and practically created the tablet space with the iPad. While the initial spurt of gains from selling the devices is now dying down, Apple will remain a force in terms of controlling one of the largest ecosystems, iOS. At the same time, as these mobile ecosystems use integrated stores in the OS, Apple stands to have a recurring stream of revenues from iTunes.
The other relevant winner is Google (NASDAQ:GOOG) as it controls Android, which presently leads even Apple in the smartphone segment. However, Google has not been as proficient in monetizing Android. Microsoft (NASDAQ:MSFT) has been gaining some ground as of late as well.
Some of the largest potential losers in the mobile revolution are those serving the PC space, which is now seeing reduced unit sales. Some of this is being mitigated by the emergence of another theme, cloud computing, about which I will talk later.
Another huge loser is Research in Motion (NASDAQ:BBRY), which dominated smartphones for a while, but was led astray by the iPhone and touch-enabled interfaces. At this point RIM is falling towards the 4th place in the ecosystem wars.
Amazon.com (NASDAQ:AMZN) is also a potential victim of the mobile revolution, in that content (music, videos, books, apps, etc) is now being sold in digital form through OS-integrated stores which Amazon.com does not control. This is likely to lead to reduced media sales for Amazon.com over time.