What the Cord Cutters Don’t Want to Admit

Matthew Carr
by Matthew Carr, Emerging Trends Strategist, The Oxford Club
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On Sunday, my wife and I were out shopping for a new rug for our dining room.

We’d received a flyer in the mail about a sale. So we plugged the address into my iPhone and found ourselves driving in circles around a shopping center.

The map app kept bleating, “You’ve arrived... Rerouting... Turn left... You’ve arrived... Rerouting.”

So I pulled over and she did something so many of us rarely do anymore... She called the place.

A 30-second phone call later, we knew exactly where the store was. A minute after that, we were walking in the door.

It was one of those brief moments that demonstrated how the multiple functions of our smartphones sometimes blind us to what phones were originally designed to do.

Just two days before, I was having a conversation in the office with a young colleague about how no one makes phone calls anymore. And we got onto the topic of the death of landlines.

I have a landline. That’s a rarity among my generation and practically unheard of for the younger ones.

I like having a landline for two reasons:

  1. Emergencies
  2. No one I know has that phone number... If it rings, I know not to answer it.

So the death of landlines has been fascinating to watch.

It’s similar to the death of cable. More and more of my friends don’t have cable... at least for now.

Cord Cutting Picks Up Steam

When I tell people I have cable, they act like I just told them I eat at McDonald’s (NYSE: MCD) three times a day. It bewilders them. And I see them perk up as they instantly realize they’re better than me.

People love to tell you they don’t have cable.

(And I’m pretty sure people who don’t own a TV fill all their “free time” talking about how they don’t own a TV.)

Now I will admit, I can completely understand not having cable.

Some of my favorite TV programs are produced by Netflix (Nasdaq: NFLX) and Amazon (Nasdaq: AMZN).

Last year, Netflix and Amazon received 17 Golden Globe nominations. You could argue they’re producing some of the best content out there.

I also understand that you can stream most live events. You don’t need a cable subscription to watch Bloomberg, Fox Business or any other financial media station... All you need is a Wi-Fi connection and YouTube.

Currently, 1 in 7 Americans is a cord cutter.

Cable giants Comcast (Nasdaq: CMCSA) and Charter Communications (Nasdaq: CHTR) just posted one of their worst quarters for subscriber losses.

Comcast - the largest U.S. cable provider - saw subscriptions decline by 125,000. That was its biggest drop in three years.

Charter reported 104,000 subscribers lost - four times the 28,000 Wall Street was expecting.

Shares of both are maintaining positive momentum in 2017. That’s something, particularly considering the dismal years that AT&T (NYSE: T), DISH Network (Nasdaq: DISH) and Verizon (NYSE: VZ) have had...

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Those three are each down more than 15%.

At the same time that all of this is taking place, I’m perplexed by investors’ lack of enthusiasm for media stocks like Netflix, Amazon and Roku (Nasdaq: ROKU), the recently IPO’d streaming television provider.

While investors aren’t publicly bullish on these stocks, they’re still buying them. Shares of Amazon are up more than 50% this year, hitting new all-time highs. Shares of Netflix are up 57.4%. And shares of Roku are up 92.1% since November 1.

Roku just announced that revenue increased 40% as active accounts increased 48% and streaming hours increased 58%.

And as smart TV sales continue to increase, so will the power of Netflix, Amazon, Hulu, Roku and Sling TV. They’re becoming the new television channels.

Can You Stick to a Cable-Free Diet?

For now, traditional cable companies will continue shambling on.

I have cable as well as various streaming subscriptions. I still think that might be the future of media consumption. That’s because I have yet to meet a “forever” cord cutter. Cord cutters don’t really save that much in monthly fees because no cord cutter has just one streaming service.

From my experience, cord cutting is like fasting or going on a fad diet. People do it for a while. They want to tell everyone about it. It makes them feel good about themselves. But ultimately, it’s too difficult - and too expensive - a lifestyle to maintain.

Good investing,

Matthew

Thoughts on this article? Leave a comment below.

A High-Tech Stock That’s Making Billions With the Cable Business Model

As Matthew said, cord cutters don’t save that much money. In fact, cable’s high-tech competitors haven’t radically changed the TV business model. Netflix, Amazon and company still charge monthly subscription fees for access to their content.

And Electronic Arts (Nasdaq: EA) has recently brought this business model to the video game industry. That’s part of the reason why Matthew is currently recommending it to Prime System Trader subscribers.

Here’s Matthew checking on the stock last month...

The rise of digital consumption in the video game industry is bad for brick-and-mortars. But it’s a positive for game producers like Electronic Arts (Nasdaq: EA).

EA is the studio behind successful sports titles like Madden, FIFA and NBA 2K. But the company also produces powerhouse series like Battlefield, Star Wars: Battlefront, Titanfall, The Sims and many others.

But probably the most powerful product EA has launched in recent years is its EA Access. This is a monthly digital subscription service. Plus, EA has transitioned its business almost completely away from brick-and-mortars.

In the company’s first quarter, digital net sales for the trailing 12 months increased 23% to $3.147 billion. These digital sales now account for 63% of all sales.

And it’s having a lot of success expanding into the online and mobile realm.

EA’s Battlefield 1 - one of my personal favorite online multiplayer games - now has more than 21 million players. Meanwhile, monthly active users for EA’s PC blockbuster The Sims grew more than 20%.

And it’s seeing tremendous growth with its mobile endeavors, as FIFA Mobile and NBA LIVE Mobile each have more than 70 million unique users.

This is the power of embracing the consumer switch to digital.

EA’s third quarter results are released in late January or early February. Shares are averaging a 3.9% one-day pop off this report.

And the company posts fourth quarter results in May. Over the past five years, shares are averaging a 10.29% one-day gain.

So a lot of that 20% gain in May is from a single day.

Now, because EA has seen a shift in the reaction to second quarter results, the Prime System has moved our Prime Period into October instead of early November. But our exit remains the same at June.

Over the past five years, this Prime System play on EA shares has averaged a 44.7% gain, with a 100% success rate.

- Samuel Taube with Matthew Carr

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