Sector Breakdown: Streaming Wars, Underestimating 5G, China Tech, Oil Breakup, And Big Banks

REX Shares • by Scott Acheychek

Intelligently Engineered Exchange-Traded Products • Oct 4, 2019 at 1:04 AM EDT

Netflix's fall from grace; Apple expected drop off in iPhone sales; Alibaba plunges ahead with it's growth strategy despite trade war woes; and more in this monthly sector breakdown

Netflix's Fall From Grace

Netflix (NFLX): Netflix recently went into negative territory on the year, it is down 31% from it's May 2019 high. Why?

In Q2, Netflix reported a decline in U.S. paid subscribers for the first time in eight years.
The streaming war is heating up as more players have entered the competition which has driven content costs up and margins/FCF down.

Notably, the company expanded into the international streaming market in 2010. This campaign was so effective that after seven years the company had more international users than domestic. To bolster these efforts in India, Netflix announced an inexpensive mobile streaming service and new original content.

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Outside of their own original productions, the content available to the streaming giant is rapidly drying up. Traditional media outlets like Disney and NBC have entered the streaming market and are in the process of removing their own shows/movies from Netflix. To fill the void, Netflix is investing in original content and spending top dollar for non-proprietaries like “House of Cards,” “Stranger Things,” “Bird Box,” and “Roma”.

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Underestimating 5G

Apple (AAPL): Most analysts expect iPhone sales to drop off over the next 3 years. Why?

Over the past few years iPhone users have held onto older models for longer as the device contains fewer big enhancements and hyped feature changes since it's launch in 2007.
Consumers wait nearly t hree years on average to upgrade their iPhones.

Apple’s iPhone 11 doesn't have 5G due to the lack of 5G infrastructure in the US.

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China Tech

Alibaba (BABA): Alibaba continues with growth strategy, ignoring trade war woes and it's faltering stock price. The poor stock performance is a product of slowing global economic growth and trade fears with the United States. Despite the uncertainty surrounding both issues, the company hasn't lost a step in terms of innovative investing, led by the following:

Purchased Chinese e-commerce company Kaola for $2 billion.
Bought a third of Jack Ma’s Ant Financial.
Unveiled its first A.I. chip as Alibaba pushes for its own semiconductor technology.
Invested $700 million into NetEase’s gaming/music business in exchange for a minority stake.

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Baidu (BIDU): The Chinese tech company sold off 65% from record highs back in 2018. The sell-off hasn't slowed down Baidu one bit:

Invested $202 million in Chinese AI company Neusoft, which provides the company with additional exposure to smart cities and healthcare.
Plans to unload $1 billion in shares of CTrip, an online travel site.
Debuted Robotaxi, 45 self-driving electric taxis in China.

Elliott Management Eyes Marathon Petroleum

Marathon Petroleum (MPC): Elliott Management sent a letter to the board of Marathon Petroleum, laying out a plan to create $22 billion in value for shareholders by splitting the refining and pipeline giant. Marathon would be broken up into three separate companies: Speedway convenience stores, refining, and pipeline assets while MPLX would convert to a corporation and no longer be a partnership.

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Big Banks

Wells Fargo (WFC) & Bank of America (BAC): Big U.S. Banks are receiving more deposits than smaller banks, gaining trust among the under 40 crowd, and received relief from a post-crisis swaps rule.

According to FDIC’s September Summary of Deposits report, banks with over $250 billion in assets increased deposits by 4.4%, to $6.9 trillion for the 12 months ending on June 30.
Within the same time frame, banks with less than $100 million in assets saw deposits fall by 12.3% to $53.9 billion.
Despite their tarnished image post-financial crisis, Big Banks outperformed their comparatively smaller peers in overall customer satisfaction in the coveted under 40 age group according to JD Power.
Banks set to win $40 billion as regulators approve a plan eliminating a collateral requirement for certain swap trades.

As rates have fallen from March levels, Big Banks have started to outperform regional banks as seen in the below figure.

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