Advertising Armageddon? Nope, It's Simply Wallstreet Herd Mentality

Proverbs Chapter 15 verse 23 states, "A person finds joy in giving an apt reply - and how good is a timely word!"

I find this verse to be very true, especially when I am able to help someone with a problem or dilemma. Sometimes it's as simple as offering encouragement or support. Sometimes it's simply listening and being patient and slow to speak. Being selfless is much more fulfilling, especially with God's word as the precedent.

For investing, I'm looking to do the same thing. It's especially important to have some insight during difficult market days like today. For some, daily market gyrations aren't something to be concerned with. For someone actively managing a portfolio or investments, it is very important to pay attention to daily moves in order to successfully execute on management strategies.

Today was quite interesting. Everyone knew that after Snap, Inc.'s (SNAP) lackluster results it would be a rough day for Internet companies exposed to advertising. But the truth remains that Wallstreet's herd mentality was the real cause for the broader sell off. In fact, the sell off extended well beyond Internet advertising plays, to e-commerce companies especially, as well as broader growth areas. But make no mistake, innovative technology firms were hit the hardest today.

I've talked about this a lot and will continue to do so as these trends recycle. It's very important to be highly defensive as Wallstreet continues to look to control narratives and manipulate the stock market accordingly. It is foolish to think that Snap's performance is cause for concern more broadly. There will always be winners and losers, and the name of the game is picking winners. This is difficult, and Wallstreet knows that over the short-term, any winner can be perceived as a loser and vice versa. It all supports the herd mentality. Rising and sinking tides for all boats are a critical element of Wallstreets game of musical chairs.

This is why much stronger advertising plays such as Roku, Inc. (ROKU) and The Trade Desk, Inc. (TTD) were hit, while companies like Alphabet, Inc.'s (GOOG) Google and Facebook, Inc. (FB) more deserving, were also targeted. The former are companies growing in line with the strongest advertising segment, streaming. Social media on the other hand, has peaked and is being targeted based on deceptive practices and in Snap's case, is clearly more immune to some of the supply chain issues. Social media is about appearance and self-indulgence mostly, so it comes to no surprise as beauty companies having supply chain issues would pull advertising dollars from Snap.

But when we think of Roku and Trade Desk, it's a completely different story as streaming-based advertising remains a much more resilient area. I think that markets will get it wrong in 2021 as streaming will continue to generate increasingly robust results, that will continue to propel advertising demand for these platforms. This is clearly a reason why Roku has been facing stronger pressures from platform distribution partners such as Comcast Corporation (CMCSA), At&t, Inc. (T), and most recently, Google.

Roku was able to use its platform diversity and strength to eventually get both Comcast and At&t to enter into agreements. Google, is a much more interesting event, and Roku continues to transparently make its case for customers as Google's YouTube app may be pulled. Here's the gist:

Roku (ROKU) told customers via a post on its corporate blog that it has still not been able to strike a distribution agreement with YouTube TV. The company said: "Recently we have seen a disturbing trend that threatens the vibrant and competitive TV streaming ecosystem. Rather than embracing a mutually beneficial partnership approach, some Big Tech enterprises are using their market power to extend control over independent businesses, like Roku, to benefit their broader business objectives at the expense of the consumer, putting a fair and open competitive streaming marketplace at risk. This is unfortunately the case Roku and numerous other independent companies now face with Google, which is under investigation by the U.S. Department of Justice and more than 30 State Attorneys General for violating competition laws. Doing business with an enterprise as powerful as Google creates complex challenges. Google, the world's largest search engine and advertising platform, also owns YouTube which is both the world's second largest search engine and the world's largest video sharing service. Since April, we have been working to renew our partnership with Google to continue to offer YouTube TV to our shared customers, and we made a commitment to keep the YouTube TV service available to existing YouTube TV users while we attempt to resolve our concerns. There are two primary concerns we are working to address: First, Google continues to interfere with Roku's independent search results, requiring that we preference YouTube over other content providers. This is a concern shared by many companies who believe that customers deserve neutral and relevant results to their search queries. Second, Google discriminates against Roku by demanding search, voice, and data features that they do not insist on from other streaming platforms... While we are working to resolve our differences, we want to be transparent about these negotiations. As we shared in April, the threat remains that Google may remove YouTubeTV from the Roku platform."

I love Roku's approach to this. Expose Google and Big Tech for what they are doing, and keep customers in the know to be prepared for what may inevitably occur. Google recognizes that there is an increasing use of YouTube through Roku's platform, not just for YouTube TV either, but the problem is they don't have any control over how Roku's platform works. This is great, as Google shouldn't have full control over all areas of the Internet, including streaming. So Google is going to threaten Roku by pulling its app. I bet that Google sees a negative result from this, while Roku continues to grow tremendously. When all is said and done, Google's YouTube TV will be on Roku.

But back to the point at hand. I did some analysis on FAANG-M prior to the pandemic. All of them were witnessing slowing growth, some into the single digits with top performers like Facebook and Netflix, Inc. (NFLX) slowing towards mid-teen performance. Then COVID hit and boom, growth accelerated. Now as the pandemic fades away (with or without any real therapeutics - people won't put up with political maneuvering forever), FAANG-M, Big Tech (Oracle anyone?), and Big Corporate America all will again need to face slowing performance, and lost market share from more nimble, innovative, and stronger competitors. This is not good for herd mentality.

Add to this the fact that the supply chain issues from the pandemic were not on many people's radar, and the "rotation" speak is severely in trouble now as inflation won't save reduced volumes for legacy companies. So Wallstreet today is spinning FUD around e-commerce becoming the next victim. This may come to fruition to a degree, but not nearly to the fear-factor degree that markets sold off on today. As long as Wallstreet is bent on getting short-term gains on non-aggressive growth plays, they will continue to push growth lower when they can as a suppression tactic. The "rotation" was supposed to work beautifully as inflation expanded margins with sustained volumes. This is completely off the table now.

This is the worst outcome for Wallstreet as they need to keep the herd mentality in tact. So days like today are a constant reminder that Wallstreet will never pick winners versus losers. Patient investors willing to put in the work, recognize the FUD for what it is, can come out way ahead. It may take a little time, but the fruits of hard work and labor are always right around the corner, no matter how depressing, dreary, scary, or fearful Wallstreet and controlled media pundits try to make things out to be.

I own Roku and Trade Desk for one simple reason, they are better advertising plays over the coming decades versus Big Tech, and Snap, based on return on investment potential. The fact that Big Government holds massive stock positions in FAANG-M companies as well as Pfizer, Inc. (PFE) are clear collusion red flags for why certain companies are up in 2021, and why policies are geared on restricting freedoms. The supply chain issues are the wrench in all of this - Wallstreet's herd mentality and Big Government's control tactics will fail as they always do.

14 views1 comment