In this article, we will discuss the 10 Worst Communication Services Stocks to Buy According to Short Sellers.
Artificial intelligence (AI) and automation are 2 of the most transformative and consequential technologies that are expected to impact telecommunications since the advent of 5G. Integration of AI into networks and operations should help in optimizing performance, automating tasks, and improving customer service. Well-established telecom companies continue to leverage AI-powered predictive analytics to track and project maintenance works so that network reliability and efficiency are maintained.
As a result of the expansion of the 5th-generation mobile network (5G), a range of telecommunication providers continue to deliver faster data speeds and greater network capacity. Wi-Fi technology pioneer Qualcomm expects that 5G should be responsible for supporting more than $13 trillion in global economic output by 2035.
As per Infopulse, in 2021, the global telecom IoT market size was pegged at $19 billion. By 2031, this should exceed the $185.5 billion mark, exhibiting a CAGR of 27.71%. One critical use case, which explains why IoT is getting traction in the sector, incorporates equipment monitoring and hazard detection.
In 2024, political ad spending is expected to be in the range of $10.2 billion and $12 billion (as per Basis Technologies). These numbers exhibit a rise of 13%-30% from the 2019-2020 election cycle. For advertising and media agencies, this can result in higher CPMs—primarily during certain periods, certain locations, and on certain channels.
Expansion of 5G Technology and Plans for 6G
5G will be more scalable and capable of handling bigger data loads, therefore, it is associated with the Internet of Things (IoT). 5G can also support advanced technologies like augmented reality (AR) and virtual reality (VR). The Wi-Fi technology pioneer believes that the development requirements of the new 5G network should expand beyond the traditional mobile networking players to segments like the automotive industry. Experts believe that the 5G value chain (which includes OEMs, operators, content creators, and the like) might support up to 22.8 million jobs, or over one job for every person in Beijing, China.
The stage is being set for the 6th generation (6G). This technology is expected to incorporate AI at the edge and in networks fully, allow reliable operation of autonomous vehicles, and automation in industrial manufacturing, and should power “smart factories.” 6G should take extended reality (XR) to brand new levels and will allow lightweight devices which can be deployed at a similar scale as today’s smartphones. Emerging capabilities such as digitization of multisensory aspects (like human senses of touch, smell, sight, and taste), improved sensor fusion and brain-computer interface should help deliver hyper-realistic experiences (such as holographic teleportation).
While 5G established a technical foundation for high-performance industrial IoT, 6G is expected to unleash the full potential of next-gen robotics, such as delivery robots, service robots, and autonomous and collaborative robots.
Communication service providers (CSPs) should start realizing the value of highly-touted 5G use cases like vehicle-to-vehicle communication, and virtual reality-based immersive metaverse networking. One of the most promising cases for CSPs is Wi-Fi upgrade—from broadband to fixed wireless access and private 5G. The use cases of 5G and operational automation will rely on CSPs’ ability to create cloud-native network platforms with end-to-end programmability.
GenAI Revolution
The global unified communications market was pegged at US$63.82 billion in 2023 and should compound at 12.70% between 2024 – 2032 (as per Polaris Market Research). This growth should stem from strong growth because of the increased usage of mobile devices and the adoption of Bring Your Device (BYOD) policies. Enhancing enterprise communication for improved productivity and cloud-based unified communication should also act as growth enablers.
Generative AI is expected to drive a seismic shift in the communication services transformation agenda. Efficiency, cost-effectiveness, improved IT services, data-driven intelligence, and network connectivity should act as the backbone of GenAI-propelled customer experience.
The communications and media companies’ top AI objectives in 2024 should optimize network performance and reduce downtime. Collectively, these are expected to improve the quality of service. These companies are planning to deploy AI for real-time detection of and response to network issues. This will help in the rollout of high-bandwidth, low-latency applications, and services. Artificial intelligence helps in driving predictive analytics which facilitates detecting and resolving network issues before the service disruption.
With more and more computing workloads being distributed throughout remote data centers, latency is expected to drop, bandwidth should increase, and organizations are expected to gain more sovereignty over their data. Edge computing enables real-time data processing, which should unlock use cases across industries— ranging from remote healthcare treatment and remote management of mining operations to sustainability solutions including smart grids optimizing energy consumption.
A close up of a satellite in space, showing the advanced technology of communications systems.
Our methodology
To list the 10 Worst Communication Services Stocks to Buy According to Short Sellers, we used the Finviz screener to filter out stocks catering to the broader communications sector. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Communication Services Stocks to Buy According to Short Sellers
10) Zillow Group, Inc. (NASDAQ:Z)
Short % of Float (15 August 2024): 10.56%
Number of Hedge Fund Holders: 57
Zillow Group, Inc. (NASDAQ:Z) is a tech real-estate marketplace company. The company communicates information about homes, real estate listings, and mortgages through digital mediums such as websites and mobile applications.
In early 2024, Zillow Group, Inc. (NASDAQ:Z) was targeted by a short seller, Spruce Point Capital Management. The company was betting against the stock, highlighting challenges, including antitrust litigation. The short seller argued that the core business model of selling marketing services to real estate agents is under pressure. This is because of antitrust litigation associated with broker commissions in the US housing industry. This litigation can impact Zillow Group, Inc. (NASDAQ:Z)’s customer base.
Wall Street analysts believe that, over the long term, Zillow Group, Inc. (NASDAQ:Z) is expected to be supported by its strong brand power and market presence. Also, the company’s product prowess over the years has placed it in an attractive position of having a large audience. This should help it achieve organic growth. This product-led organic marketing growth story is expected to support its market position. Such strong organic growth has been possible because of its superior data science and technological capabilities, which act as key competitive advantages.
Zillow Group, Inc. (NASDAQ:Z)’s focus on digitizing its real estate process with the help of its housing super app should continue to contribute to its strong performance, and rentals and mortgage segments are expected to be primary beneficiaries. The company focuses on maintaining cost control and reaching profitability by targeting revenue growth and reducing stock-based compensation.
For 3Q 2024, the company anticipates its residential revenue in the range of $375 million and $385 million, with total revenue to be between $545 million and $560 million. Analysts at Deutsche Bank Aktiengesellschaft increased their target price on the shares of Zillow Group, Inc. (NASDAQ:Z) from $55.00 to $60.00, giving the stock a “Buy” rating on 9th August.
As per Insider Monkey’s 2Q 2024 database, Zillow Group, Inc. (NASDAQ:Z) was in the portfolios of 57 hedge funds, with total stakes amounting to $881.1 million.
9) iQIYI, Inc. (NASDAQ:IQ)
Short % of Float (15 August 2024): 10.70%
Number of Hedge Fund Holders: 17
iQIYI, Inc. (NASDAQ:IQ) provides video entertainment services. It offers movies, television dramas, variety shows, and other video content.
Earlier, The Securities and Exchange Commission (SEC) launched a probe into the company, after Wolfpack accused iQIYI, Inc. (NASDAQ:IQ) of fraud and inflating its numbers. Wolfpack Research accused the company of inflating its 2019 revenue by ~8 billion yuan ($1.13 billion) to ~13 billion yuan ($1.98 billion) — or between 27% – 44%. The research firm also claimed that iQIYI, Inc. (NASDAQ:IQ) overstated its user numbers and expenses. As of 15th August 2024, iQIYI, Inc. (NASDAQ:IQ)’s short % of float stood at ~10.7%, which continues to weigh over its stock price. The company’s stock has seen a decline of over ~55% in just one year. In 2Q 2024, its total revenues came in at RMB7.4 billion (US$1.0 billion), reflecting a fall of 5% YoY and membership services revenue was RMB4.5 billion (US$618.6 million). This revenue fell 9% YoY, mainly due to fluctuation in the content slate performance.
However, Wall Street analysts believe that iQIYI, Inc. (NASDAQ:IQ) is now well-placed to take off. Moving forward, it plans to improve content quality and stability to attract and retain users. The company continues to make investments in technology, like AI and virtual production tools, which should help it drive future revenue and earnings growth. This is expected to reduce content costs. Also, in 2Q 2024, its content distribution revenue sat at RMB698.2 million (US$96.1 million), demonstrating a rise of 2% YoY.
iQIYI, Inc. (NASDAQ:IQ)’s strategic adjustments can act as a growth enabler. The company is focusing on long-term membership revenue, which is expected to act as a catalyst. Moreover, the company’s strategic investments in content and technology are expected to further strengthen its market position. These investments should help the company deliver premium content which balances artistic merits and commercial benefits.
The number of hedge funds in Insider Monkey’s database owning stakes in iQIYI, Inc. (NASDAQ:IQ) stood at 17 in the second quarter. Based on 9 Wall Street analysts, the average price target on the shares of iQIYI, Inc. (NASDAQ:IQ) is $3.59.
8) Charter Communications, Inc. (NASDAQ:CHTR)
Short % of Float (15 August 2024): 12.47%
Number of Hedge Fund Holders: 48
Charter Communications, Inc. (NASDAQ:CHTR) operates as a cable telecommunications company. It offers cable broadcasting, internet, voice, and mass media services.
In late November 2023, The Securities and Exchange Commission announced the settled charges against Charter Communications, Inc. (NASDAQ:CHTR) for violating internal accounting control requirements associated with its stock buybacks.
According to the order, the company’s board authorized company personnel to conduct certain buybacks by using trading plans conforming to SEC Rule 10b5-1, which protects companies and individuals from insider trading liability. This rule also includes a requirement that they do not retain the ability to change the planned purchases or sales post the adoption of a trading plan.
SEC’s order finds that, between 2017 to 2021, the company used plans that consisted of “accordion” provisions, which the company’s personnel described as giving Charter Communications, Inc. (NASDAQ:CHTR) flexibility. This allowed the company to change the total dollar amounts available to buy-back stock and to change the timing after the plans took effect. Without admitting or denying, the company decided to cease and desist from further violations and pay a civil penalty amounting to $25 million.
However, Wall Street analysts believe that Charter Communications, Inc. (NASDAQ:CHTR)’s cable networks have provided significant competitive advantage as high-quality internet access is now regarded as a staple utility. Morning Star reported that the company has ~70% of the internet access market throughout the territories it serves. Also, the company has been able to upgrade its network to cater to consumer demand for faster speeds at a modest incremental cost. Its efficient scale and cost advantage are expected to act as critical tailwinds.
The company has an extensive customer base and network reach, which provides a solid foundation for sustained revenue streams and economies of scale. As of June 30, 2024, the company had a total of 31.8 million residential and SMB customer relationships.
In the second quarter, 48 hedge funds held positions worth $4.49 billion in Charter Communications, Inc. (NASDAQ:CHTR). TD Cowen upped their price target on the shares of Charter Communications, Inc. (NASDAQ:CHTR) from $488.00 to $525.00, giving it a “Buy” rating on 29th July. Parnassus Investments, an investment management company, released the first quarter 2024 investor letter. Here is what the fund said:
“During the quarter, we added new positions in Pfizer, NICE and Charter Communications, Inc. (NASDAQ:CHTR). NICE is a leading cloud contact center software company. Charter’s stock had fallen due to near-term concerns, which we believe will not have a major impact on the long-term value of the business. Charter Communications has had several issues that created short-term uncertainty. We assessed that these issues have limited impacts on the long-term value of the business and initiated a position to take advantage of the stock’s historically low valuation.”
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