The Zacks Analyst Blog Highlights: Google, Netflix, Amazon.com, Yahoo! and eBay
CHICAGO, Sept. 19, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Google Inc. (Nasdaq:GOOGL-Free Report), Netflix, Inc. (Nasdaq:NFLX-Free Report), Amazon.com Inc. (Nasdaq:AMZN-Free Report), Yahoo! Inc. (Nasdaq:YHOO-Free Report) and eBay Inc. (Nasdaq:EBAY-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Thursday's Analyst Blog:
Net Neutrality Brings These Tech Stocks to Light
A purported move by the Federal Communications Commission (FCC) to modify rules and seek public comments regarding net neutrality seems to have stirred up a hornet's nest. Various technology and equipment manufacturers are echoing what citizens, activists, lawmakers and content providers are debating about the efficacy of the program and its implications on the overall economy.
The FCC's ploy to amend the concept of net neutrality could also have serious ramifications on the 2016 presidential elections and make more difficult a scenario like President Obama's first presidential campaign in 2008 for equal treatment of Internet traffic. At the same time, the decision could affect the profitability of several established players and start-up firms.
No wonder, then, that the argument has forced all stakeholders to take stock of the situation and raise their voices in the debate. Let's take a closer look into how this saga unfurled and its probable ripple effects.
Net Neutrality: The Ergonomics
Net neutrality refers to the concept where Internet Service Providers (ISPs) offer a level playing field for different content like video and music and do not discriminate web traffic or charge differently. The Open Internet mandate of the FCC adopted in 2010 aimed to propagate neutrality among ISPs by ensuring that all similar content on their networks are treated equally, without any blocking of lawful content and unreasonable discrimination.
The most striking feature of net neutrality has been its openness that enables users to have access to free, publicly available standards on the Internet. This in turn has revolutionized the way people communicate, participate, create and do business on the Internet via email, blogs, streaming video and online shopping.
The Debate
In Jan 2014, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit gave a body blow to the FCC, when it struck down the rules regarding net neutrality in response to a lawsuit. The court observed that the FCC does not have the legal right to regulate pricing arrangements by ISPs, as it had explicitly decided not to classify broadband as traditional "common carrier" telecommunications services.
The ruling left the door ajar for the FCC to put forth a set of new guidelines that would enable ISPs to charge a premium to ensure faster delivery of some web traffic by allowing "commercially reasonable" deals with content providers. However, the fresh proposals would continue to ensure that broadband providers neither block nor discriminate against any legal web content. In order to garner more support, the FCC has even put up the proposed rules for public comment, which has led to a fiery debate on the issue.
The Proponents
The companies that favor a tiered Internet access for a pay-for-priority platform argue that it would enable ISPs to reap the rewards of billions of dollars in infrastructure investments to build their Internet pipelines. The risk-reward paradigm will likely inspire more innovation for better and faster delivery of content that requires higher bandwidth.
A free market for pricing initiatives will spur more competition for faster broadband speeds. This, in turn, is likely to benefit consumers in remote rural areas, who have been bereft of high-speed Internet service, as providers expand their services to gain from higher profit potential.
In a competitive marketplace, denying legitimate profit-making opportunities for innovation in a product as popular and essential as the Internet, are likely to reduce further investments in the industry. Consequently, ISPs will have less flexibility to deal with congested networks, thereby affecting the way in which consumers will access and experience the Internet.
The Critics
The Internet Association, which represents 35 leading Internet companies in the U.S. including Google Inc. (Nasdaq:GOOGL-Free Report); Netflix, Inc. (Nasdaq:NFLX-Free Report); Amazon.com Inc. (Nasdaq:AMZN-Free Report); Yahoo! Inc. (Nasdaq:YHOO-Free Report) and eBay Inc. (Nasdaq:EBAY-Free Report), has opposed the refurbished rules tooth and nail. These companies argue that paid prioritization would relegate relatively less deep-pocketed content providers to "slow lanes" on the web. The battle for survival in the highly obsolescent technology industry will get murkier and would likely be extremely disruptive to the broadband marketplace. Furthermore, it will be extremely difficult for start-up firms to compete with the giants and maintain the same level of service.
In addition, net neutrality advocates fear that the new rules might also lead to unfair discrimination against rival online content. It might so happen that ISP Verizon might be prejudiced against Netflix if it does not pay up and instead promote its own online movie streaming service through Redbox Instant.
According to broadband-services firm Sandvine, Netflix accounts for the largest peak Internet traffic in North America at 32%. This video streaming service provider's business model hinges on large investments to acquire the rights to TV shows and movies and associated costs for offering them on the Internet. If it is forced to pay added fees to Internet providers for fast and seamless transfer, its profitability would be dented.
Google's YouTube comes distant second with 19% of peak web traffic. In order to counter perceived threats from ISPs, Google has already built and operates a broadband network in Kansas City. The company also plans to expand its broadband network to Austin, Texas and Provo, Utah.
However, ISPs like Verizon has maintained that the court ruling against net neutrality would have minimal effect on how its services are experienced on the Internet. The company reiterated its commitment toward Open Internet for the optimum benefit of its consumers.
Moving Forward
The FCC has so far witnessed over 3 million comments in its public forum. Majority of these comments are in favor of continued net neutrality and against paid prioritization. Senate Judiciary Committee Chairman Patrick Leahy observed: "Americans are speaking loud and clear—they want an Internet that is a platform for free expression and innovation, where the best ideas and services can reach consumers based on merit rather than based on a financial relationship with a broadband provider."
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