The law of the jungle, both in nature and in the corporate world, is simple. Adapt or die.
For the once-mighty online media giant Yahoo! (YHOO), it just couldn’t adapt.
Now, the company’s web business is being swallowed up by a much-bigger telecom behemoth, Verizon Communications (VZ). The takeover deal is set to close in June.
That means Yahoo’s quarterly earnings announcement, released Tuesday, is likely the company’s official last reporting hurrah. (At least, as its own entity.)
I must admit that I am a bit saddened by the decline in Yahoo! in recent years. Sure, the company failed to report two major customer database hacks. Yet I still use many of its websites for quick news gathering.
There are still plenty of other customers like me who frequent the Yahoo! news pages. But when it comes to advertisers, well, they’re looking elsewhere.
That’s the message of a story this week in The Atlantic with the ominous title, "Yahoo’s Demise Is a Death Knell for Digital News Orgs."
The story speculates about Yahoo’s struggle to capture advertising dollars. The same struggle is likely to be seen across the web, particularly among news and information organizations that rely heavily on advertising for the bulk of their revenue.
Here’s the money quote from the piece:
Yahoo’s demise is a signal that web-native companies are next. If you run a business that relies on digital-advertising revenue for an outsized portion of your funding, you need to find new streams of revenue. Now. It may already be too late.
This should make anyone in the online news business think hard about how to adapt.
So, where are all the online advertising dollars going?
Simple. They’re going where the customers are … and that means they’re going to Facebook (FB) and Google, aka Alphabet (GOOGL).
Here’s how The Atlantic tells it:
Facebook and Google are practically drowning in ad revenue — together they command a huge portion of global digital-ad dollars — and that’s the root of the problem for every other business trying to clamor for a piece of it.
The precise estimates vary. One often-repeated stat, based on last year’s financials, is that Facebook and Google account for 85-percent of every new dollar spent on digital advertising.
That doesn’t leave much room — only about 15%, to be precise — of every new ad dollar to be spread out among the thousands of other digital news sites, blogs, niche publications, etc.
Yet the situation might even be far worse than that.
The Atlantic story cites one industry expert, Jason Kint of Digital Content Next. He estimates that Facebook and Google accounted for about 99% of all advertising growth in the third quarter of 2016. (54% Google, 45% Facebook, 1% everybody else.)
|Facebook shares are up 25% in 2017; Alphabet/Google is up 8.7% so far this year.|
Per The Atlantic:
"The ad-tech market will go the way of search, social, and mobile as investors and entrepreneurs concede that Google and Facebook have won and everyone else has lost," the venture capitalist and blogger Fred Wilson wrote in January. "It will be nearly impossible to raise money for an online advertising business in 2017."
If this is true, it could have a tremendous dislocating effect on a lot of news sites that you might visit regularly.
Moreover, it could concentrate more and more information into fewer and fewer hands. And this would represent a distinct reversal of the democratization of news we’ve seen since the explosion of the digital info age.
Of course, if this is true, then the logical investment thesis is to embrace FB and GOOGL … which both now trade at or near their respective all-time highs.
Fear is rising too, although perhaps not as quickly as Facebook and Google’s share prices. So, trying to trade the Volatility Index isn’t the best way to play it.
However, the "real" fear index is looking like a good bet, according to our small-cap mining expert Sean Brodrick. A very good bet, in fact.
Take it away, Sean …
Mining for Money
The Real Fear Index
By Sean Brodrick
Do you want to see a picture of fear? Just look at what’s happening in the world’s largest gold ETF.
The SPDR Gold Trust (NYSE: GLD) added 11.84 metric tons of gold on April 19. That’s the most since Sept. 6, 2016. And it brought the GLD’s holding to 860.76 metric tons. That’s 27,674,076 troy ounces.
What’s driving this? Fear.
North Korea is turning up the heat on its nuclear threat. In fact, North Korean state media just warned the United States of a "super-mighty preemptive strike." What does that mean? Who the heck knows! We do know that the U.S. is now calling North Korea an "imminent threat."
And you can bet people are hedging nuclear fears with gold.
Related story: When U.S. Stocks are Expensive, and Volatile
Meanwhile, the Trump administration may walk away from the nuclear deal with Iran. Secretary of State Rex Tillerson said Wednesday that Iran, if left "unchecked," could follow North Korea’s path to becoming a nuclear rogue nation.
"The evidence is clear. Iran’s provocative actions threaten the U.S., the region and the world." Tillerson said.
Another nuclear threat? Maybe. And maybe time for more gold.
Related story: A Slow March to Nuclear War
Then take the French election. (Please!) The two leading contenders are, on the right, someone who wants to take France out of the euro and NATO. And, on the left, a good ol’ fashioned left-wing socialist.
Yeah, that’s gonna make investors nervous either way.
These are the known problems. But you can bet your bottom krugerrand that the market is starting to worry about black swans, too. The events you can’t predict.
You know who else is buying gold? Russia. Slowly, steadily, the Russians add to their Smaug-worthy hoard o’ gold every month. Russia’s gold holdings just hit 54 million troy ounces. That’s up 800,000 troy ounces in one month.
But it’s the tip of an iceberg that has been rising for years. Here is a chart of official Russian gold holdings since 2011.
Russia has its own fears, its own problems. One is the fear of U.S. sanctions, which bite even harder because the U.S. dollar is the world’s reserve currency.
I believe Russia has long-term plans to change that. That’s a goal shared by some of our other "frenemies," including China and Saudi Arabia. They all chafe under the mighty U.S. dollar as the world’s reserve currency.
That’s one reason why the world’s central banks keep buying gold. To diversify away from greenbacks.
And ALL the world’s leaders share one fear in common: That the global financial system could come crashing down like a wobbly Jenga tower.
And gold is a great way to insure against currency and financial unrest, too.
So why are investors shoving more money into the GLD? Fear. It’s the real Fear Index.
What Lies Ahead
We can’t predict the future. But we already know we are in a bullish cycle for gold. Supply/demand forces are in play that should shift prices into higher gear.
Now, add to that, it sure seems like we are in a cycle of worsening global tensions. Increasing conflicts. And heightening global fears.
The fear index is pointing up — for gold.
All the best,
Good luck and happy investing,
Uncommon Wisdom Daily