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Internet Stocks That Will Benefit From Net Neutrality Changes

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Certain Internet Stocks Will Benefit From Net Neutrality Changes

Allot Communications
There are a number of Internet stocks that are poised to benefit from net neutrality changes that the United States Federal Commendations Commission (FCC) is proposing.  Net neutrality is the long-established federal policy that Internet communication companies cannot prioritize certain Internet traffic over other traffic.  There are also some Internet stocks that will be impacted negatively by the proposed net neutrality changes.  The end of net neutrality provides opportunities to find winning stocks.  It also is cue for investors to assess whether any stocks in one’s portfolio may have trouble meeting future revenue and earnings projections, due the new operating environment after net neutrality is no longer required.

Net neutrality is based on the idea that the Internet is a public platform and every Internet content provider should be treated fairly by Internet communication companies and deliver their web content at the same speed.  Getting rid of net neutrality would allow Internet communication companies to charge higher fees to content providers that are willing to pay fees for faster speeds.  This proposed change opens up some unique investment opportunities, as certain stocks will benefit from net neutrality changes.  The net neutrality changes are not set in stone, and may be amended or ultimately rejected, as people are concerned that it will lead to a tiered Internet that will leave many Internet content providers in the slow lane.

Assuming the Federal Commendations Commission’s decision to end the policy of net neutrality goes into effect and withstands any challenges, Internet communication companies will be allowed to charge higher fees to companies willing to pay for faster Internet communication speeds.  Traders and investors looking to profit from this change in federal Internet policy should look to Internet communication companies, also known as Internet Service Providers (ISP).  The tiered fees for speed structure will provide a new and growing revenue stream for these companies, which should bolster their profits going forward.

Mellanox Technologies

Just about any company involved in the delivery of the Internet to the consumer will stand to benefit from this net neutrality change.  Look to companies such as AT&T Inc. (NYSE:  T) Comcast Corporation (NASDAQ:  CMCSA). Verizon Communications Inc. (NYSE: VZ), and Cablevision Systems Corporation (NYSE:  CVC).

Companies that help Internet communication companies track and allocate traffic over their networks also stand to make big gains and could be big winners in the new post-net neutrality environment.  For example, Allot Communications Ltd. (NASDAQ:  ALLT) is a company that makes technology that allows Internet communication companies to filter and track Internet traffic, a product that will be in high demand as the need to filter and route high priority fee-based fast lane traffic increases.  Another company that may benefit is Mellanox Technologies, Ltd. (NASDAQ:  MLNX), which makes equipment that speeds data transfers, which is the fast lane the Internet content providers would pay higher fees to access.


Internet Stocks That Will Be Hurt By Net Neutrality Changes

There will be both winners and losers if net neutrality is ended.  While companies that track Internet traffic and deliver the Internet to end users, such as the ones outlined above, should experience a significant uptick in revenues and earnings, other companies will face severe revenue and earnings headwinds.  Specifically, companies that generate their revenue by delivering content to Internet users, such as Netflix (NASDAQ:  NFLX), will have to pay fees to obtain Internet speeds that are suitable to deliver their high-value content.  The higher fees will directly impact these company’s cost structures and eat into their profits.  Their cost of doing business will rise and they may have to raise prices to pay the Internet service provider fees for faster service.  While they may have some room to recoup the additional fees from consumers, they will be walking a fine-line between offsetting their higher costs and driving consumers away from their services.
Netflix Net Neutrality

Essentially, companies such as Netflix have been using the free-flowing Internet as a platform to deliver their services and vastly expand their businesses and revenues.  When the Internet starts having toll booths after net neutrality is ended, Netflix and others that run their businesses on the Internet will have to start paying fees to deliver their content.  This is one of the most fundamental changes in the way the Internet operates since it first started gaining wide usage about two decades ago.  This will have profound and in some cases unpredictable effects.

One negative macroeconomic effect that proponents of doing away with net neutrality may not be considering fully is the chilling effect Internet speed fees will have on Internet startup companies.  The United States economy has benefitted greatly over the past two decades from Internet startups that have grown into substantial companies.  Household Internet names, such as Inc. (NASDAQ:  AMZN) and Facebook. Inc. (NASDAQ:  FB), where at one time just small Internet startups fighting for survival against a number of rivals.  If the net neutrality changes make it harder for entrepreneurs to start and grow new Internet companies, since the fees for higher delivery speeds may be a cost that they may not be able to pay, it could have a negative impact on economic growth and the development of the Internet.  New Internet companies with new ideas might not get a chance to make their mark on the Internet and challenge existing companies and ways of doing things, which could slow both economic growth and Internet innovation.

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