There’s an old saying in the stock market: “The trend is your friend.”
That’s true, unless the trend threatens to flip your industry on its head and destroy the traditional way of doing business altogether.
When that happens, a more appropriate adage is the callous reminder to “adapt or die.”
And while the likes of Procter & Gamble (PG) and Coca-Cola (KO) don’t have to constantly worry about innovative new competitors or disruptive technology, the consumer goods sector is the exception, not the rule. Most other sectors are rife with emerging trends or technologies that are putting the old guard on notice.
Whether it stems from a failure to see these threats, stubbornness, ineptitude or outright denial, some of America’s most dominant industries of yesteryear are facing existential crises (even if they don’t always realize it).
Three industries in particular are in an especially difficult situation, and each one could ultimately succumb to long-term trends that are changing the economics of their businesses.
Without further ado, here are three revolutionary trends and the industries they’re currently wreaking havoc upon:
Disruptive Technology That Could Wipe Out the Traditional American Auto Industry
Trend(s): Ride-sharing and -hailing, self-driving cars, urbanization, climate change, currency headwinds
Explanation: The assertion that automakers face significant long-term challenges seems a little kooky at first glance. But it’s always a good exercise for investors (or anyone, for that matter) to challenge their most basic assumptions.
There’s no debating the fact that 2015 is turning out to be an extremely strong year for the auto industry. Toyota (TM) exec Bill Fay said in July that he expects this to be the best year for U.S. car sales since at least 2005, when there were 16.94 million new vehicle sales. Taking August data into account, we’re now on pace for 17.4 million car sales, which would match the record high set back in 2000.
However, with the rise of Uber and the sharing economy, traditional automakers should treat these next few years as if they were the all-time peak for auto sales, because they very well might be.
The average car has a utilization rate of about 4% over its lifetime, meaning 96% of the time it’s idly parked, unused. A more efficient economy would have fewer car owners and more people carpooling, leasing their cars out or hopping rides for a small fee.
The global trend of urbanization, in which a larger and larger percentage of the population lives in urban areas each year, ensures that ride-sharing will become more and more appropriate, and perhaps necessary. Public transit should also become increasingly prominent; expect to see more propositions like Elon Musk’s Hyperloop.
It’s worth mentioning that ride-sharing, ride-hailing and public transportation are also lower-footprint ways to get around, and as concerns over climate change accelerate and governments incentivize eco-friendliness, the traditional automakers will need to adapt.
And right now, traditional automakers are behind the curve.
The inevitable rise of disruptive technologies like self-driving/electric cars, which are already being developed by Google (GOOG, GOOGL), Tesla (TSLA), Uber and perhaps Apple (AAPL), hasn’t been embraced with quite the same fervor by American automakers like Ford (F) and General Motors (GM), which are more or less twiddling their thumbs on the sidelines.
Alas, they twiddle at their own peril.
Finally, the reason that American automakers face a stronger threat than foreign carmakers stems from currency headwinds and higher labor costs.
While currency headwinds don’t pose long-term threats by necessity, the dollar has been strong enough for long enough that overseas competitors are enjoying meaningful cost savings today that they can reinvest for tomorrow. In January, Ford’s CFO alleged that Toyota alone was reaping a $10 billion advantage, or as much as an extra $11,000 in profit per car, from the weak yen.
With the presence of unions and pressure for higher minimum wages mounting, we can expect U.S. automakers to keep moving American jobs overseas to boost their bottom lines and remain price-competitive. But they shouldn’t expect that to play out without catching some major backlash from American consumers.
Major At-Risk Stocks: Ford, General Motors
Disruptive Technology That Could Wipe Out the Cable Industry
Trend(s): Cord-cutting, streaming, mobile
Explanation: This is a popular disruptive trend to highlight: The migration of cable TV subscribers away from the traditional “bundle packages” in favor of streaming video services like Netflix (NFLX) and Hulu has sparked chatter of the looming “death of cable” for years now.
But here we are in 2015 and cable’s still around … hell, it’s not even on its deathbed yet! What’s going on?
Big things take time. And the death of a market worth hundreds of billions of dollars doesn’t just happen overnight.
There is movement on the part of cable companies though, and it’s reactive, reflecting changes in consumption and demand. Instead of the “too bad, we have a monopoly and these are your choices,” sort of attitude, cable companies are adopting a more a-la-carte set of offerings.
Specifically, Verizon (VZ) Fios now offers “channel packs” of smaller channel bundles, which have themes. You get a base package and two packs of your choice for $55 a month, but you can add on additional packs for $10 per month on top of that.
Increasingly, networks themselves are opting to subvert or diversify away from the traditional bundled-TV distribution strategy, embracing “over-the-top” programming wherein content is simply made available online for a monthly fee. CBS (CBS) and Time Warner‘s (TWX) HBO are two prominent content companies embracing streaming early in this process.
DIS stock got slammed, plunging from $122 a share to $95 at its trough. At $102, it has still got a ways to go before it gets back to its pre-earnings levels … and if people continue to reject traditional bundles, it won’t just be cable companies, but the networks themselves, that suffer.
The thing about disruptive technology is that it’s impossible to predict in the long run — which makes it all the more dangerous. Lest we forget, cable was literally just two Supreme Court votes away from being completely disrupted last year by a company called Aereo, a service that plucked broadcast waves out of the air and transmitted them to Aereo subscribers.
To me, any industry that can potentially be decimated by a simple technology and a clever business model eventually will be.
Disruptive Technology That Could Wipe Out the Publishing Industry
Trend(s): Declining print subscriptions, pressure on digital ad rates, search engine reliance, Adblocker
Explanation: Print has been effectively dead or dying for many years now. But it’s also becoming more and more clear that digital media doesn’t have its stuff entirely together either. With paywalls easily subverted through some clever Google searching and the stubborn rise of ad blockers now responsible for $22 billion in lost ad revenues annually, the outlook is bleak.
As if that weren’t tough enough, content creators are increasingly taking to social media to publish their stuff. The Republican front-runner and real estate magnate himself, Donald Trump, sang the praises of social media giants Twitter (TWTR) and Facebook (FB), boasting that he had millions of followers between the two and that, “It’s great. It’s like owning a newspaper without the losses. It’s incredible!”
But looming larger than the loss of The Donald’s praise is the rise of third-party digital publishing directly to social media platforms themselves. Both Facebook and LinkedIn (LNKD) are increasingly pushing publishers to post their content to the social media hubs in an effort to keep engaged users on their sites.
Facebook even kindly offers to serve advertisements for you — for a mere 30% of revenues.
As of this writing, John Divine owned AAPL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.