We’re wrapping up a pretty volatile month of trading. May had some pretty big swings, but ultimately the major market indexes are roughly where they were at the end of April. Stocks fell through most of May, clawing their way back last week.
Will June bring more of the same? I’m going to make some predictions about what the month ahead will mean for Netflix (NFLX -2.36%), cruise line stocks, and the tenuous Elon Musk deal for Twitter (TWTR 0.89%). Let’s dive right in.
1. Netflix will move higher in June
There’s a bearish narrative when it comes to Netflix. The leading premium streaming-video service has apparently lost a step after being the only major platform to experience a sequential decline in subscribers in the first quarter. The clouds are stormy and gray, with Netflix now targeting an even bigger sequential hit to its membership in the current quarter.
Here comes the counter argument. If Netflix has lost its relevance, why did Kate Bush’s Running Up That Hill shoot to the top of the iTunes download chart this holiday weekend? The 1985 song took off after being featured in the new season of Stranger Things, which debuted on Friday. Netflix isn’t fading away. It continues to be the entertainment world’s kingmaker.
It still draws an audience that’s the envy of the streaming space, and now it’s hungry. Netflix won’t report fresh financials until July, but it’s also smart enough to split the new season of Stranger Things into two volumes. The second half of the installments won’t be released until early July, locking in subscribers through what everyone is expecting to be a rough quarter. There’s a lot more upside than downside at this point.
2. Cruise line stocks will beat the market in June
Retailers have been reporting ho-hum results this earnings season, and one thing that’s becoming clear is that shoppers are shifting their spending away from physical goods to experiences. This makes travel businesses a major beneficiary of the upcoming travel season, but there’s a problem.
Gas prices are rising, and relief doesn’t seem to be coming anytime soon. We’re seeing demand destruction for road trips, but it’s a different story for cruise ships. Fuel costs are a major cost component for cruise line operators, but they have so many revenue levers to pull on a cruise ship loaded with passengers with pent-up demand for the high seas and exotic ports of call.
Carnival (CCL -3.77%) is the world’s largest cruise line operator. It will announce its quarterly results in late June. It would be a shock if it isn’t seeing an uptick in future bookings at higher price points. The industry rally in 2020 was premature, but all three major players have pulled back substantially despite improving fundamentals. Whether the market rises or falls in June, I predict that cruise line stocks will beat the major indexes.
3. The Twitter buyout deal will fall apart
There’s a lot of drama (and uncertainty) behind Elon Musk’s deal to acquire Twitter in a $44 billion deal. He has stepped up his social media antics in recent weeks, seemingly trying to negotiate in public for a better price.
Like the sale of one of Musk’s popular electric vehicles, there is no room for haggling. What you see is what you get, and the board issued a preliminary proxy statement two weeks ago reaffirming that it expects to close the deal at the agreed-upon price.
Shareholders are starting to lose their patience. Musk ally Egon Durban — co-CEO and managing director at the Silver Lake private equity firm — did not receive enough votes at last week’s shareholder meeting to keep his seat on Twitter’s board of directors. Shares are trading at a 26% discount to Musk’s buyout price of $54.20 a share. The gap might seem like a golden opportunity for investors hoping to buy now for an easy score a few months later, but it’s also the market telegraphing that there’s a strong chance that this deal doesn’t go through.
Musk would have to pay $1 billion if the deal doesn’t go through, and fine print in the contract apparently gives Twitter the ability to sue him if the deal comes undone. As confident as Musk might be of his aptitude when it comes to science, business, and politics, it’s becoming clear that this deal is highly unlikely to close anytime soon.
Why wait? Why not just rip the bandage off now? My third and final prediction is that instead of dragging this out even longer in what will only tarnish Musk’s reputation, he quietly surrenders the $1 billion deal termination fee, ideally under conditions that he can’t be sued by Twitter for the fallout.
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