With the stock market in a deep funk (and getting funkier by the day) investors are looking for safe places to park their money, like stocks that pay healthy dividends. Which would be telecom stocks, right?
Maybe not.
The truth is that telecom stocks — there are really only three biggies these days; AT&T (T), Verizon (VZ) and T-Mobile (TMUS) — aren’t what they used to be. Some say that has to do with their disastrous forays into the world of media, but it’s probably more a matter of failed execution and the maturation of the business.
First the media math. Remember that within a two-week period in May of last year, both AT&T and Verizon jettisoned WarnerMedia and Yahoo, their respective content properties, (yes, the latter owns my employer, Yahoo Finance). These moves were made to rid the data-driven, left-brain telcos of frivolous, flowery — never mind costly — media businesses. Getting out of content, the thinking went, would allow the telephone companies’ distribution businesses to run full-out and unfettered, which would presumably be a boon to shareholders.
“My days are a little bit more predictable than they were a couple of years ago,” AT&T CEO John Stankey told Yahoo Finance’s Brian Sozzi this week. “That’s one of the reasons why we made the decision to do what we’re doing. I didn’t think I could do my best work or the broader management team could do their best work if we were trying to fight too many battles on too many different fronts. We are a more focused company today. We’re executing each week better than we were the week before, but we still have room to go.”
John Stankey speaks onstage at HBO Max WarnerMedia Investor Day Presentation at Warner Bros. Studios on October 29, 2019 in Burbank, California. (Photo by Presley Ann/Getty Images for WarnerMedia)
For sure on that last point.
Since May 15, 2021, roughly when these announcements were made, Verizon’s stock is down 18% and AT&T is down 19%. The S&P is only off 4%. The stocks still underperform the market after factoring in their 6% plus dividend yields.
Perhaps that’s surprising given these companies made game-changing announcements — particularly in the case of AT&T, as its divestment of content was a much bigger move relative to the size of its overall business. It’s also surprising since both AT&T and Verizon stocks sport generous dividend yields, which ideally would bolster the shares during a market downturn.
Did deep-sixing the content businesses help the telcos’ stocks? No, it did not.
Before we get more into that, let’s first consider T-Mobile, once ridiculed (and still loathed) by the Big Two, for its over-the-top former CEO, John Legere, and its garish (yet effective) pink branding. Legere stepped down two years ago, but, guess what, T-Mobile is now ascendent if not triumphant. Barron’s recently pointed out that T-Mobile has a bigger market cap ($177 billion) than Verizon ($173 billion) or AT&T ($119 billion). True, both Verizon and AT&T are more leveraged, so that the overall enterprise value of the two older companies is bigger. But the fact remains that T-Mobile stock has trounced Verizon and AT&T — and the market — over the past five years.
John Legere arrives at Manhattan Federal Court during the T-Mobile/Sprint federal case in New York, U.S., December12, 2019. REUTERS/Shannon Stapleton
Why is that? In a word, execution. T-Mobile merged with Sprint, priced aggressively to build market share, and most importantly, improved its network.
“TMUS 5g network is probably 18 months ahead of AT&T and Verizon’s, if not a little more,” says Keith Snyder, an industry analyst at CFRA. “[AT&T’s and Verizon’s] balance sheets are bad. Those two companies combined have about $300 billion that they need to get off their balance sheet at some point. Meanwhile, they need to spend very heavily on network deployments and new spectrum.”
And another thing: “Verizon’s stock price is lower than it was 20 years ago. AT&T’s stock price is lower than it was 20 years ago,” says veteran industry analyst Craig Moffett. “Granted, they’ve paid dividends, but the total return by owning those stocks has been less than what you would have gotten from a corporate bond.”
Someone’s made money here, though. As this 2017 McKinsey report points out, internet giants Amazon, Google and Facebook have built up massive businesses on the networks of AT&T and Verizon. The combined market caps of those three tech giants — $3 trillion — is 6.4 times that of the three telcos’ $469 billion.
So did AT&T and Verizon blow it by not being able to marry content with distribution? Moffett thinks that’s a red herring.
“I’m not sure ‘the tug and sway between content and distribution’ has ever been a terribly relevant thesis,” Moffett says. “It’s one of those things that people like to talk about, but it doesn’t really have all that much real-world application. Partially the problem with trying to be vertically integrated is that the law frowns on it. So there’s limitations on what you could do. You could theoretically make content exclusive and that sort of thing, but as carriers you generally aren’t allowed to do that. So there isn’t really any particular strategic logic for being vertically integrated.”
To Moffett it’s more a matter of two companies with declining businesses and bloated balance sheets that will struggle to pay their dividend down the road. AT&T already cut its dividend as part of its divestiture of the media business earlier this year.
As for the companies’ path forward: “They’re not going to go bankrupt,” Snyder says. “They’re established, their businesses are generating cash. It’s just that they need to rethink what they’re doing.” Moffett offers a more succinct prognosis: “It’s terrible.”
On the other hand, both analysts are sanguine about T-Mobile, which they say will continue to grow at the incumbents’ expense.
Is there any optimism to be had AT&T or Verizon? “The bull case for Verizon or AT&T is that expectations are so low that the stocks have nowhere to go but up,” Moffett says. “And as long as they maintain the dividend, that thesis could perhaps work.” But then he adds: “The problem is, as we’ve seen so often with these companies, if they can’t generate any growth, then the sustainability of the dividend eventually is in doubt.”
For Verizon and AT&T, it’s not a great position to be in. Turns out even big splashy media deals couldn’t help them.
The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.
Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.
In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.
“No Man’s Land”
Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.
Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.
While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.
Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.
First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.
“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.
A News-Driven Environment
Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.
Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.
BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.
The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.
None of the ETFs recorded outflows for the day.
Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan
According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.
Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.
A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.
What’s Next For Bitcoin?
Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.
But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.
Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.
“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”
PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.
The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.
Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.
LI.FI Issues Warning After $8 Million Exploit
LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.
According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.
Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.
Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.
“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.
This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.
But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.
Recent Exploit Mirrors March 2022 Attack
Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.
The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.
“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.
Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.
LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.
