Shares in T-Mobile US Inc. and Sprint Corp. stumbled over the week ended Dec. 13 as Wall Street questioned whether the wireless duo could win a court battle against a coalition of state attorneys general suing to block their merger.
In media and entertainment, Netflix Inc.'s stock fell after an analyst downgraded the company on concerns about heightened streaming competition.
The state-led challenge of the pending T-Mobile/Sprint merger went to trial in federal court Dec. 9, beginning what could be weeks of arguments before a decision is rendered. The court challenge is considered the last major hurdle for the wireless combination, which already received approval from federal regulators.
A day after the trial started, Raymond James analyst Ric Prentiss lowered his probability of deal approval to 55% from 85%, saying in a research note that he had hoped to see "significantly more" state attorneys general settle with the companies before the trial began. Fourteen states and the District of Columbia remain in the court challenge following recent settlement deals with Texas, Colorado and Mississippi.
The "states are more likely than not to win," wrote New Street Research Policy Adviser Blair Levin in a recent report, pointing to "weaknesses we see in the companies' market definition, reliance on economic arguments with little support in antitrust precedent" and a "zig-zag approach" to the U.S. Department of Justice and the Federal Communications Commission's judgments, among other factors.
According to a scheduling order by the court, the parties committed to a two-week trial, with defendants having the right to seek a third week. The trial is taking place in the United States District Court for the Southern District of New York.
Around midday Dec. 13, T-Mobile stock was trading down 3.25% from its Dec. 6 close, at $75.21 apiece; Sprint shares were trading at $5.20, down 5.97% for the week.
Turning to the streaming market, Needham analyst Laura Martin downgraded Netflix stock to "underperform" from "hold" this week on concerns that the company could bleed subscribers as the competition from new rival offerings intensifies.
The analyst in a Dec. 10 note obtained by CNBC predicted Netflix could lose as many as 4 million U.S. subscribers next year in its premium tier as it works to compete with The Walt Disney Co.'s Disney+ and Apple Inc.'s Apple TV+. Martin proposed that Netflix offer a cheaper subscription option featuring several minutes of advertisements each hour to match its competitors' pricing. Netflix charges monthly streaming fees ranging from $8.99 to $15.99, while Disney+ retails at $6.99 per month and Apple TV+ sells for $4.99 per month.
Netflix shares were trading at $298.92 midday Dec. 13, down 2.74% for the week.
In the tech space, Apple shares inched up slightly toward the end of the week after the U.S. and China reached a phase-one agreement in their lengthy trade battle.
The agreement, announced Dec. 13, plans to cancel scheduled 15% tariffs on $160 billion of Chinese goods slated to go into effect Dec. 15. The batch of canceled tariffs was going to hit a bevy of consumer goods, including Apple's cellphones and laptops, at the height of the holiday shopping season.
This reprieve removes a "major dark cloud" over Apple and the entire tech sector, and should help investors take a deep breath ahead of the crucial holiday season, Wedbush Securities analyst Daniel Ives said in a Dec. 13 report.
"If this tariff had gone through it would have been a major gut punch for Apple and in our opinion would have thrown a major wrench into the supply chain and demand for [Apple's] holiday season," Ives said.
The U.S. Trade Representative's Office said the U.S. would maintain 25% tariffs on $250 billion of Chinese goods as well as 7.5% tariffs on approximately $20 billion of separate products.
Apple shares were trading at $274.24 midday Dec. 13, up 1.30% from their Dec. 6 close.