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5 Tech Stocks That Will Be Obsolete by 2020

Some tech stocks shrink until they're discount buyout bait, while others just go extinct. Either way, these stocks are best avoided and sold.

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"Only the paranoid survive." That was a mantra of former Intel Corporation (INTC) CEO Andrew Grove, who certainly knew that tech stocks could easily become obsolete. After all, he saw it happen plenty during his time to companies such as Digital Equipment and Wang Laboratories.

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If anything, today’s competitive environment is probably even more severe, especially thanks to the gobs of venture capital sloshing around the world. That makes life tough for investors who focus on tech stocks.

Sure, just about every tech company should have one eye over its shoulder, but some tech stocks are more at risk of becoming obsolete than others.

I’ve put together a list of five such tech stocks that could be in jeopardy, but a word of warning first: This isn’t a suggestion that you should rush to short these stocks. Something to keep in mind is that even struggling tech stocks can provide gains for investors who get in at the right moment, and they can rack up losses for investors who go bearish at the wrong time. All it takes is one company with a big cash hoard to turn a train wreck of a stock into a big pop — which equals big pain for the shorts.

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Instead, if you just have dry powder to use, you should merely avoid these duds, and if you own any of these tech stocks, you should seriously consider bailing before things get worse. Here they are, in no particular order:

Zynga (ZNGA)

Zynga Inc (ZNGA) is at least in the right business. According to App Annie, the revenues from mobile gaming accounted for 85% of the total for the app market (for 2015), amounting to a whopping $34.8 billion.

But that doesn’t mean mobile gaming companies are a great investment.

Take a look at Zynga, once one of the premiere names in the space thanks to games like FarmVille and Zynga Poker. Since summer 2012, ZNGA shares have basically been dead money.

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It hasn’t been for a lack of resources. Zynga has a war chest of nearly $1 billion, as well as a staff of talented designers and engineers.

Zynga’s problem is the same problem that faces any company in the space. It’s simply difficult to create a breakout hit game, because there’s just no way to predict what the next hot thing will be in mobile. Worse, app stores are crowded with titles. And even when a mobile gaming operator does produce a standout title, enthusiasm can quickly evaporate, and success often doesn’t translate into equally successful sequels. And in fact, today, Zynga still gets the bulk of its revenues from games that were developed years ago, such as Words With Friends.

Zynga does have some signs of hope, including the recent launch of CSR Racing 2, which has snagged millions of downloads, not to mention 10 other titles in the pipeline. But even with that on the horizon, ZNGA still is basically tracking the market this year.

None of this is to say that mobile gaming broadly should be avoided. But instead of targeting companies like Zynga, you’d be better off focusing on a company with a broad platform that can reach PCs, consoles and mobile devices. This model, used by companies like Electronic Arts Inc. (EA) and Activision Blizzard, Inc. (ATVI), is much more resilient.

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Zynga rival King Digital, the maker of Candy Crush was acquired by Activision for $5.9 billion last year. ZNGA shareholders can only hope for a similar deal.

GoPro (GPRO)

Not much has gone right for action-camera maker GoPro Inc (GPRO) in its publicly traded life, as shares are off 70% since its first day of trading in 2014. You can thank a flop of GoPro’s Hero4 Session launch last year, as well as the delay of its drone launch this year until fall.

Unfortunately, there’s little margin for error in the fiercely competitive hardware space. Whenever a company like BlackBerry Ltd (BBRY) or Nokia Corp (ADR) (NOK) stumbles, another company is ready to step in its place … and a turnaround is often elusive.

GoPro’s biggest problem is its seemingly niche market. How many people really need (or even want) a high-end camera for action sports? It’s certainly exciting, and there are people who use it — but it’s a limited population.

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Getting into drones via the Karma might help, but this market opportunity still ranks as niche right now, and there’s plenty of already-entrenched competition in that space.

Meanwhile, GoPro’s competitors have had plenty of time to pick up market share. What, you thought camera mainstays like Canon Inc (ADR) (CAJ) and Nikon Corp (ADR) (NINOY) were just going to sit around developing film? That’s not to mention smaller films such as Activeon, Fusar and 360Fly. And even smartphones represent a threat as they and their peripherals become more sophisticated.

While GoPro’s annual revenues have improved for several years, issues are bubbling up on the income statement, too. In the latest quarter, GPRO posted a near-halving in sales to $183.5 million, and it took a loss of $107.5 million.

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If GoPro’s newest camera and the Karma drone don’t gain much traction, the company could be headed for obsolescence, and sooner than 2020.

Box (BOX)

Not all cloud companies are created equal. Some — like Box Inc (BOX) — have been downright awful for investors. Since coming public in January 2015, shares have lost about 55% of their value.

The future may continue to bode ill for shareholders, too.

Box has a platform that seems more like a commodity, allowing customers to do mundane things like store and share documents. But these offerings aren’t likely going to be enough to be competitive over the long haul. The fact is that Box is up against titans such as Alphabet Inc (GOOGL), Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT) and Dropbox. All these companies have the heft and diversified portfolio of products to sell cloud storage services at cut-rate levels. Maybe this is why Box, in 11 years of business, has never posted a profit.

The growth ramp is decelerating, too. Last quarter, Box’s billings improved by just 9% to $75.9 million. The Street was looking for a much more robust $84.1 million.

Microsoft might end up being the company that kills Box. The computer giant has made great strides with its cloud business, and it has tremendous leveraging potential with its core business applications and massive customer base. Meanwhile, MSFT recently has offered a free service that makes it easy for Box customers to convert to SharePoint.

Rackspace (RAX)

Rackspace Hosting, Inc. (RAX) is one of the pioneers of the cloud industry. Founded in 1998, RackSpace saw a huge opportunity to provide hosting services for websites and business applications. But over the past few years, the growth has slowed down, and shares have been hammered. RAX stock hit nearly $80 back in early 2013. Now, it trades for less than $25.

As should be no surprise, many of the old-line tech companies — International Business Machines Corp. (IBM), Microsoft and Amazon among them — aggressively moved into the market, and RackSpace simply didn’t have the scale or marketing resources to effectively fight back.

As a result, RackSpace has transitioned its business and become a provider of consulting services. This is an important category, but the move should still concern RAX investors. This business tends to have lower margins compared to software, and it’s still a tough competitive environment that includes elite firms such as Accenture Plc (ACN). Not to mention, even cloud operators like MSFT and AMZN have their own teams of consultants.

The strategic change hasn’t been very smooth, evidenced by the latest quarter’s thin 8% revenue growth to $518.1 million.

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RAX might not disappear entirely by 2020, but expect the business — and the stock — to decline significantly as that year nears.

Angie’s List (ANGI)

Angie’s List Inc (ANGI) is actually older than most people think, with roots dating all the way back to the mid-1990s.

But ANGI has baffled the world by pretending until only recently that the world hasn’t changed.

Angie’s List just announced that its online reviews will be for free, and the company’s management is hailing this as a major positive. But this merely signals the end of a long-term whiff on a major opportunity. For years, the company’s rivals — including Yelp Inc (YELP), Google, Kudzu, Amazon, Facebook Inc (FB) and HomeAdvisor — have benefited at Angie’s expense.

And Angie’s List? ANGI now has the challenge of informing customers — long repelled by the pay model — that the service is free. That’s a difficult prospect considering how many millions of dollars the company previously spent marketing its subscription offers.

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The one thing going for ANGI is that the company has gotten better at figuring out how to make a profit, though offering its reviews for free seems to spit in the face of that.

Expect Angie’s larger competitors to eventually overwhelm the space … or in a best-case scenario, acquire ANGI for the branding.

This article is from Tom Taulli of InvestorPlace.

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