Nobody wants FAANG to be as big as it is. No one. Everyone sees the absurdity that you could have these handful of companies be so important to the overall market. We don't want to accept it as a fact of life. We haven't wanted it to be that way ever since their ascendance began five years ago. In fact, it's been fought tooth-and-nail the whole darned way.
Yet here we are with Facebook (FB) with a market cap of $479 billion, Amazon (AMZN) with $695 billion, Apple (AAPL) with $879 billion, Alphabet (GOOGL) with $718 billion and Netflix (NFLX) at $120 billion, representing one-third of the whole NASDAQ, wildly disproportionate with what we would like. We hear this gripe all of the time: it has to end, they can't last, no way these valuations can be sustained, the law of large numbers, etc. etc.
Now as the person who coined FANG I have become somewhat wistful and philosophic about this issue after being defensive for most of the last year. My defensiveness came from the ETF-ization people who effectively decided "you know what, we ought to put all of these big cap high growth names into some index so we can market it to people who want big cap high growth." I hate that. It's the modern way we do business.
I hate it because these companies actually are very different and they should not be lumped together but actually do trade that way as anyone who watched the stock of Facebook take up all of the others when Mark Zuckerberg didn't blow up on Capitol Hill yesterday.
But it got me thinking. Why do we hate the disproportionately large influence these stocks have? First, we've never had anything like it, so therefore we are suspicious of their size and influence, as suspicious as the lawmakers seem to be.
Second, the people who run these companies are not old fashioned statesmen that are out there making traditional speeches and telling us their vision. They tend to be grinders doing their jobs behind the scenes. You ever see Amazon's Jeff Bezos respond to President Trump's taunts? Could you recognize the people who really run Alphabet these days? Do you know Larry Page? Could you pick him out of a line-up? Reed Hastings doesn't care to be interviewed. Obviously the excitement around the Zuckerberg hearings has a lot to do with our fascination with some young secretive billionaire we know so little about. Only Tim Cook has embraced the limelight and, believe me that's not something he would necessarily like to do, but he does seem to get the responsibility of being the head of the world's largest company. I sure wish, sometimes, the others did.
But the third and most important reason why we hate their disproportionate power and ascendance is that most people, certainly most people passed the age of 40, don't even know what they do.
But that's not out of ignorance. It's because they are so different and so darned hard to understand. There were 40 senators yesterday really just trying to figure out how Facebook makes its money. We thought we understood Amazon to be a retailer but it is really a web services company. Netflix, the smallest of the lot, used to be a diskette company, now it is the world's largest non-tv entertainment network, unless, that is if Facebook is an entertainment network. No one really has a clue what Alphabet is and they don't make it easy. A search company? An advertising company? The only search company? Soon to be the only advertising service company? And Apple? Maybe it is a storefront for the best consumer products company in the world with fantastic technology and brand loyalty.
Believe me, if these companies made cars, or homes or television shows or pills or clothes or were brick and mortar retailers or oil companies we'd get it. We don't begrudge Exxon's (XOM) $326 billion market cap. We aren't angry that Walmart's (WMT) worth $250 billion. Our real fears, deep down, is that many people think these companies, with the exception of Apple, aren't worth anything because no one understands them currently or how they have changed so radically over the years. Sure they should have been toppled by the laws of large numbers. But they haven't because their CEOs are constantly reinventing these companies without having the old stuff be put out to pasture.
So here's my bottom line: I am not urging you to love them. I am not urging you to embrace their market caps. I am saying, though, that they have these valuations because they have many different parts of their businesses operating at levels that makes people want to pay up for them. So they do. And you can fight it all you want. Me? I just want to know why more haven't accomplished what they have. Then maybe we wouldn't be so darned skeptical or cynical of them or their valuations.