When will people understand that FANG is not about four stocks out in the wilderness somewhere that at a certain point will keel over and be eaten by bears? When will they realize that FANG is part of a secular, long-term change in how we think, in how we do things, in how the world economy works.
That's' what makes the evergreen and endless articles about the death of FANG or the De-FANG so repugnant to me, the creator of the acronym for -- Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Alphabet (GOOGL) -- Facebook, Amazon, Netflix and Google now Alphabet, to begin with.
Look, I know FANG is hated. Today's run in Netflix after its preposterously fantastic sign-ups last night is truly a thorn in the valuation side of every fundamental stock analyst out there. Only Tesla (TSLA) seems more overvalued. Netflix can thump its chest at spending $8 billion on new content with a forecast of negative $3 to $4 billion in free cash flow in 2018 along with a proclamation of negative free cash flow for "several more years as out original content spend grows rapidly."
Management can brag about the need to outspend anyone to develop worldwide programming that attracts 125 million paid memberships. It can spend a huge percentage of its conference call just talking about all of its titles and that it is such a bummer not to be able to qualify for the Cannes Film Festival because it's not a traditional movie company. But it just doesn't matter. The simple fact is that the world loves Netflix, that we are beginning to hear that it could easily have 300 million subs and that those subs are all going to be willing to pay more because Netflix is such a bargain.
That's why the stock is the best performing stock in 2018, up 76%. That's why it has a market cap of $146 billion, $7 billion shy of Disney (DIS) and 7 times the size of CBS (CBS) .
That's' why it is the most powerful entertainment force in the world.
But this isn't a story about Netflix, it is a story about cloud adoption. Remember, Netflix is about getting content to you via the internet and Netflix uses Amazon web services for the vast majority of its product. Now I know we think of Amazon as a retailer and we continually focus on some Supreme Court case argued today that may or may not be decided in June that will resolve whether Amazon has to collect sales taxes in every state. No, most of these stories leave out that Amazon already pays in every state. Most retailers only pay sales in places where they have operations. Yes, third parties who use Amazon's Web Services might end up having to collect sales tax but this case is simply not all that onerous because sales tax will most likely NOT dent business and if it does it will dent it equally so there will be no freebies.
Or they are concerned that Amazon maybe ripping off the blind man that is the U.S. Postal Service even though the former postmaster general says the deal between Amazon and the post office is real good for the post office, even if President Trump regards that bit of truth as smacking more like fiction.
But the people who are focused on this are missing the point. Amazon'sweb services business is the best in the world. And while Netflix is expanding to AWS competitor Google Cloud for some of its businesses.
So, what's good for Netflix is good for Amazon which is good for Google which is good for Alphabet. So while there are ETFs that bind them, in this particular case it's just plain good news for three quarters of FANG.
Now I would be remiss to say that Facebook's stock shouldn't be going higher on anything Netflix and it is very well likely that it is going up because of ETF pressure; there are ten ETFs that have Facebook, Amazon, Netflix and Alphabet so they do trade together. But I will say this, if there were another Cambridge Analytica, that linkage would be snapped. The fact is, though, The Wall Street Journal had a front-page article about how money managers are thinking about ANG, dropping the F because Facebook has so many problems. But in my myriad talks with consumer packaged goods CEOs I would say there is more resistance to placing ads on You-Tube because of the potential for salacious and hate-filled content nearby than there is on Facebook post the rigmarole. Oh, and while we are at it, I think the re-kindling of the social media lovefest also helped ignite the stock of Twitter on what basically a ho-hum upgrade of Morgan Stanley. Remember Twitter (TWTR) was crushed when noted shortseller Andree Left of Citrin fame said the stock was going down because it should go down in a classic bit of what can only be called circular reasoning.
But let's talk about the bigger picture. The fact is that Netflix is all about the cloud which means that if Netflix is growing subscribers much faster than anyone on earth thought possible then it is highly likely that estimates for all of our cloud kings, Adobe (ADBE) , RedHat (RHT) , Salesforce.com (CRM) , Service Now (NOW) , Splunk (SPLK) , VMWare (VMW) and Workday (WDAY) are all too low. The more everyone gets comfortable with the cloud for ordering from Amazon or watching programs on Netflix the ore people think it is nutty and a waste to have all of that equipment on premises. It's no wonder that the stocks of every one of those cloud plays ripped today some more than others, the more related the better.
Most of these companies either make cloud on-boarding easier or take advantage of the web to make customers happier and more thoughtful about what they can do with the data center.
Then there's the equipment that makes things work faster and smarter in the cloud and in the data center. Here I am thinking Intel (INTC) , AMD (AMD) and, perhaps best of all, the bedraggled Nvidia (NVDA) which has been linked, falsely, to crypto currencies even though its cloud business is much more important.
Now Apple's (AAPL) up big today and you have to wonder is that somehow connected with Netflix? I think only on a tangential basis as a way to watch programming on your handheld or your tablet. Those are good sales, but it is far more likely that Apple's going up because the objections to owning it seem to have diminished and Apple's service stream, like that of Netflix and Amazon, is likely to be growing faster than we think. It's not the A in FANG today.
But now let's put this all in perspective. What do we have in FANG? How about four companies that are unaffected by the trade war that's going on with China. They for the most part, do no business there either by choice or pretty much by fiat. In answer to a question about how the Chinese market is ripe for more Netflix, CEOReed Hastings dismissed speculation by simply saying that they have a licensing relationship -- the opposite of the other kinds of far more lucrative country deals he has -- and that's fine with him.
In fact, he devoted far more time to how he regrets that his films aren't able to compete in the Cannes Film Festival. What other CEO would brush off a question about being in the largest market in the world, and spend some significant time explaining his trade was with Cannes. "the festival adopted a new rule that means if a film is in competition at Cannes, it cannot be watched on Netflix in France for the following three years. We would never do that to our French members." Hey, @RealDonaldTrump now that's something worth starting a tweet war about.
Look, here's the bottom line, in a market that has trouble with the drug stocks -- Johnson & Johnson (JNJ) took a hit today on a good quarter, can't get comfortable with banks, as the stock of Goldman Sachs (GS) got smacked around but good on a terrific number, the cloud, not FANG, soared on the back of Netflix, and, all I can say is the smallest stock in the acronym's got some real broad shoulders.
