Don't blame Netflix (NFLX) if FAANG doesn't come back. The company reported earnings Tuesday night and the sign-up numbers were spectacular, much, much better than expected, and I am blown away with how this company has taken the world by storm.
Netflix added 1,09 million domestic subs which exceeded the 673,000 consensus, and internationally the company added a staggering 5.87 million subs versus the 4.46 million the analysts were hoping for. Netflix now has 130 million paid customers and it predicts another 9 million people will join in the fourth quarter. Those numbers are incredible and, perhaps most important, I think the company's product is so good they can raise prices rather easily if they want to. The bears, historically, have flagged this company as a ridiculous money-loser but that worry can be eased with a price increase that I do not believe would hurt sign-ups.
Instead what you should be thinking about is that the bigger Netflix is the more power it will have with producers and customers worldwide. The more subs, the deeper and wider the mote.
You know what Netflix reminds me of now? Amazon (AMZN) . It is the Amazon of worldwide entertainment and it's the winner in the category. The difference? Amazon actually has come competition coming on, courtesy of Walmart (WMT) which, like when Amazon was being built, can afford to lose money to compete. Walmart's backed by a family that wants to compete worldwide and has granted CEO Doug McMillon the right to be able to take on Amazon where ever he sees fit, including India where Walmart bought Flipkart for $16 billion.
Netflix, however, has no real competition right now; yes it has pulled that far ahead of the pack.
Which brings me to the rest of FAANG, the stretched A being the double version, including Apple (AAPL) . You know I think Amazon is doing incredibly well, it's the largest position in my charitable trust, which you can follow along by joining the actionalertplus.com. I think that all three business -- retail, web services and advertising -- are doing well and I think it will not have a problem with its bottom line even as it is now paying workers $15 an hour. That is going to put pressure on the retailers in any of its areas that Amazon may have warehouses.
Apple? I am worried that the Chinese will cut off their noses to spite their faces and interrupt sales to that huge market. If they do, the stock will get hammered. If they don't, I think the service revenue will be robust and the stock can power higher.
Alphabet's (GOOGL) stock has gotten so cheap, 20 times earnings, that it is just a complete aberration because I don't know a soul who thinks that there's any issues with the numbers beyond the lost revenue from last night's Youtube outage. I hear that Uber wants to spin off its self-driving business. All I can tell you is that Waymo, the Alphabet division that's all about self-driving cars, is crushing everyone. I can only imagine how much this division is worth.
It's extremely undervalued. I listened to the great Lee Cooperman today, one of my old mentors, and his largest position is Alphabet. I will take that endorsement.
Finally there's Facebook (FB) .I don't like to base anything on how a stock acts, but after its crash from the $200s its been able to hold in at the $150. The more I dig the more I get the sense that the advertisers have not abandoned this company even as its expenses are growing too fast and core Facebook is growing too slow. That said, Instagram stories is on fire and attracting a huge flock of advertisers.
I am disappointed with management. I wanted them to put an outsider in to examine the rules and practices. They wouldn't do it. A big mistake. That said, I believe that at about 20 times next year's earnings there's not as much risk as reward.
When the worst performing member of FAANG of late comes back on a dime it's a reminder that this group of five is resilient because the companies behind the acronym never stop reinventing themselves. Once again, reports of FAANG's death is premature. And, amazingly, after the sell-off, Alphabet and Amazon have come down enough that they are ripe to buy.