Credit. Who gets it? Who doesn't? That's often that it all comes down to and this earnings period is more about credit - the belief in management's ability to navigate these waters - than I have ever seen.
Exhibit A is Netflix (NFLX) , which last night reported an extremely disappointing sign-ups and then gave you an even more depressing outlook about future growth. Hmm, let's see, not so hot quarter, with little hope for better? That's how people interpreted the quarter.
That's not how I interpreted it though. Netflix is distinctly not a headline story. You simply cannot make up your mind about this stock unless you read the company's letter to shareholders and then watch the video of management answering questions from an interlocutor. Reed Hastings, one of my absolute favorite CEOs, and why not, his company is the N in FAANG, the pantheon of great stocks of the era - picks a new interviewer to shoot queries to the executive team and this time he picked Nidhi Gupta, an analyst from Fidelity, who wasted no time asking tough questions like why were they so far off of the street's projections and even their own estimates.
Netflix people are honest as the day is long. I am sure many people were betting that they would come up with some technical answer that obfuscated things. Not Netflix. Spencer Neumann, the CFO immediately stepped up and attributed the slowdown to the "huge pull forward" in 2020 from COVID. Wow, buzzkill. That meant as the pandemic winds down you may be stuck in an overvalued stock. Going forward things just can't possibly be as good.
But I say, wait a second, don't after so many years, these guys deserve the benefit of the doubt? ? Neuman followed up by saying "but the key is the business remains healthy. Our engagement, our viewing per household was up year over year in Q1. Our churn was down year over year. And we're still growing." To me that says, don't panic, even as the pandemic might be over - and I say "might" because Netflix is trying to be big in India and they sound like they are locking down. Netflix will find a way to jumpstart new subs, whether it be content or deals that we can't imagine or some sort of "must see" programming that we haven't thought of yet but they have.
I am giving them credit for something that doesn't exist yet that they will do that and will make it so we all must watch despite HBO and Disney Plus (DIS) or Peacock which is owned by NBC (CMCSA) and linear TV or YouTube which they say is their biggest competitor after television. We know that COVID made it extremely difficult to film all of the potential hits, hits like Lupin, the French thriller that thrilled the world, something that tends to happen when they make films in the venue they are meant to be set in.
Is the sky the limit for a company that some think is full up with 200 million subs. I am in the camp of Reed Hastings, the CEO when he says "outside of China, I think pay television peaked about 800 million households, "so, he says, "there's lots of room to grow."
After the performance they have given us over the years, who am I to doubt them? They didn't get to be the N in FAANG for nothing.
You see that's the greatness of being a member of FAANG. You are a moving target. People can't pin you down as old hat, make it so you are an incremental company that's not out to trash its own products in the name of hurting the quarter.
Take Amazon (AMZN) . You wake up this morning and you find out that Amazon is going to eliminate a credit card when you buy something at Whole Foods. You don't need cash, you don't need a pin, you just need your palm. You scan it and you are out of there.
Yesterday you thought you were going to have the same delays as everywhere else at Whole Foods. Bam, today you are using your palm to get out. Just the novelty of such a thing will draw people to Whole Foods, an asset that, so far, they have badly failed to monetized.
Or Apple (AAPL) . I know that there are so many cynical people on Wall Street that they think that new products from Apple that are NOT cell phone related just don't move the needle. But not Katy Huberty, the crackerjack analyst from Morgan Stanley whom I use as the ax for the group, ax being slang for the real expert with the best views on a particular stock. She's talking about significant upside versus the consensus for the Mac and the iPad and new products that are going to become the standard of the hybrid workforce. This it the first time that Apple must be considered a serious threat to the Dell (DELL) and HP (HPQ) dominance because workers now are going to spend so much time at home that there will be ample demand from the enterprise especially with the new products that make Apple even more mobility friendly and productivity enhancing. One of the big knocks against Apple, one that is reiterated just today in the sell call of Goldman Sachs is the one-off nature of anything consumer. I get that but if Huberty is right, and it's been a long time since she wasn't, then you have to give Apple the benefit of the doubt that it will be part of the very sticky enterprise mix. Can you imagine if you are, like me, an Apple user at home, and a Dell or HP user at work and suddenly you could pick which one you want to use? If these new devices take off, Huberty says, it would significantly impact Apple's bottom line. Mac could be on a path to reach 15%-20% of Apple revenue by fiscal year 2025. That would be, of course, a "relevant driver" of financials and the company's valuation.
Can you imagine if Apple, long-considered to be a one trick pony by its detractors has revenue streams from cellphones, wearables, Macs and service sales? That's a mosaic that I find unassailable and worthy of the largest cap company in the world.
Right now Facebook's (FB) not giving you something to blow you away at this moment although I think that its small business initiative should be more in the news. That's not PR. If they talked about it more they would gain more adherents but, as is so often their M.O., they have dropped the ball numerous times as a friend of Small Business.
Alphabet (GOOGL) ? People are hung up right now on the sum of the parts of Alphabet, and we are talking search which is exploding with new revenues because travel is its biggest client, and YouTube which Hastings acknowledged is its main rival along with linear TV, Waymo, which is their self-driving division and then lots of smaller divisions that would be big elsewhere.
Now I know that FAANG hasn't kept pace this year. It's been a year where you want to be in anything that's about the re-opening and the market views these stocks as part of the stay-at-home cohort. I think that's nonsense. These companies are about reinventing to be whatever the matrix of life demands. That's why I laugh when I hear FAANG is dead. Why? Because unlike almost any other companies in the world, they get the benefit of the doubt, and they deserve it.