Netflix opened up the second quarter reporting period for the tech sector with a bang, smashing estimates for subscriber adds, which caused its stock to rip higher after the results. The surge in the company’s stock price has triggered a new discussion about the FANG stocks and Netflix.
The FANG stocks and Netflix
CNBC’s Jim Cramer said on Squawk on the Street that Netflix’s latest set of quarterly results demonstrate why it’s a member of the popular stock acronym FANG, which consists of Facebook, Amazon, Netflix and Google/ Alphabet.
“You know you don’t get to be FANG for nothing,” he observed on the CNBC show.
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
He also described the experience of listening to Netflix CEO Reed Hastings on the earnings call as “joyous.” In addition to explaining the relationship between the FANG stocks and Netflix, he also explained why the other constituents of the acronym are in.
He explained that Facebook capitalizes on helping people use the Internet to tell their personal stories, while Amazon has figured out how to sell merchandise online better than any other company. Google simply “figured out the Internet” by producing content that’s loved in multiple markets, especially via YouTube.
Are the FANG stocks and Netflix overvalued?
In light of the discussion surrounding the FANG stocks and Netflix, CNBC studied each company’s projected revenues for the June quarter. The media outlet summarized by saying that all the FANG stocks aren’t created equal and that they’re not overvalued so much as understood. In fact, as far as the FANG stocks and Netflix are concerned, Netflix’s stock gain was more than double its revenue growth.
CNBC said that the rapid growth managed by all the FANG stocks “in a slow growth world” may help explain why investors are giving them such high premiums. Instead of examining the stocks using price-to-earnings ratios, the media outlet weighed the projected revenue growth for the June quarter against stock market gains during the full year ending on June 30.
Facebook offers the best value, Netflix is “lofty”
According to the analysis, Facebook’s stock appears to have “the most comfortable fit” against its projected revenue growth. The shares were up 36% for the 12 months ending on June 30, and the company’s revenue growth is projected at 42.7% for the June quarter. However, looking at the FANG stocks and Netflix revealed that the streaming video provider’s stock “is on the lofty side.”
Netflix shares were up 64% for the 12 months ending June 30, but the company’s revenue growth was projected to be 31.3% before it reported last night. When Netflix released its second quarter results, its actual revenue growth was found to be 32%, and then its stock jumped by more than 10% due to the beat on subscriber adds.