You’ve heard of the FAANG stocks: Facebook, Amazon, Apple, Netflix and Google.

These are all trillion-dollar companies … except for one: Netflix Inc. (Nasdaq: NFLX), which is only valued at $226 billion.

Yet investors continue to place Netflix on the same pedestal as the rest of the tech giants.

In today’s Market Insights video, Steve Fernandez and I discuss whether that should be the case.

We also take a look at Netflix’s latest earnings report to help you decide if you should buy its stock.

(If you’d prefer to read a transcript, click here.)

Ian King: Hey everyone. Ian King here, editor at Strategic Fortunes, with your weekly Market Insights.

Joining me again this week: Steve Fernandez, also at Banyan Hill.

Now, Steve, I don’t know about you, but when I was a kid, I used to watch Sesame Street. And there was one segment that went, which one of these things is not like the other?

Which Stock Does Not Fit In FAANG?

So, we’re going to play a little game right now. The FAANG stocks: Facebook, Apple, Amazon, Netflix and Google. Which one of these is not like the other?

Steve Fernandez: You’ve got to say Netflix, especially if you look at its recent performance and how it’s growing. It’s hard to include them with the rest of those companies.

Ian: It’s incredible. Facebook has a $1 trillion market cap. Apple: $2.5 trillion. Amazon: $1.8 trillion. Google: $1.7 trillion.

Netflix? $226 billion.

It’s about a tenth of the value of these other huge tech growth stocks. But for some reason, they’re still in the same acronym, and investors still put them on the same pedestal as these other tech giants.

faang market caps

Why do you think that is?

Steve: Well, it did kind of innovate the way we consume video, other than YouTube, which you can say is in its own realm.

You know, Netflix destroyed Blockbuster. So, it was really an innovator in the past. But when you look at where it’s at now, it’s not really innovating much in terms of, like, societal trends or anything like that. It’s just churning out new content.

So, yeah, it makes sense why people would assume that it’s there in that innovative group. But I don’t think that’s the case anymore.

Subscriber Growth Very Low

Ian: And Netflix recently released earnings that were underwhelming. Could you elaborate more?

I saw the subscriber growth number was down. It wasn’t as much as expected. The growth rate was only, like, 19%, or something like that.

Steve: Right. So, when I look at Netflix, the first thing I look at is subscriber growth. And it was really disappointing. I mean, the quarterly subscribers came in at, like, 209 million, and that’s only up 8% over the previous year.

Yeah, revenue is growing 20% or so. But a lot of that is coming on the back of higher prices. So, yes, it’s good that it can raise prices, and it’s not really seeing a material change, negatively speaking, in subscribers.

But if you look at, like, North America, for example, it actually lost subscribers between quarters, which is really hard to believe when you’re thinking of a growth company. How are they losing subscribers in their biggest market?

Ian: I mean, many Americans are probably like me: I always thought cutting the cord, cutting my cable would also cut my cable bill. But then when you add up my Netflix subscription, Hulu, Disney+, ESPN+, you know, I wind up paying more for my TV content than I did when I had a cable subscription.

Netflix Expensive Price

What do you think about Disney+ or Apple TV+ and other streaming service versus Netflix?

I mean, tell our viewers about where the prices are for some of these subscription services right now, and why it seems like Netflix is just not able or won’t be able to compete against Disney and Apple.

Steve: Well, Netflix is a lot more expensive. If you look at, like, it’s North American average revenue per subscriber on a monthly basis, it’s, like, $14.50. And if you look at Disney+, it’s around $4. ESPN+ is around $4.50. So, when you think about that, it’s, like, how much higher can Netflix go with it’s prices?

On the flip side. Disney can go a lot higher with its prices if it wants to. So, from that standpoint, it’s really hard to justify Netflix having that price upside.

And Disney might actually be a better play when you look at not just their revenue growth and streaming, but also their subscriber growth. Like, in the recent quarter, its subscribers are up 116% year over year, and it’s almost at 75% of Netflix’s subscribers now.

Netflix vs Disney chart

Ian: I agree with that. And I would also add that Disney+ is especially focused on children. So, there’s a lot more merchandizing impact because of it. You know, Disney has, obviously, the Marvel franchise, the Star Wars franchise, and they’re able to monetize that entertainment content you see on TV in other ways rather than just streaming services.

I mean, we’ve yet to see Netflix really monetize that brand, although it’s talking about now releasing mobile games for some of its franchises. I heard that it’s in the works of doing a Stranger Things mobile game.

You’re a gamer, Steve. Is this something you would download and start playing on your phone?

Steve: Not personally, but I do think that people will. I don’t know how much that changes the investment thesis on Netflix, but it could help retain loyalty, kind of like we discussed earlier.

But even then, I mean, it’s not going to become a gaming company. It’s just going to be a supplement to its current business.

What Could Replace Netflix In FAANG?

Ian: And, you know, we like keeping things the way they are.

So, we’ve got the FAANG acronym, F-A-A-N-G. Can we just replace Netflix with another “N” company? And if so, what do you think is the best idea there?

Steve: Right. We both talked about it earlier: Nvidia.

You know, it really should be the “N” company in FAANG. It’s at the front of every huge trend that we’re seeing now. Its technology is heavily used in almost every artificial intelligence application. Self-driving cars, or any machine learning algorithm really, is using Nvidia’s technology.

So, it’s at the forefront of innovation. Shouldn’t it be included in the FAANG instead of Netflix?

Ian: Don’t forget about Nvidia chips in cryptocurrency miners, Steve.

Steve: Oh, yeah, absolutely. So, I think that cryptocurrency is just another innovation. And Nvidia is at the forefront of that, for sure.

Ian: Nvidia right now is trading at a market cap of $500 billion. That’s double what Netflix is at. I do think that it would be a more valuable addition to the FAANG acronym than Netflix.

As always, for myself and Steve Fernandez, thanks for tuning in. Have a great weekend.



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Ian King

Editor, Strategic Fortunes