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Wednesday, March 22, 2023

Jim Cramer: Netflix is ​​the weakest FAANG share – is the company now out of the group?

In 2013, Jim Cramer combined the shares of Facebook, Amazon, Netflix and Google to form the acronym FANG. Four years later, Apple shares joined the illustrious circle of tech values. Since then, the group has remained unchanged. But now Netflix’s place could be in jeopardy, because the streaming service differs significantly from the other FAANG stocks.

• FAANG stocks selected due to market dominance and outperformance
• Netflix stock worries compared to other FAANG stocks
• Jim Cramer still believes Netflix will make a comeback, analysts skeptical

Nowadays, FAANG shares are well known to every investor. Behind the acronym coined by the TV host and “TheStreet” founder Jim Cramer, the shares of five companies that have built a dominant position in their industry and have a tendency to outperform, namely the shares of Facebook , Amazon , Apple , Netflix and Alphabet- At the time the acronym was introduced, the latter was still operating under the name of today’s subsidiary Google. As Jim Cramer explained in an interview with TheStreet in April of this year, the stocks of these companies seemed unstoppable at the time. And for a large part of FAANG stocks, that’s still true today – with the exception of Netflix.

The streaming service is still the leader in its field, but is increasingly losing ground due to new competitors. As “TheStreet” reports, citing data from Ampere Analysis, the global market share of Netflix in the streaming business in 2020 fell by around a third from 29 percent to only 20 percent. Even when presenting the latest quarterly figuresNetflix particularly disappointed with the development of the number of customers: Instead of the expected six million new subscriptions, only 3.98 million were concluded in the first quarter. For the second quarter of 2021, the company expects new customers to only grow by one million, but the forecast was at 4.44 million new subscriptions. The dominance of Netflix is ​​therefore increasingly shaky and this also raises the question of whether Netflix still belongs to the group of FAANG shares at all.

These are the areas in which Netflix differs from the other FAANG stocks

As TheStreet points out, Jim Cramer’s FAANG stocks were originally selected for their dominance in a specific area of ​​the tech industry. In the meantime, however, most of the members of the group have developed into “diversified companies with advantages in many industries and strong network effects”. At Apple, for example, the service division is becoming more and more important, while Google has expanded into the cloud business and is also involved in the field of autonomous vehicles, among other things. At Amazon, too, the cloud division has become increasingly important in recent years and is now possibly even more important than online retail. According to “TheStreet”, Facebook also has its top position in the field of social media through several acquisitionsWhatsApp , cemented. Only with Netflix no such further development can be seen. Instead, more and more competitors – such as Disney +, HBO Max or NBCUniversal’s VoD service Peacock – are entering the market and making life difficult for the streaming service.

Netflix also differs from the other FAANG titles in terms of market capitalization. This was not a criterion when Cramer put it together, but the gap that has now arisen can hardly be overlooked – and could possibly be the deciding factor for Netflix to be kicked out of the group. Because, according to “TheStreet”, the FAANG shares also serve as a market indicator. However, since the Netflix share cannot move the market as strongly as the other FAANG shares due to its market value, it is of little help in this area. Netflix currently has a market capitalization of around 216 billion US dollars, while Facebook – as the second-smallest FAANG share – has a market value of around 943 billion US dollars. The other members of the group are worth even more:

These companies could be vying for Netflix’s place

“You’re losing market share. You’re gaining new competitors. I’m a little concerned about Netflix,” Tedd Gordon, founder of TradingAnalysis.com, told CNBC. Even if he did not directly recommend removing the streaming service from the group, he still describes Netflix as the weakest of the FAANG stocks. Boris Schlossberg from BK Asset Management made a similar statement. “For me, it’s the weakest [stock] in the group, and you should definitely keep your hands off it, given the relative strength as a basis,” he said in an interview with CNBC. In addition to the weak user growth and strong competition, he is primarily concerned about the high costs for the production of original content.
According to “TheStreet” there are – taking these aspects into account – other stocks that would be better off in the illustrious circle than Netflix. Specifically, the news portal names Microsoft or NVIDIA, for example . The Redmond-based tech company in particular is more like Facebook, Amazon, Apple and Google than Netflix does. Because it is also dominant in one business area and is growing rapidly in others: Microsoft has evolved from a manufacturer of operating systems and, according to “TheStreet”, now makes around a third of its total sales with cloud services. Next to that is Bill Gates’founded group also active in the areas of gaming and advertising With a market capitalization of around 1.94 trillion US dollars, its market value is also lofty heights. With a market capitalization of only around 434 billion US dollars, NVIDIA cannot keep up, but still beats the market value of Netflix (as of June 11, 2021). The company is also dominant in graphics chips, but also has important partnerships in the auto industry and is also active in the areas of data centers and AI technology.

Jim Cramer continues to believe in Netflix

“I think it has been decoupled from the group [of FAANG shares] for a while, considering that its business is very different from that of the other members,” says Joel Kulina of Wedbush Securities, according to TheStreet. looking at Netflix stock. Nevertheless, he argues that the share certificate should keep its place and that the group should only be supplemented – but for a reason that has less to do with the company itself. “A lot of people have tried to involve Microsoft along with the others, but it doesn’t come off the tongue that easily […] FANGMAN is one of the better [acronyms] I’ve come across, it’s easy to say; it contains big growth stocks Market capitalization across different areas of the tech industry, “said Kulina.In addition to Netflix, the new acronym FANGMAN would also contain Microsoft and NVIDIA.
According to “TheStreet”, a large part of the success of the FAANG shares can be traced back to their catchy name. This must therefore remain memorable even when changes are made. In addition, Netflix does not necessarily have to be removed from the group as it is still a leader in the streaming industry despite losing market share.
The inventor of the acronym, Jim Cramer, sees it similarly. After submitting the quarterly figures, he also described Netflix as the “weakest of the FANGs” in a tweet, but indicated that he did not believe in a complete knockout of the streaming service.

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He reaffirmed this attitude around the same time in an interview with “TheStreet”, in which he said that he still believed in a comeback for Netflix. “I don’t accept the idea that Netflix is ​​done for,” said Cramer. At the same time, he emphasized that every member of the FAANG shares – and thus also the group and its significance as a whole – would change constantly. He would only think of kicking Netflix if he had the feeling that the streaming company would no longer change or develop further. At the moment, however, he still believes that they “will come up with what is necessary,” said the stock market expert. Nevertheless, according to Cramer, it is not a mistake to watch Netflix closely.

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