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Going FANG-less
Submitted by Michael Lebowitz via 720Global.com,
The acronym FANG represents what has seemingly become the most popular investment strategy of the last few months. FANG constitutes 4 stocks: Facebook, Amazon, Netflix and Google. These companies are the markets darlings for good reason; since June they are up on average 40%, whereas the S&P 500 is flat over the same period.
Before you rush to buy these gems we thought it would be helpful to review some basic fundamental data in order to clarify exactly what investors are assuming when they purchase these stocks. The analysis in the table below reflects the change in revenue, profit margin or income required for these companies to have the same price to earnings (P/E) as the S&P 500. The data highlighted in blue represents the revenue, margin or net income required to bring each P/E to the market average of 18.6. The data in yellow highlights the percentage change required to bring each P/E to the market average.
Company Comments
Facebook: Revenues were up 25% year-over-year in the most recent 12 month period but growth is slowing as garnering additional market share becomes increasingly difficult. While deeper market share penetration can certainly be aided with mergers and acquisitions, revenue expectations are tremendous. One has to seriously question the ability of how, what is essentially, an advertising company can generate such growth in what is an extremely competitive and trendy industry.
Amazon: The table above shows that Amazon would need to see an astronomical increase in revenue to better justify its valuation. However, one must consider that margins are likely to increase in the future. If we make the huge assumption that they can improve their margins to be similar to those of Walmart (5.5%) Amazon would then still need to almost triple revenue to become fairly valued versus the S&P 500. Increasing their profit margin to 5.50% likely comes at the cost of losing market share thusrevenue. Increasing margins in a commoditized business, like Amazon’s, highlight the significant challenges Amazon would have to overcome in order to normalize its P/E ratio. At current margins, revenue and income normalization to the S&P 500 is virtually impossible.
Netflix: Netflix needs to achieve over 1,750% revenue growth in order to harmonize its P/E with that of the S&P 500. The large bulk of Netflix’s revenue comes from the monthly subscription fee of $7.99. To put the required revenue growth to normalize their P/E into perspective, Netflix would need to add 590 million new customers and hold on to them for at least 1 year. They currently have 69 million customers. As a point of comparison there are approximately 123 million U.S. households.
Google: In comparison to the other 3 companies, Google is by far the most reasonably priced relative to the P/E of the S&P 500. Its current P/E at 36 is almost double the market but Google’s growth rate is 2-3x that of the markets’. Google is expanding well beyond the search engine/advertising business to create new revenue and income sources. While still overvalued in our opinion, it is clearly not at the eye-watering levels of the other three.
Recommendation
Even though we believe it will be the right call when the market finally comes to its senses, we do not have the iron stomach required to recommend shorting these stocks. We do, however, recommend you go FANG-less and let other investors find a greater fool to whom they can sell.
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So, is the FANG story over?
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"So, is the FANG story over?"
Not unless all the world's compulsive degenerate gamblers and swindlers all had a moment of clarity at the same time.
Just because teh FANG stocks are overpriced, over-hyped, bubbly nonsense doesn't mean there's not a lot of great tekk out there. Hardware and software, non-corporate and for your taking.
My favorite part is the over 100% profit margin for Facebook. Is that supposed to be possible.
No wonder Zuckerfuck is selling off his shares. Imagine what happens when the tax bill for ten+ billion comes due and your company is worth ZERO.
Or the Kardashian Ass dimple gets a cosmetic makeover.
or forced to by margin call
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So, to the all knowing-all seeing brainiac's in the central committee planning department, any advice on what I should buy and hold in my 401k or should I just wait for the fucking bottom to drop out? ;-)
You should open a MyRA. UST's all the way, baby. Guaranteed no loss of principle and a healthy .0000002% yield.
- Barry O
Miners are cheap, you do take the risk that they go insolvent and become the chattel of their lender, which is almost always JPM, who strangely enough is helping them go broke. They all won't go broke though.
I've got another acronym to describe this market without moar fed printing. It's called FUBAR.
Game over man, game over. What the fuck are we going to do now?
https://youtu.be/dsx2vdn7gpY
Build a fire, sing a couple of songs?
LOL.
I'd say you could roast a couple bankers over the campfire but think of how much cocaine residue they must have in them.
"Maybe you should put her in charge." (Motions towards Janet Yellen)
Lttle Fang.. https://youtu.be/D6cngTn2_NY?t=53s
$5.1 Trillion dollars in revenue, BWAH HA HAA HA HA HA HAAAAAAAA!!!!!!!
Amazon would need to be the entire consumer economy in the USA to get to that point. But yes keep sending that stock to the moon Wall Street.Maybe they could start selling health care, I'LL TAKE THAT HEART TRANSPLANT PLEASE, DO I GET FREE SHIPPING IF I'M A PRIME MEMBER?
Of course selling products isn't what Amazon is all about. As the leading money laundering operation for the CIA global human/drug/weapon ring, they are safe.
Fucking Bezos.
If you look at what FANG do for a living you can see why .GOV may be buying their stocks. They will control your social interactions, your buying and selling, your entertainment and your information flow. These might be things a (totally hypothetical) NWO would be interested in controlling. I've often commented that the idea of printing money to buy stocks is a great way to nationalize an economy. But why would THEY be interested in Bed Bath and Beyond when they could concentrate on the FANGs? Of course I'm just paranoid.
Do you have a link to an article/source for the Amazon as smuggler/launderer? Not trying to call you out, I'm genuinely interested.
Apparently, Google is undervalued (/sarc).
Ridiculous to look at stock price of FANG on DCF or ROE basis. It's all about revenue growth with FANG. When revenue growth rate slows, that will be time to short them.
Yellen doesn't care what you say - she's buying them anyways.
the amazing thing about amzn is it doesn't make sense at a third of its current value. it makes sense around 100. it's fn retail afterall.
Amazon is much more complex than this simplistic table would have you believe. AWS is $8B annual revenue, growing at 80% annually and has 25% net margins. AWS dominates the space.
The retail business is growing 30-40% a year. The retail business does not make money - yet. The biggest cost (by far) to the retail business is transportation costs - as the fulfillment network expands, and AMZN gets closer to the customer, the transportation costs will get driven down.
Also, unlike F or N, the company has $56B in actual tangible assets (you know inventory, PP&E, etc).
Netflix is the biggest dog in the group in my opinion as they have a ton of off balance sheet liabilities for content development and they missed their US growth targets last quarter.
nflx is a dog, too, but trying to rationalize amzn's valuation is ridiculous by any metric. it is still retail and data storage will not save it. any prudent valuation put it at about 100 only because it still is growing and dominates internet retail even though it is losing share of the growing pie.
I wouldn't buy any of them here. I think AMZN is currently priced assuming a very best case scenario (ie if AWS grows 80% for 3 years and retail grows 30% for 3 years AND hits 6% margins, you get to ~$16B NI).
My point is, showing a chart that says the stock needs to get to $5T in revenue to be fairly valued is silly.
Or, by my quick math, netflix could raise their monthly subscription fees to $65 and normalize their P/E.
I'm in.