Nearly a decade ago, TheStreet founder Jim Cramer coined the acronym FANG, later updated to FAANG, for the supremely dominant companies in their respective markets and the resulting proclivity of their stocks to outperform.
For the nascent streaming industry, Netflix (NFLX) – Get report The position was among the safest in the shorthand lingo of the Facebook tech titans. (full board) – Get report on social media, Apple (AAPL) – Get report on consumer devices, Amazon (AMZN) – Get report in e-commerce and Alphabet (GOOGL) – Get report looking.
However, as more and more players enter the streaming space, perhaps Netflix’s dominance and thus its place on Cramer’s coin could be more tenuous.
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In fact, while the Los Gatos, California-based company continues to lead the group in terms of subscriber engagement, the lead is shrinking. According to a recent Ampere Analysis report, Netflix’s market share dropped by nearly a third, from 29% to 20% of the total market, as competitors such as Disney (DIS) – Get report They’ve challenged for the streaming crown and seriously damaged the company’s growth story.
“I think you have disconnected from the [rest of the FAANG] it’s been a while since their business is extremely different from other members, ”said Joel Kulina, Senior Vice President of Equity Trading at Wedbush Securities. “It’s still a good indicator of large-cap growth sentiment, but that’s about it.”
Microsoft is moving?
Given Netflix’s deficiency in terms of fitting in with the rest of FAANG, a debate has started about a possible replacement.
While FAANG relied on the dominance of a particular industry by Cramer, each of the companies encompassed by the acronym, except Netflix, have become diversified companies with multi-industry benefits and strong network effects.
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Apple’s turn to services has been well publicized and has underpinned its long-term bullish thesis; Alphabet has very successfully expanded into video through the acquisition of YouTube and has rapidly grown its cloud business while continuing to make a lot of bets in fields as disparate as video games and autonomous vehicles; Facebook has acquired to assert its dominance in social networks; And Amazon’s dominance of the cloud has overshadowed its retail beginnings to power all its businesses.
Through these branching platforms across numerous industries, each company has been able to benefit from mutualistic business models that cement its status as a dominant technology player. The same cannot be said for Netflix. To correct this obvious difference, Microsoft (MSFT) – Get report it could be a perfect replacement.
While the Redmond, Washington-based company has long held sway over operating systems as its core business, its forays into gaming, advertising, and especially cloud computing have taken the company to new heights. . In fact, about a third of the company’s total revenue is now derived from its cloud business, building on its long-standing dominance in software.
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Indeed, as CEO Satya Nadella teases a major update to Windows operating systems at the company’s Build 2021 event in late May, while signaling an intention to dive deeper than ever into cutting-edge technology in the cloud, the dominant and well-diversified company is clearly more similar. to Facebook, Amazon, Apple and Google than Netflix’s decidedly concentrated business. Like those other companies, Microsoft is dominant in one area of the business and growing rapidly in others.
Additionally, while Cramer didn’t envision the group as a valuation-based grouping, the staggering gap between Netflix and the rest of its FAANG peers is becoming increasingly noticeable. While Netflix has a still healthy market capitalization of just over $ 200 billion, it pales in comparison to the market capitalization of the rest of the group, ranging from just under $ 1 trillion in Facebook’s case to more than $ 1 billion. 2 billion for Apple.
In terms of market movement ability, this leaves Netflix somewhat behind and therefore less useful for the bundle’s service as a market indicator.
Addition, not subtraction
Still, part of the ubiquity of the FAANG name is not entirely based on its application to markets. A large degree of credit belongs to the appeal of the name itself, which means that FAAMG or FAMGA can leave a lot to be desired in terms of popularity.
As a result, Wedbush’s Kulina argues that Netflix does not need to be removed. Instead, he advocates the addition of Microsoft and its stalwart semiconductor Nvidia. (NVDA) – Get report to result in the catchy FANGMAN.
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“Many have tried to include Microsoft with others, but it doesn’t get away so easily,” he said. “FANGMAN has been one of the best I’ve come across, it’s easy to say; includes large-cap growth names in various sectors of technology. “
Certainly, Nvidia would also be a good fit, as its dominance in graphics chips has helped the company assert a dominant market share in graphics cards, reaching a whopping 82% market share according to Jon Peddie Research.
In terms of diversification, CEO Jensen Huang’s acquisition strategy has helped the firm penetrate the automotive industry through high-profile partnerships across its network of NVIDIA drives, as well as data centers, with the help of the acquisition of Mellanox, as well as artificial intelligence technology through its anticipated acquisition of Arm.
While the semiconductor industry is certainly crowded, Nvidia has managed to differentiate itself beyond its firm foundation in the domain of games and graphics chips. As such, he could also be a perfect candidate to be mentioned alongside longtime tech leaders. In addition, its market capitalization is more than $ 400 billion, increasing its potential to fit in with the rest of the group.
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As such, Netflix may not need to be removed from FAANG as it is still holding on to a streaming lead amid the wave of industry entrants, but it may need to at least move into a market mnemonic a bit. more crowded.
Facebook, Apple, Alphabet, Amazon, Nvidia, Microsoft and Disney are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Find out more now.