Last week reader’s question- is it too late to invest in FANG?

My Response- {Keep reading}, DO YOUR RESEARCH, but it is not too late.

Lets start by defining “FANG”. I believe Jim Cramer created this acronym. It stands for Facebook, Amazon (many ask why not Apple), Netflix and Google (which changed it’s name to Alphabet to emphasis the company is multi-dimensional).

How often do you use the above four companies? Most days I log into my Facebook account and while I intend to be out in five minutes I often stay too long!. I received a package from Amazon yesterday and ordered four products this morning. And yes we are Prime members. (Hum- we pay a fee for the pleasure of shopping on Amazon! That just ain’t right!). I typically utilize Google multiple times per day. And this morning, while riding my stationary bike (60 minutes -give me some credit people!) I watched Extinction, ANOTHER new show on Netflix. (Netflix is getting to good at predicting what type of shows I like! While that appears to be good, sort of annoys me!). Our daily usage of FANG products indicates just how powerful these relatively new and powerful companies are.

HOW MANY OF US USE FANG PRODUCTS?

• Facebook -has over two billion monthly active users Initial Public Offering (IPO)/First Time You can Purchase the Stock- May 2012)
• Amazon – >310 million active users and 80 million pay an annual $120 fee to be a prime member (Amazon launched its IPO in 1997)
• Netflix ~118 million paid subscribers (Started 1997- IPO May 29, 2002)
• Google 3.5 billion searches EVERY SINGLE DAY and 1.2 trillion searches per year worldwide. (IPO August 19, 2004)

Hundreds of millions of people globally, use the above company’s products and services EVERY SINGLE DAY! And they pay for those services!

How about the FANG Stocks Performance?

As you see from above charts, all FANG stocks have DELIVERED strong returns.

Here’s a quick look at pros and cons of investing TODAY in each of the FANG stocks:

FACEBOOK (FB) PROS
• More user and usage time than any other social network.
• Provides largest audience for online advertisers.
• Ad revenue per user is growing.
• Application of Artificial Intelligence technology along with the launch of Virtual Reality products-Oculus Rift, will increase user engagement.
• Instagram.

FACEBOOK- CONS
• One-Trick Pony- Majority of revenue comes from advertising, which could shift to competitor’s platforms such as Google and Snapchat.
• Many customers belong to other social networks such as Snapchat and FB is fighting for user’s time and length of engagement.
• After the 2016 election and requiring the CEO to testify before Congress (Testifying Before Congress is designed to give Congress People FREE TV face time. They make five-minute speeches and ask 90 seconds of questions. Value added?) Facebook made recent changes in algorithms, which reduced advertising revenue, last quarter. Stock priced dropped

AMAZON (AMZN) PROS
• Dominates (Actually need a stronger word. How about KNOCKED OUT) North America online retail. Gross merchandise volume was greater than $200 billion in 2017.
• Significant international growth opportunities in Europe, Japan and Southeast Asia.
• Popular device products- Kindle, Fire TV, Dash, Echo and other Alexa enabled products, equate to customer acquisition and retention, while promoting Prime Memberships.
• Significantly More than forecasted growth in Alexa Enabled Products revenue
• Good profit from Web Services business.
• New revenue stream-Advertising

AMAZON CONS
• Numerous EXPENSIVE (BILLIONS OF $$$$$) initiatives (Addition of Distribution Warehouses, Physical Stores, HealthCare, etc.) are impacting profit expansion/growth.
• Challenges with international expansion include: local e-commerce regulations, additional Billions of $$$$ capital and infrastructure investments and the need to fight regional existing competitors.
• Well-capitalized competitors such as Microsoft and Google, exposing Amazon’s very profitable Web Services business to competitive prices and reduced margins.

NETFLIX (NFLX) PROS
• The best content library.
• Has developed and delivered a number of their own successful shows.
• Approximately $9 Billion annual budget for new shows.
• Introduced the market to “binge watching”. Come on, raise your hand if one Saturday you did not sit in front of your TV and watch five or more shows in one sitting!
• Attractive markets available internationally.

NETFLIX CONS
• One Trick Pony. Revenue driven essentially by one product.
• Needs to continue spending $9+ BILLION annually, to create original content with more competition coming on line.
• Netflix competes with Cable & Satellite TV; Amazon Prime; HULU and others.
• Disney will launch it’s own original content in mid 2019.
• Apple announced investment of $1 Billion to create it’s own content.
• To expand outside the US will require further BILLIONS of investments to create original content that appeals to multiple, distinct cultures and users.

ALPHABET (GOOG) PROS
• As the global number of online users increases, so will digital ad spending on Google
• Android is the dominant Smartphone operating system, generating more growth as search moves from desktop to mobile.
• Alphabet generates Billions in cash, allowing the company to invest in R&D and acquisitions. As well as take risk on new products.
• Leader in autonomous car technology.

ALPHABET CONS
• One-Trick Pony -Majority of Profit still comes from Google search ad revenue.
• Allots a significant amount of capital to high-risk gambles that so far have not returned the investment dollars. Example: Google Glasses.
• Google is being attacked through regulatory agencies and litigation for it’s aggressive methods and recently was fined over $6.7 BILLION from the EU’s antitrust investigation. Note Google will appeal.

CONCLUSION

Is it still a good time to invest in the FANG stocks? Always look at the pros, cons and risk, including market risk. We are over due for a correction, which could come at any time and reduce FANG stock prices by 10-30% or more! Do your own research and decide if the pros outweigh the cons. I would only invest in the market if I were a long-term investor and willing to hold the stocks, if not buy more, doing a correction.

The proposed U.S. tariffs will most likely not hurt the FANGs.

All four companies are market leaders earning Billions and investing billons. But there are most likely better growth opportunities out there. In many ways the FANGs are yesterday’s leaders. The most important factor for these companies and every company are NOT to rest on past successes and recognize there are hungry competitors constantly trying to destroy them.

I own shares in all four FANGS and recently in the past 30 days increased my investment in Alphabet. Alphabet has the strongest Autonomous Vehicle knowledge and systems. Experts suggest this is worth $100-$250 billion and is not reflected in their stock price.

DISCLAIMER
I am an investment and finance blogger, with my Rutgers, MBA and Harvard, Advanced Management. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or financial advisors.