Facebook vs Netflix Stock: When it comes to the stock market, some investments get more attention than others. FAANG Stocks are a perfect example. These companies – Facebook, Amazon, Apple, Netflix, and Google (traded under Alphabet) – make headlines and capture the imagination. They are some of the largest in the world and amongst the most heavily traded. FAANG stocks explode on news of a new product or a quarter with revenue that was higher than analysts expected.
However, that doesn’t mean that they have a place in every investor’s portfolio.
Pros and Cons of Investing in FANG Stocks
FAANG stocks (or FANG depending on whether you include Apple – Jim Cramer, who originated the term in 2013 didn’t include the iPhone maker originally) are worth watching. Together, these companies are enormous. They comprise a large percentage of the stock market – roughly 10 percent, give or take – so when their prices move, the entire market can shift.
Investing in FAANG stocks comes with another big disadvantage too – price. It costs at least a couple hundred dollars to buy a single share of a FAANG stock and some of them top $1,000 per share.
If you just want access to the growth that these stocks present, an index that mirrors the S&P 500, many mutual funds, and most large cap funds include sizable exposure to these stocks. Plus, they are often cheaper per share and have limited downside thanks to diversification.
FAANG stocks have become so popular that they are trading close to their target prices. After all, most of these stocks had a meteoric rise – and there is only so much possible upside. Another issue with FAANG stocks is that they tend to be priced on their expected growth rather than their fundamentals or other markers of profitability. That’s fine as long as the market is bullish, but if it turns, the stocks could see a decline despite whether they are profitable or well-run.
But, there is an obvious pro to investing in FAANG stocks – if you get a chance to buy in low, the upside has (historically) been impressive.
Before you invest in a FAANG stock, do your research so you know what you are getting into and have an idea how much upside you could enjoy in your investment horizon.
Is Netflix Stock a Buy?
Netflix [NASDAQ: NFLX] is the smallest of the FAANG group, but its subscription service and production company have made the company influential. When Netflix first debuted, it was a DVD rental subscription service. Today, a part of that business remains but it is mostly a streaming video company that makes some of its own movies and shows.
Subscription streaming services is a tricky business. More and more companies are entering this arena. Someone has to lose and in the first half of 2019, Netflix lost subscribers.
That can be problematic because the company has commitments in place that are set years in advance. Netflix has agreements with other video production companies to stream their content.
Even if its subscriber volume decreases, the company still has to pay the agreed upon rates. In this sense, its costs are fixed and are independent of its subscriber volume. If it loses subscribers permanently, it could be problematic.
Further, many of these new subscriber services are owned by the companies that produced that content. Going forward, this reality could mean that fewer production houses are willing to license content to Netflix. For example, now that Disney has its own streaming service, will it license its movies and shows to Netflix?
To stem the tide, Netflix does have multiple pricing tiers, so customers only pay for the number of screens and video quality they want but that strategy will only go so far when there are so many options available.
In addition, Netflix has benefited in the past from partnering with technology companies to make its service available on televisions and other platforms.
Some subscribers may have chosen Netflix [NASDAQ: NFLX] over other options because it was easy. That reality is changing too. There is a large variety of devices for streaming now and they tend to support dozens of streaming options, so Netflix doesn’t have that edge anymore.
Overall, Netflix has worked hard to develop its own content and it may be able to navigate these waters, but investors should be aware that some fluctuation is possible as more video streaming subscription services come to market.
Should You Invest in Facebook Stock?
Facebook [NASDAQ: FB] had its IPO in 2012 – and that was a lifetime ago compared to what Facebook has become. Its services now include Instagram and WhatsApp as well as Oculus, and it has over 2 billion active users.
Facebook earns revenue through ads. Specifically, the company does more than sell ad space. It leverages all the information it collects from the people who use its apps to help marketers reach their target demographics. Over the long term, Facebook expects to expand its offerings to include hardware, artificial intelligence, and augmented reality.
Competition against Facebook [NASDAQ: FB] is somewhat limited. The company has a strong offering and billions of users, how do you compete against that?
That said, there are regional social media networks that do offer some competition as well as broader social media networks like Twitter and LinkedIn.
To retain the users that it has over those other services, Facebook has to keep up with the features that people want and the type of content that they want to see, while including enough ads to be profitable. If they include too many advertisements, people may not want to use the social media platform and then they lose marketers. It is a fine balancing act.
Facebook has done well walking the line between ad-crazed service and online community focused on connecting people – it is still attracting new users – competition is still a very real threat.
Also, Facebook [NASDAQ: FB] has to make sure that its platforms work well with prevailing and new technology. Any lapse here could cost the company users, which means lost revenue.
In addition, government regulations or security breaches could be equally upsetting, as could negative media coverage.
Facebook vs Netflix Stock: The Bottom Line
Netflix and Facebook are both good companies with the potential to contribute meaningfully to your portfolio over time but be careful – especially if you have a shorter time horizon for your investment.
The share prices of these companies are often irrational. If you do invest, pay attention to consumer preferences and investor sentiments as well as company fundamentals.
Even if fundamentals do not directly impact the share price the way they may with other companies, it is still important to pay attention to how well a company is run. The most popular business in the world could still go bankrupt if it is mismanaged.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.