So I’ve thought about this a lot, because the job of matching Facebook, Amazon, Netflix and Google to a Beatle is one that every investor needs to think about.
Why? Well there’s four of them, for one thing. And just like the Beatles, they’re all “fab”, too, and you had better have appreciated their fabness last year or your performance would have sucked. More seriously, they’ve all got that no-limits platform thing going for them. FANG is like a vortex, sucking in value from everywhere in tech and non-tech industrial sectors. Do you make ethernet switches? Well, you’d better sell to FANG or you’re toast. Do you sell stuff online? Watch your Google page ranking drive your sales. Are you a TV network? Well, you should . . . do something or other with Netflix. What, you advertised the new campaign buying search terms on Bing?! And we can’t launch the service this week because the server guy delivering the new servers got lost? You’re fired. Fred, ring Facebook and Amazon. Etc.
But let’s face it, everyone’s got their favourite FANG, just like everyone has their favourite Beatle. And just as the great thing with the Beatles was that they all had their very distinct personalities, so do the FANGs. This makes both foursomes even cuter and easier to love and have impassioned debates over.
So if each FANG was a Beatle, which one would they be? This is Baruch’s list:
Well, Netflix is easiest. It’s Ringo. Netflix is the most fun of the FANGs, and the least threatening. When asked if he thought Ringo was the best drummer in the world, John replied he wasn’t even sure if he was the best drummer in the band. We have Netflix at home. The kids watch Pokemon and Pretty Little Liars, we watch Breaking Bad (yes I know we’re a bit behind), all harmless except for the meth. Netflix isn’t going to conquer the world, just our high production value video watching habits. So in the end the addressable market is limited. And it’s mostly just content delivery, though we must appreciate the recent attempts at creation. Overall though, if it wasn’t for Netflix, we would likely still be watching over the top video, just from somewhere else. Similarly, the Beatles would likely still have been the Beatles if Ringo hadn’t been the drummer and they’d kept Pete Best, or god forbid hired Keith Moon*.
George, Paul and John are more difficult.
In the end I reckon Google (I’m not going to call it Alphabet) is George Harrison. That’s because while George was always a bit in the background vs Lennon and McCartney, he was totally indispensable to the sound of the band, and a talented songwriter in his own right whose light was hidden, as it were, under the bushel of having to hang out with the 2 greatest songwriters of his generation. Google’s been a slower grower than the other 3 these past few years and is in terms of go forward estimates too. But that’s cool. Search is theirs, they have some worries in terms of Facebook taking more share of ad impressions in mobile, and still have some work to do in really milking YouTube, but that’s a great asset. They’ve shoved into the background their far-off cosmic ambitions like defeating death and creating artificial life in order to make clear just how good their core businesses are. In general, like George, they’re stable, blissed out and at one with the universe; Hare Rama.
Facebook is Paul (“Hi fans!”) McCartney. An historic talent, but just a little conventional and commercial — i.e. a bit of a sellout, if you were going to be uncharitable. And sometimes just fucking annoying. Just as I will never forget the blot on my Facebook feed that was FarmVille “Bento has met a lonely cow, boo hoo”, nothing can forgive the Frog Chorus, which ruined a good chunk of my early teens. I’ll let Mull of Kintyre pass because I can never work out if it was awful or an actually brilliant piece of faux Scots kitsch. Just like Paul’s output in the ’80s, my Facebook feed is a mishmash of occasional cool stuff in a sea of mawkishness. And an excess of exclamation marks. But just like Paul’s 80s output, it’s unavoidable. Spies Like Us? Ebony and Ivory? Press to Play? Some of it was brilliant of course: Live and Let Die was epic (though 1970s vintage). Similarly, who doesn’t WhatsApp? One billion users and still unmonetized. How many people do you know who’ve never Instagrammed? Old people, and OK, yes, Baruch. And look at FB’s last quarter: a thing of beauty. FB’s cracked mobile like no-one else. There’s no other platform able to reach 1 billion people, targeted, at one go. Like Paul, it’s the commercial king of the fab four.
Finally, Amazon is John Lennon. The indispensable Beatle. The cool one who didn’t give a shit. I’ve yet to see limit to the eventual addressable market of AMZN; Jevon’s Paradoxes up the wazoo. It’s the online Wal-Mart for everything, but can do fulfilment for you of your own e-commerce site much cheaper than you can, so now most of the parcels on its network aren’t sold “by” Amazon but by 3rd parties. Skynet-like, it controls armies of robots and drones. Amazon Web Services is the power behind pretty much anything cool you do online, be it book an Airbnb, save something on Dropbox, call an Uber, or watch Breaking Bad on Netflix. It’s the biggest and fastest growing public cloud, and now is beginning to eat into enterprise software vendors’ revenues; the poor things have to use Amazon as a channel because that’s where all their customers’ IT infrastructure increasingly “is”. Now to their and their shareholders’ horror they’re finding Amazon is selling their own-label, cheaper versions of the same software. It’s something non software vendors on Amazon fulfilment platforms have had to put with for years; they know everything about you, what your hot selling items are, and there’s nothing you can do about it.
You see, just like Lennon, Amazon don’t care. They’re going to be your frenemy until they’re bigger than Jesus. They don’t listen to you, the shareholder, because they know that if they’d have listened to you way back (“make profit now! beat the numbers! stop spending!”) they’d never have got to be who they are today, and who they’re going be tomorrow. John went off with Yoko because he knew it was the right thing to do. He had to play his part in breaking up the band at the top because they’d done their thing, all else would be repetition. He had to ignore the fans to give them something greater later; and that’s what Amazon does too.
Don’t worry about this reporting season; the fact that Amazon’s was the worst, relative to the other FANGs, means nothing for its position as Baruch’s favourite. Shareholder disdain is not a recipe for short term upside; some would say neither for long term upside either. And note this is also a discussion with nothing to say at all on the topic of valuation, which is of course vitally important when it comes to knowing what to buy. One final note: is this not investment advice. Put another way, if you go and trade shares on nothing but the implicit recommendation of a semi-anonymous blogger you deserve to lose all your money.
*From Keith’s wikipedia page: A hotel manager called Moon in his room and asked him to lower the volume on his cassette recorder because it made “too much noise.” In response the drummer asked him up to his room, excused himself to go the bathroom, put a lit stick of dynamite in the toilet and shut the bathroom door. Upon returning, he asked the manager to stay for a moment, as he wanted to explain something. Following the explosion, Moon turned the recorder back on and said, “That, dear boy, was noise. This is the ‘Oo.”