By now, everyone is aware of the FAANG investing paradigm as it includes three trillion-dollar companies — Apple, Amazon (NASDAQ: AMZN), Alphabet — a game-changer in the cord-cutting revolution — Netflix (NASDAQ: NFLX) — and the next trillion-dollar company — Facebook. All are solid investments but two, in particular, are poised for growth as the pandemic rages on and beyond.
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E-commerce behemoth Amazon has had a fantastic year, as has its founder and CEO Jeff Bezos; the stock price is up nearly 67% year-to-date (YTD) and his net worth is up nearly 80%, firmly solidifying his position as the richest man in the world. Amazon has irons in many fires that continue to rage during the pandemic. At-home shopping, check; over-the-top (OTT) streamer, check; cloud services, check; essential grocery store, check. And it’s just getting warmed up.
Amazon was so swamped with consumer demand that it cut its marketing spending by roughly 30% in Q2 of this year. Amazon Prime Video boasts nearly four times as many films and 70% more shows than market leader Netflix and continues to secure lucrative titles like its ‘Lord of the Rings’ prequel series, assuring increased future subscriptions to Amazon Prime, the company’s subscription-based money generator. Amazon Web Services (AWS), which boasts clients like Netflix, LinkedIn, and Facebook, has had record-setting sales of $11.6 billion in Q3 2020, and is constantly acquiring new customers as businesses realize that the scalable service is less expensive than physical hardware houses.
As for the future, Amazon is planning a sizable investment in the Indian market, contributing $1 billion to digitize Indian businesses. Additionally, the company is planning on making deliveries with drones and autonomous vehicles and plans to be completely carbon-neutral by 2040. Amazon is also working on expanding its liquor delivery service to more cities in the U.S. and will soon likely be involved in the marijuana game once federal legalization is passed. On the more traditional medication front, Amazon entered the pharmacy market with its purchase of PillPack and has recently launched ‘Amazon Pharmacy.’.
All in all, analysts are expecting the company to continue growing earnings at an average annual rate of 94% over the next five years as e-commerce and cloud services continue to saturate the global market.
Netflix started life as a brick-and-mortar DVD rental disruptor, ultimately putting Blockbuster out of business. It then pivoted to offering streaming video online and became a first-entrant in a business that would lead a revolution against traditional cable. Since a Netflix subscription is cheaper and more demand-based than traditional wired-cable, consumers chose to cut their cords and embrace the service’s original programming with shows like ‘Tiger King,’ ‘Stranger Things,’ and ‘The Witcher,’ along with original movies like ‘Roma’ and ‘The Irishman.’
Netflix has nearly 200 million global subscribers and understands that content is king, investing over $10 billion annually on average for the last 5 years on developing original programming and films. This assured the company had original programming to release during the pandemic which provided tailwinds for Netflix on two fronts: subscriptions and production halts. The production halts have actually helped the company by reducing its spending on filming and increasing its free cash flow for the year from an initially anticipated -$2.5 billion to under a billion for this year.
Although the company’s recent price hikes can boost revenue by half a billion dollars next year, the company can also adopt a less-expensive subscription tier with ads, much like Hulu offers. This would give Netflix more subscribers it can upsell to as well as additional revenue from advertisements. As the market leader in OTT services, Netflix still has a long runway for growth as the market is expected to reach nearly $195 billion in value by 2025. The company’s stock price is up over 50% YTD and its revenue is up nearly 200% since 2015, at $20.2 billion in 2019, and is expected to reach nearly $25 billion this year.
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