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Jan 3, 2019

Netflix gains as other FAANGs slide and analysts see fewer risks

Netflix

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Netflix Inc. (NFLX.O) shares rose on Thursday, bucking a sharply negative tone for the broader market as the video streaming company extended a recent stretch of outperformance.

The stock rose as much as 3 per cent in its fifth advance in six days.

The other FAANG stocks -- Facebook, Apple, Amazon, and Google-parent Alphabet -- were all solidly lower on Thursday, led by Apple, which plummeted 10 per cent after it cut its revenue outlook. Facebook fell 3 per cent, while Alphabet and Amazon both lost more than 2 per cent.

Apple’s lowered view was the latest negative headline to pressure a FAANG company. Facebook has been struggling with a number of controversies and the prospect of greater government regulation, while both Amazon and Alphabet disappointed in their most recent quarterly reports.

Netflix, in contrast, has avoided such negative narratives, and while the stock hasn’t been immune from the FAANG sell-off -- it is down about 35 per cent from record levels -- the recent gains and the lack of major headline risks have analysts pointing to it as the last of the group to maintain some of the positive momentum that lifted them for years.

“Most of the FAANGs have really specific issues they’re dealing with, but Netflix doesn’t,” Tim Nollen, a media and entertainment analyst at Macquarie Capital said in a phone interview. “It doesn’t have growth issues like Apple, and it doesn’t have self-inflicted issues like Facebook.” He has an outperform rating and US$315 price target on the stock.

“In addition, whereas the other FAANG companies have been on a steep international growth curve for several years, Netflix is only getting started with international growth. That’s where the real bull story is.”

That optimistic outlook was echoed by Justin Patterson, a research analyst at Raymond James, who also has an outperform rating on Netflix, along with a US$435 target.

“The fundamentals are very different across the FAANG companies,” Patterson said in a phone interview. “Netflix is a subscription business with zero China exposure, meaning nothing major can hit it from a trade-war perspective, whereas Apple obviously faces some impact.” Nor is Netflix ad-driven, “like Facebook or Alphabet, meaning it won’t take a hit from ad rates if there’s a macro slowdown.”Embedded Image