The FANG Playbook
The FANG Playbook
Jim Cramer, who coined the “FANG” acronym as a descriptor for the high-flying F acebook, A mazon, N etflix, and G oogle group of tech stocks that have dramatically outperformed the market, made clear yesterday that his endorsement wasn’t necessarily connected to the underlying companies:
A note on these stocks. I picked them largely because over the years they have become anointed by a group of go-go managers, meaning managers who like to be affiliated with the stocks of companies with the most momentum. I by no means have said “buy these stocks” because they represent great value. What I have been saying is that because of the scarcity of actual high-growth stocks these have become default names that managers naturally gravitate to.
It’s not an unreasonable position: the demand for growth in a low-interest-rate environment flooded with capital, plus a healthy dose of FOMO ( F ear o f M issing O ut) has certainly played a role in the rise of unicorns; it makes sense that the same dynamics would play out in the stock market as well. It’s also a position that has had the good fortune of being right: in 2015 the FANG group accounted for more than the entire return of the S&P 500. 1
In fact, though, Cramer was more right than he apparently knows: the performance of the FANG group is entirely justified because of the underlying companies, or, to be more precise, because the underlying companies are following the exact same playbook. Sometimes the market does get it right. 2
The State of FANG
Each of the FANG companies is in a similar position in their respective industries: they haven’t so much disrupted incumbents as they have subsumed them:
- Facebook: The late David Carr, who first broke the news about Facebook’s Instant Articles initiative back in 2014, worried that “media companies would essentially be serfs in a kingdom that Facebook owns.” However, as I noted in The Facebook Reckoning , publishers already are. Facebook’s status as the Internet’s home page means that publishers have no choice but to accommodate themselves to the social network, whether that be Instant Articles or an increased focus on video .
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