Home Markets The Whole is Smaller than the Sum of its Pieces for FANG 

The Whole is Smaller than the Sum of its Pieces for FANG 

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The news of policy threats combined with stocks coming down from its prior prime position caused multiple analysts to start estimating the stock value of FANG as individual companies. A sum-of-its-parts approach is being made by many and encouraged by Wall Street to insist that FANG companies remain at a good value.

 

FANG as a Whole

FANG stands for Facebook, Amazon, Netflix, and Google, all of which are operators of close to zero-sum platforms that govern the consumer Internet. As FANG’s stock value descends to about 7% to 35% below its peak prices, analysts and investors resort to sum-of-the-parts analysis to show that the stocks remain at a good value. 

The term FANG is coined by CNBC’s Jim Cramer about five years ago as these companies started gaining traction, as evidenced by premium valuations. The investors’ piqued interest is followed by several appreciations that rendered FANG as a wholly investing style having control over the ordained winners of the connected economy. 

These companies’ popularity can be drawn from its unstoppable domination and effortless growth. However, the antitrust pressure that mostly applies to Facebook, Amazon, and Google parent Alphabet, makes these selling qualities a point of discussion for politicians and regulators. Netflix works within a market that has financially capable and highly experienced competitors, so it buys its products at full price. Hence, Netflix is safe from scrutiny brought about by the growing antitrust pressures. 

Although not much has changed to any of the FANG companies’ operations despite the falling stock value, the Wall Street has started placing emphasis on the value of each company alone and stating that the current numbers do not well represent it. 

 

FANG in Parts

Analyst Lloyd Walmsley of Deutsche Bank mentioned that Alphabet’s Google Cloud Partners alone could be worth a grand $225 billion. The report kickstarted a barrage of analysts who also attempted to estimate the value of each FANG company’s sub-companies. For one, Laura Martin of Needham, another analyst, posited that Alphabet’s Youtube alone could amount to $200 a share while Android App Share is at $100 a share. Another analyst from RBC Capital added that Google applications such as Google Maps that are under-monetized do contribute to the growth of the company.

Although there are no talks about the actual breaking up of these companies, other examples such as AT&T, where the whole is broken up and unleashed higher value, is often mentioned. By breaking up FANG to each company and then doing the same thing for each company’s sub-companies, there is enough proof to show just how much FANG’s sum in parts is way more than the entire group. 

The analysts attempt to view FANG as its parts and not as a whole could be cynically perceived as Wall Streets’ way of strengthening the estimates of the stocks’ value. Even so, there remains to be good news for investors as it showcases how the stocks’ valuation has waned over the years. Whether it is a product of the rising regulatory opposition or just moderation of the long-term growth trends is still yet to be identified. Nonetheless, this meant that the risk-reward for investors might have improved.