Need to Know: Investors are fed up with Netflix and Facebook’s parent. Why this portfolio manager is digging in and buying more.
It has been a quarter to forget for two of the megacap tech giants, Netflix and Facebook parent Meta Platforms. The 34% decline for Meta
was its worst on record — the 30% drop in the third quarter of 2012 was the only comparable period — while the 38% drop for Netflix
was its worst since the fourth quarter of 2011. By contrast, Alphabet
each suffered just single-digit percentage declines from January to March.
Dan Davidowitz, portfolio manager at Polen Capital, said in a presentation to investors he has added to his positions in both beleaguered tech stocks this quarter. At the end of January, the Polen Growth
fund had 5% of the portfolio in Meta and 2% in Netflix, according to FactSet data.
On Netflix, he says research shows that it’s the anchor streaming service, as he dismissed competition concerns from the likes of Walt Disney
Amazon and Apple. “We don’t see churn going up for Netflix, which would show a competitive issue. We don’t use usage declining, which again, would be a competitive issue. We see that all markets are growing kind of at the same pace.”
What this says is that Netflix is undergoing a COVID-19 overhang, because they pulled customer growth forward, Davidowitz says. What he likes is that there’s still pricing power left in the United States that the company is starting to flex, and there’s still a number of users to be had outside the U.S. Netflix is attractive because margins and free cash flow are starting to come through in a big way as its content spending is starting to grow slower than revenue.
On Meta, he says Facebook, Instagram and WhatsApp are still vibrant growth businesses. He dismisses the idea that TikTok is a competitive threat. “We believe that even though all video platforms and social media platforms are losing a little bit of time spent to TikTok, we don’t think that’s really affecting advertising dollars so much. There’s a reason why advertisers come to Facebook and Instagram, because they can target very specifically in ways that can’t on any other social-media platform,” he said.
The issue with Meta has to do with Apple’s privacy changes. “And so what they’re having right now is a little bit of trouble measuring the effectiveness of some ads because Apple’s kind of walled off some of the data that they used to be able to use,” he said. But he called that a solvable problem, though perhaps not for this year. He also dismisses the widely held view that young people aren’t using Facebook anymore. “In fact, when you look at the percentage of young people on Facebook and Instagram, they are almost exactly the same. And that’s not surprising to us. Because Instagram has two billion users, Facebook has three billion users. They’re a pretty broad selection of the world’s internet population.”
Instagram, he adds, is growing faster than rival Snap
at five times its size. Even valuaing it at a discount to Snap, that’s at least $400 billion valuation right there. Backing out the excess $50 billion in cash Meta has on its balance sheet, and ascribing any value at all to WhatsApp and Oculus, and you’re left with a roughly $100 billion valuation for core Facebook, which he says is about four times earnings. “This is not a declining business, this is a growing business, so we think it’s absolutely ridiculous,” he says.
The Commerce Department this week released its latest reading on the U.S. international investment position, the difference between U.S. residents’ foreign financial assets and liabilities, which fell to a record gap of $18.1 trillion, or 75% of gross domestic product. Imran Siddiqui, chief investment officer of Mosaic Capital, tweeted that it reflects “the privilege of the dollar being the global reserve currency, [U.S. Treasurys] being the global reserve asset of choice and technology innovation the rest of the world can only envy.”
Cristina Tessari, an economist at Goldman Sachs, however, drew parallels with Great Britain losing reserve currency status for the pound. “The dollar
today faces many of the same challenges as the British pound
in the early 20th century: a small share of global trade volumes relative to the currency’s dominance in international payments, a deteriorating net foreign asset position, and potentially adverse geopolitical developments,” she wrote.
The U.S. jobs report is expected to show slowing employment growth, with economists polled by The Wall Street Journal expecting 490,000 nonfarm jobs to be added and for the unemployment rate to tick down a 10th to 3.7%. There’s also the Institute for Supply Management manufacturing index due for release, and auto makers will be releasing their monthly sales numbers. Overseas, Eurostat reported record-high inflation in the eurozone.
Russian troops left the contaminated Chernobyl nuclear site, as Russia accused Ukraine of attacking a Rosneft oil depot on its side of the border.
China is planning to give U.S. regulators full access to audits of most of the companies listed in New York, Bloomberg News reported, boosting stocks including Alibaba
in premarket trade.
shares surged 14% in premarket trade, after the company announced it was planning to split its stock following a meteoric rise.
U.S. stock futures
traded higher ahead of the jobs report. Crude
reclaimed the $100 per barrel level, and the yield on the 10-year Treasury
Here were the most active stock-market tickers as of 6 a.m. Eastern.
Advanced Micro Devices
“The new American dream is to leave America,” says a viral Reddit post by someone who left the U.S. to work in Denmark.
Canada’s Supreme Court upheld a $7 million fine for stealing maple syrup.
Scientists are mapping out meteorites in Antarctica, with the goal of finding out more about the early stages of the solar system.
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