Bulletin
Investor Alert

Need to Know Archives | Email alerts

April 1, 2022, 9:02 a.m. EDT

Investors are fed up with Netflix and Facebook’s parent. Why this portfolio manager is digging in and buying more.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Netflix Inc. (NFLX)
  • X
    Alphabet Inc. Cl A (GOOGL)

or Cancel Already have a watchlist? Log In

By Steve Goldstein

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 /zigman2/quotes/202353025/composite NFLX +5.03% was its worst since the fourth quarter of 2011. By contrast, Alphabet /zigman2/quotes/202490156/composite GOOGL +5.11% , Amazon.com /zigman2/quotes/210331248/composite AMZN +3.58% , Apple /zigman2/quotes/202934861/composite AAPL +2.45% and Microsoft /zigman2/quotes/207732364/composite MSFT +3.41% 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 /zigman2/quotes/200763955/realtime POLIX +4.25% 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 /zigman2/quotes/203410047/composite DIS +3.69% , 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 /zigman2/quotes/205087158/composite SNAP +5.45% 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 buzz

The U.S. created 431,000 jobs in March , coming in a bit shy of forecasts but still signalling an improving labor market. The unemployment rate fell to 3.6%, and average hourly earnings rose 13 cents to take the year-over-year rate to 5.6%.

U.S. stock futures /zigman2/quotes/209948968/delayed ES00 +0.08% /zigman2/quotes/210219788/delayed NQ00 +0.20% pointed to opening gains after the report was released. The yield on the 2-year Treasury /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +0.16% exceeded that of the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.72% — a potentially worrying sign for the economy.

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 /zigman2/quotes/201948298/composite BABA +4.91% , Pinduoduo /zigman2/quotes/208876581/composite PDD +2.69% and Baidu /zigman2/quotes/209050136/composite BIDU +3.57% in premarket trade.

GameStop /zigman2/quotes/203755179/composite GME -4.80% shares surged 14% in premarket trade, after the company announced it was planning to split its stock following a meteoric rise.

The chart

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 /zigman2/quotes/210598269/delayed DXY -0.20% today faces many of the same challenges as the British pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.1141% 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.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

Ticker Security name
/zigman2/quotes/203755179/composite GME GameStop
/zigman2/quotes/200235402/composite AMC AMC Entertainment
/zigman2/quotes/203558040/composite TSLA Tesla
/zigman2/quotes/204905836/composite NIO Nio
/zigman2/quotes/201948298/composite BABA Alibaba
/zigman2/quotes/204868203/composite MULN Mullen Automotive
/zigman2/quotes/202934861/composite AAPL Apple
/zigman2/quotes/202142052/composite HYMC Hycroft Mining
/zigman2/quotes/208144392/composite AMD Advanced Micro Devices
/zigman2/quotes/209129655/composite TLRY Tilray Brands

Random reads

“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.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch writers.

/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 190.85
+9.14 +5.03%
Volume: 12.42M
June 24, 2022 4:00p
P/E Ratio
17.32
Dividend Yield
N/A
Market Cap
$84.79 billion
Rev. per Employee
$2.63M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,359.50
+114.66 +5.11%
Volume: 2.06M
June 24, 2022 4:00p
P/E Ratio
21.34
Dividend Yield
N/A
Market Cap
$1557.36 billion
Rev. per Employee
$1.65M
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 116.46
+4.02 +3.58%
Volume: 69.87M
June 24, 2022 4:00p
P/E Ratio
56.17
Dividend Yield
N/A
Market Cap
$1184.91 billion
Rev. per Employee
$292,178
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 141.66
+3.39 +2.45%
Volume: 89.12M
June 24, 2022 4:00p
P/E Ratio
23.03
Dividend Yield
0.65%
Market Cap
$2292.79 billion
Rev. per Employee
$2.38M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 267.70
+8.84 +3.41%
Volume: 33.92M
June 24, 2022 4:00p
P/E Ratio
27.93
Dividend Yield
0.93%
Market Cap
$2002.14 billion
Rev. per Employee
$928,663
loading...
/zigman2/quotes/200763955/realtime
US : U.S.: Nasdaq
$ 38.24
+1.56 +4.25%
Volume: 0.00
June 24, 2022
loading...
/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 97.78
+3.48 +3.69%
Volume: 11.68M
June 24, 2022 4:03p
P/E Ratio
67.42
Dividend Yield
0.00%
Market Cap
$178.10 billion
Rev. per Employee
$354,668
loading...
/zigman2/quotes/205087158/composite
US : U.S.: NYSE
$ 14.70
+0.76 +5.45%
Volume: 37.30M
June 24, 2022 4:03p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$24.05 billion
Rev. per Employee
$727,265
loading...
/zigman2/quotes/209948968/delayed
US : U.S.: CME
$ 3,919.50
+3.25 +0.08%
Volume: 82,888
June 27, 2022 12:21a
loading...
/zigman2/quotes/210219788/delayed
US : U.S.: CME
$ 12,165.25
+24.75 +0.20%
Volume: 44,958
June 27, 2022 12:21a
loading...
/zigman2/quotes/211347045/realtime
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
3.08
+0.0050 +0.16%
Volume: 0.00
June 27, 2022 1:30a
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
3.16
+0.02 +0.72%
Volume: 0.00
June 27, 2022 1:30a
loading...
/zigman2/quotes/201948298/composite
US : U.S.: NYSE
$ 117.62
+5.51 +4.91%
Volume: 27.03M
June 24, 2022 4:04p
P/E Ratio
38.36
Dividend Yield
N/A
Market Cap
$309.28 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/208876581/composite
US : U.S.: Nasdaq
$ 65.96
+1.73 +2.69%
Volume: 14.23M
June 24, 2022 4:00p
P/E Ratio
45.31
Dividend Yield
N/A
Market Cap
$82.67 billion
Rev. per Employee
$1.49M
loading...
/zigman2/quotes/209050136/composite
US : U.S.: Nasdaq
$ 151.34
+5.21 +3.57%
Volume: 2.45M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$53.26 billion
Rev. per Employee
$424,245
loading...
/zigman2/quotes/203755179/composite
US : U.S.: NYSE
$ 135.21
-6.81 -4.80%
Volume: 4.25M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$10.29 billion
Rev. per Employee
$500,892
loading...
/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
103.97
-0.21 -0.20%
Volume: 0.00
June 27, 2022 1:21a
loading...
/zigman2/quotes/210561263/realtime/sampled
US : Tullett Prebon
1.2287
+0.0014 +0.1141%
Volume: 0.0000
June 27, 2022 1:31a
loading...
/zigman2/quotes/203755179/composite
US : U.S.: NYSE
$ 135.21
-6.81 -4.80%
Volume: 4.25M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$10.29 billion
Rev. per Employee
$500,892
loading...
/zigman2/quotes/200235402/composite
US : U.S.: NYSE
$ 12.47
+0.42 +3.49%
Volume: 80.76M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$6.44 billion
Rev. per Employee
$81,028
loading...
/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 737.12
+31.91 +4.52%
Volume: 31.92M
June 24, 2022 4:00p
P/E Ratio
100.02
Dividend Yield
N/A
Market Cap
$763.66 billion
Rev. per Employee
$542,079
loading...
/zigman2/quotes/204905836/composite
US : U.S.: NYSE
$ 24.08
+1.03 +4.47%
Volume: 67.06M
June 24, 2022 4:04p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$40.20 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/201948298/composite
US : U.S.: NYSE
$ 117.62
+5.51 +4.91%
Volume: 27.03M
June 24, 2022 4:04p
P/E Ratio
38.36
Dividend Yield
N/A
Market Cap
$309.28 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204868203/composite
US : U.S.: Nasdaq
$ 1.46
0.00 0.00%
Volume: 48.89M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$485.37 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 141.66
+3.39 +2.45%
Volume: 89.12M
June 24, 2022 4:00p
P/E Ratio
23.03
Dividend Yield
0.65%
Market Cap
$2292.79 billion
Rev. per Employee
$2.38M
loading...
/zigman2/quotes/202142052/composite
US : U.S.: Nasdaq
$ 1.28
+0.04 +2.82%
Volume: 20.55M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$251.28 million
Rev. per Employee
$1.09M
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 87.08
+4.65 +5.64%
Volume: 88.55M
June 24, 2022 4:00p
P/E Ratio
32.48
Dividend Yield
N/A
Market Cap
$141.11 billion
Rev. per Employee
$1.06M
loading...
/zigman2/quotes/209129655/composite
US : U.S.: Nasdaq
$ 3.61
+0.03 +0.84%
Volume: 21.92M
June 24, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.80 billion
Rev. per Employee
$244,326
loading...

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.