Despite the volatility of the stock market due to concerns about supply chain disruptions and rising inflation, we believe it makes sense to invest in high quality FAANG stocks as they offer stable returns over the long term. For example, Meta Platforms (FB) and Netflix (NFLX) should generate stable returns and avoid short-term market fluctuations. But which of these two stocks is the better buy now? Read More
Meta Platforms, Inc. (FB) in Menlo Park, California, develops products that enable people to connect and share with friends and family worldwide via mobile devices, PCs, virtual reality headsets and home devices. It operates in two segments, Family of Apps and Facebook Reality Labs. In comparison, Netflix, Inc., based in Los Gatos, California (NFLX) offers entertainment services. It offers TV series, documentaries and feature films in various genres and languages. The company offers its members the ability to receive streaming content through a variety of internet connected devices.
While global supply chain constraints, high inflation, and labor shortages could affect tech industry growth in the short term, FAANG, the Meta (formerly known as Facebook), Amazon, Apple, Netflix, and Alphabet (Goog) (formerly known as Google) is gaining traction after strong third quarter results. While the Federal Reserve doubles the rate at which it is reducing its bond purchases and expects three rate hikes The key interest rates will remain unchanged for the time being next year and should act as a growth catalyst in the short term. Additionally, amid accelerating digital transformation, the rising demand for advanced technology products and services should continue to drive the growth of the technology industry. According to GoRemotely, the US technology industry is expected to be a Market value of $ 5 trillion by the end of 2021. Therefore, both FB and NFLX should benefit.
FB stock is up 21.7% over the past year, while NFLX is down 14.5%. Also, FB’s earnings of 24.3% over the past nine months are higher than NFLX’s returns of 15.4%. And FB is the clear winner with 22.2% profit versus NFLX’s 10.6% return on year-to-date performance.
But which of these two stocks is the better buy now? Let’s find out.
On October 28, 2021, at Connect 2021, Mark Zuckerberg, CEO of FB, presented Meta and brought together Facebook’s apps and technologies under a new corporate brand. Meta’s focus will be on harnessing the metaverse to help people connect, find communities, and grow businesses.
On November 22, 2021, NFLX announced plans to acquire Scanline VFX, one of the most creative and innovative VFX studios in the world. This move is to ensure that the makers of NFLX have access to the most innovative technology in the world and continue to provide the most compelling and innovative storytelling to their members.
Recent financial results
FB total revenues increased 35% to $ 29.01 billion for the third quarter ended September 30, 2021. The company’s operating income rose 30% year over year to $ 10.42 billion, while net income was $ 9.19 billion, up 17% year over year. Plus, earnings per share were $ 3.22, up 19% year over year.
Total NFLX revenue increased 16.3% to $ 7.48 billion for the third quarter ended September 30, 2021. The company’s operating income rose 33.5% year over year to $ 1.76 billion, while net income was $ 1.45 billion, up 83.4% year over year. Also, earnings per share were $ 3.19, up 83.3% year over year.
Past and expected financial performance
FB sales and FCF indebted have increased over the past three years with CAGRs of 29.4% and 32.2%, respectively. Analysts expect FB revenue to grow 36.9% in fiscal 2021 and 19% in fiscal 2022. Earnings per share are expected to increase 38.3% in fiscal 2021 and 2.2% in fiscal 2022. In addition, earnings per share are expected to increase 21.4% annually for the next five years.
By comparison, NFLX’s revenue and debt FCF have increased over the past three years, with CAGRs of 24.3% and 21.1%, respectively. The company’s sales are expected to increase by 18.8% in the 2021 financial year and by 14.8% in the 2022 financial year. Earnings per share are expected to increase 76.6% in fiscal 2021 and 22.2% in fiscal 2022. NFLX earnings per share are also expected to increase 42.6% annually for the next five years.
FB’s revenue for the past 12 months is 3.92 times that of NFLX. FB is also relatively more profitable, with gross profit and net profit margins of 80.85% and 35.88%, respectively, compared to NFLX of 43.22% and 17.64%, respectively.
Additionally, FB’s ROA and ROTC are 18.57% and 21.30%, respectively, higher than NFLX’s 10.01% and 13.18%, respectively.
Regarding Forward Non-GAAP SPORTS, NFLX is currently trading at 56.51x, which is 130.9% higher than FB’s 24.47x. And NFLX’s 41.34 times Forward EV / EBITDA ratio is 201.1% higher than FB’s 13.73 times.
So FB is relatively cheap here.
FB has an overall rating of B, which equates to a purchase in our proprietary POWR ratings System. In contrast, NFLX has an overall rating of C, which translates to neutral. The POWR ratings are calculated taking 118 different factors into account, with each factor being optimally weighted.
Both FB and NFLX have a B rating for sentiment, which coincides with favorable analyst sentiment.
In addition, FB has an A grade for quality. This is justified given the FB-ROTA of 23.77% after 12 months, which is 693.1% above the industry average of 3%. On the other hand, NFLX has a quality level of B.
Of the 77 shares in the Internet Branch, FB is placed in 9th place. By comparison, NFLX ranks 21st.
The FAANG shares should grow steadily in the persistently low interest rate environment. While both FB and NFLX are expected to gain, we think that it is better to bet on FB because of its lower valuation and higher profitability.
Our research shows that investing in stocks with an overall rating of Strong Buy or Buy increases the chances of success. Check out all of the other top rated stocks in the internet industry here.
FB shares rose $ 1.58 (+ 0.46%) in early trading on Thursday. Since the start of the year, FB is up 25.71%, compared to a 27.94% increase in the reference index S&P 500 over the same period.
About the author: Nimesh Jaiswal
Nimesh Jaiswals His passionate interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of annual financial statements for the development of the share price is the most important approach he takes in advising investors in his articles.
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