Billionaire entrepreneur and investor Mark Cuban appeared on CNBC recently and sounded a cautious tone about the stock market. But he owns
Netflix (NASDAQ:NFLX) and
Amazon (NASDAQ:AMZN). In this column, I will explain why someone who is cautious about the stock market can be bullish about NFLX stock and AMZN stock.
Cuban’s Worries And Holdings
Cuban said he is holding a ton of cash at the moment on the premise that there is a lot of uncertainty in the market right now, surrounding tariffs, sky-high debt levels, and the sustainability of currently robust GDP growth. Naturally, you’d think a guy with that much concern about the market would either not hold stocks at all or that he’d be piling into big dividend, low multiple names.
Cuban does own four dividend stocks. But he also, as noted above, owns Netflix and Amazon. Neither of those companies pay a dividend. Both of them trade at triple-digit forward earnings multiples. And many market observers and value investors believe that NFLX and AMZN are the frothiest stocks in the market.
Why Netflix And Amazon Are Different
But cautious Cuban is still bullish on NFLX stock and AMZN stock because they are great companies.
Cuban isn’t wrong. The market is definitely on unsure footing, with multiple global macroeconomic risks piling up, including the Turkey debt crisis and tariffs everywhere. But Netflix and Amazon shouldn’t be tossed in with the rest of the market. These are mega-growth companies that are marching towards world dominance. Their marches may be slowed by global economic risks. But they won’t be stopped.
As a result, Netflix and Amazon are two big growth stocks which should be able to head higher, regardless of what happens elsewhere in the market.
The Bull Case for NFLX Stock in This Market
In a nutshell, the bull case for NFLX stock is as follows.
A few years back, Netflix pioneered the direct streaming entertainment market. Now, not only does Netflix dominate that market, but the company has also built a large moat for itself through a huge and growing portfolio of original content. Over the next several years, as direct streaming becomes a global phenomenon, Netflix will grow by leaps and bounds, regardless of its competition, due to its robust original content portfolio. Plus, the value proposition on Netflix is just so good (only $11 per month, versus $100 per month for cable) that the company has a ton of room to hike prices without sparking any noticeable churn.
Combine big user growth potential with big price hike potential, and you get massive revenue and profit growth potential in a multi-year window.
Nothing about that growth narrative gets thrown for a loop by tariffs. Perhaps a global economic slowdown will slow the adoption of Netflix. But, given the enhanced convenience and value proposition of Netflix versus alternative entertainment mediums, it really is only a matter of time before Netflix hits 200 million, 300 million, and 400 million or more users (there are 4 billion+ internet users in the world).
Competition is the one big concern for NFLX. Namely,
Disney (NYSE:DIS) is going to enter the streaming space, and Disney has the most popular content in the world. But these two platforms should be able to exist side-by-side, considering both will cost around $10 per month.
Looking at the big picture, then, Cuban still owns NFLX stock because the company is powered by a secular growth trend that is just starting to go global. Moreover, the company is protected by a huge moat that is only getting bigger with each new piece of original content. Big growth plus big moat usually equals big share price gains.
The Bull Case for AMZN Stock in This Market
In a nutshell, here is the bull case for Amazon.
Just as Netflix pioneered the streaming entertainment market, Amazon pioneered the digital commerce market. Not only does Amazon dominate the digital commerce market, but the company has also extended its reach into multiple, adjacent, high-growth arenas. The company dominates the cloud services market with Amazon Web Services. The company is also making a huge push in offline retail, pharmaceuticals, logistics, and digital advertising. All four of those businesses are currently nascent, but present huge, multi-year growth opportunities for AMZN.
In other words, not only is Amazon the king of the quickly expanding digital commerce market, but it is also trying to become the king of multiple other rapidly growing markets.
This tireless pursuit of dominance in multiple markets makes for an exceptionally healthy long-term growth outlook. Five years ago, the world knew Amazon as an e-commerce giant. Today, we know Amazon as an e-commerce giant and a cloud giant. In five years, we will probably know Amazon as an e-commerce giant, cloud giant, offline retail giant, pharmaceutical giant, logistics giant, and digital advertising giant.
Bears argue about valuation when it comes to Amazon stock. But that is a tough argument to make. How do you claim a company is overvalued when that company’s value is constantly increasing due to its new, disruptive businesses in adjacent markets? If you really think that Amazon can one day be
Facebook (NASDAQ:FB), and
UPS (NYSE:UPS), all rolled into one, while maintaining its current cloud and commerce businesses, then the valuation of AMZN stock today actually seems like a discount.
Bottom Line on NFLX Stock and AMZN Stock
For the record, I’m personally bullish on AMZN here and now. I’m more neutral on NFLX due to its valuation and competition
But I understand how both of these growth companies can head higher, even in a bad market. Mark Cuban clearly sees this, too. That is why he owns NFLX stock and AMZN stock, despite his broader concerns regarding the market.
As of this writing, Luke Lango was long AMZN and FB.
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