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In 2013, Jim Cramer coined the term “FANG” stocks, which included Facebook (META), Amazon (AMZN), Netflix (NFLX), and Google (GOOG). A few years alter, Apple (AAPL) was added and turned “FANG” into “FAANG.” A decade later, Bank of America analyst Michael Hartnett coined the term “Magnificent 7 Stocks,” adding Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA). Netflix didn’t make the cut this time.
While there wasn’t any set criteria for inclusion into these coveted groups, member companies were in high-growth industries and were market leaders with strong track records on execution. They command unrivaled brand presence and some essentially are monopolies.
Netflix Stock Was Left Out of the Magnificent 7
Netflix’s exclusion from Magnificent 7 — a reference to the 1960s eponymous movie directed by John Sturges — seemed to make sense in 2023. The streaming giant was struggling and lost subscribers in the first half of 2022, the first time in a decade. It was facing intense competition from Disney (DIS) and an ever-increasing number of new streaming players.
By mid-2022, Disney boasted of more streaming subscribers than Netflix after accounting for all its platforms like Hulu and ESPN. The streaming war was reaching its peak as a flurry of players tried to win over customers with improved content slates and lower prices. However, over the last few quarters, Netflix has established itself as the unrivaled king of the streaming industry proving naysayers and bears – a category I once belonged to – wrong.
Netflix’s Subscriber Number Swells to Over 300 Million
In the final quarter of 2024, Netflix added almost 19 million subscribers, which was twice what the Street was expecting and a new record for the company. In the full year, it added over 41 million subscribers, which is stellar for a company of Netflix’s size. Several factors helped Netflix increase its subscriber numbers. These include sports streaming, with it streaming NFL games and the Jake Paul versus Mike Tyson boxing match in December.
The ad-supported plan has also worked wonders for Netflix, and according to the company, 55% of new members opted for this tier in countries where it is offered. The password-sharing crackdown has also helped Netflix grow its subscriber base, as many people who previously watched its content through borrowed accounts are now paid subscribers.
It’s Time Netflix Is Added to the Magnificent 7
Netflix still has a decent growth runaway on both the top line as well as the bottom line. The company is in the early days of monetizing its ad-supported tier and ad revenues should become a key earnings driver in the quarters ahead. Netflix has showcased its pricing power on more than one occasion, and the company has the ability to raise prices considering the value proposition it brings to the table.
I would argue that Netflix deserves a place in the “Magnificent 7” group, and if anything, Wall Street would be late adding it.
Should Any Company Be Removed from the Magnificent 7?
It would be nearly blasphemous to talk about Nvidia’s exclusion from the coveted group. Amazon and Meta Platforms are also still growing at a brisk pace and should continue to do so in the foreseeable future. One may argue that Tesla should be booted from the Magnificent 7 stocks amid its slowing growth. In fact, the company’s deliveries fell year-over-year in 2024 while its profits are expected to slide by over 20% for the second consecutive year.
However, given Tesla’s lead in the electric vehicle industry and expectations surrounding initiatives like self-driving and humanoid robots, I believe Tesla should remain in the group for now – especially with Donald Trump becoming the U.S. president.
Then we have Apple, which seems to be struggling to push sales of its artificial intelligence (AI)-powered iPhone 16. It is also facing what looks like a structural slowdown in China with consumers increasingly pivoting to domestic smartphones brands. However, Apple remains among the most iconic and aspirational brands, and I believe the company should be able to beat the slowdown blues with further AI enhancements to its next iPhone.
Alphabet and Microsoft also have their share of problems and are yet to show markets that they can effectively monetize their massive AI capex. Both remain dominant players in their respective core industries though, and while Google’s search leadership is facing competition in the form of ChatGPT, the company has mostly defended its market share. However, the game is for Alphabet to lose as Microsoft-backed ChatGPT continues to gain traction.
While it would be tough to pinpoint one single name from the Magnificent 7 that does not deserve a place in the group, constituents like Alphabet, Microsoft, Apple, and even Tesla would struggle to justify their place if their growth continues to sag. Somewhere down the line new contenders, especially Palantir (PLTR), may also make sense to be added.
Overall, it is perhaps time to imagine a new group for these high-growth names and Netflix should be included sooner rather than later.
