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Goldman Is Missing The Point On FAAMG

Jul. 06, 2017 2:44 PM ETAAPL, AMZN, META, GOOG, MSFT16 Comments
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Intelligent Speculator


  • Goldman issues a report comparing the top tech names to the dominant players before the 2000 tech crash focusing mostly on profitability.
  • Context is critical and FAAMG (FB-AMZN-AAPL-MSFT-GOOG) is a group of players with tremendous power that qualify as ecosystems.
  • They have rightfully not focused on profits as a group but rather on building businesses that in many ways are monopolies and will give them tremendous staying and pricing power.

We live in a new economy which I've written about several times: one where a few tech names dominate headlines and their markets. They are usually known as "FANG" (Facebook (FB)-Apple (AAPL)-Netflix (NFLX)-Google (GOOG)), Goldman actually named them FAAMG (taking out Netflix but adding Amazon (AMZN) and Microsoft (MSFT)), which is an accurate way of looking at it, in my opinion. Those are the 5 ecosystem players I've written about in recent years. The logic for Goldman not including Netflix was its small weight in the S&P 500. I've personally excluded it because while I am a big believer in NFLX's business, I do not count it as an ecosystem. Netflix does not have different types of businesses that end up offering products and services through Netflix and through which NFLX could earn a "tax". Netflix is one of the few companies that has been able to leverage these new ecosystems rather than get crushed by them.

Goldman's report compared those 5 names to the biggest companies prior to the 2000 technology bubble burst - one of the biggest market crashes in recent history. The results were enough to shock the market. Just look at the returns since then:

That's still a small setback when you look at a broader 5 year picture:

What did Goldman look at exactly? It looked at the bigger names at the time:


What Goldman found was that, while the 2017 names have better cash flows, cash balances, and valuations, they lacked in terms of profitability and total assets. To some extent, that might be surprising when you consider Apple being part of the 2017 group, but remember that AMZN offsets it with a nearly 0% profit margin.

Goldman's Analysis Is Incomplete

I strongly believe that Goldman should have pushed that analysis much further. Why? Because

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