Amazon share price shows promise, but are FAANGs in trouble?

While the FAANGs had seen share price gains of between 1% and 4% following the announcement of a US-China trade truce two weeks ago, the rally was short-lived as tech stocks fell into correction territory in the week ensuing. Share prices dropped by 4.5% on average, erasing $141bn collectively in market capitalisation.  

Before this, FAANG stocks had been suffering from two months of steady sell-offs, losing as much as $1tn in market capitalisation in late November and more than $70tn since scaling peaks in mid-2018. Looking ahead, FAANGs will likely continue to vary because of their differing drivers and pressures. 

Scandals weigh Facebook shares down 25% YTD 

Facebook’s [FB] stock has dropped 36% since its peak of $217.50 on 25 July, putting it firmly in bear market territory. The company continues to drown in scandals because of its lax privacy policies and turnover in executives. The abrupt exit of Instagram’s founders in September was followed by the Chief Business Officer of WhatsApp in late November.

Netflix share price performance, NASDAQ interactive chart, as at 11 December 2018

Despite these departures, WhatsApp and Instagram are expected to be massive growth drivers for Facebook, as is its video platform Facebook Watch, which it is hoping will compete with rivals Netflix [NFLX] and Amazon [AMZN]. 

Facebook’s monthly active users grew by 10% to 2.27bn in Q3 and in the run-up to its next earnings report, analysts’ expectations are that its year-on-year growth will be $16.4bn, seeing quarterly growth of 19.53%. 

Amazon faces scrutiny forcing shares to fall 38% YTD 

Amazon was hit hard in the recent tech sell-off; its stock reached a high of $2,039 in September but has since fallen by more than 18%. The company is also facing scrutiny from regulators at the European Commission and a German watchdog has launched an enquiry into its “double role” as both retailer and marketplace for sellers.

Amazon share price performance, NASDAQ interactive chart, as at 11 December 2018

However, Amazon was the only stock out of the FAANG group to beat the market in November, and is predicted to have a strong holiday season after management boasted record-breaking Cyber Monday sales.

Analysts point to Amazon’s diverse and evolving business portfolio in well-known growth areas such as healthcare technology, the cloud, online streaming and innovative stores like Amazon-4 star, pop-ups and Amazon Go, as successful revenue streams going into 2019. 

Lagging iPhone sales sends Apple stock down 2% YTD 

Apple’s iPhone sales decline and the decision to stop reporting the metric has generated negative sentiment among investors. HSBC [HSBC] cited its overwhelming dependence on a single product in a saturated market as the reason why it downgraded its guidance for the stock.

HSBC is just one of a number of Wall Street firms that have cut their expectations for Apple’s stock, with Citi also slashing its price target because of the trade tensions. Other firms that share the downward outlook include Morgan Stanley, Goldman Sachs, UBS as well as many more. 

Since its all-time high of $232.07 on 3 October and $1tn market cap on 2 August, Apple’s stock decreased by 25% and its market cap has fallen to $838bn, with both Amazon and Microsoft briefly overtaking the company.

Apple share price performance, NASDAQ interactive chart, as at 11 December 2018

While Apple says iPhone unit sales are no longer a good overall business measure, the company hopes investors will look to its installed base of users and service business instead.  

Netflix proves stable growth as shares rise 37% YTD

Netflix stock has declined by 33% since its all-time high of $418.97 on 9 July, despite reporting a 25% year-on-year increase in member growth for Q3.

However, its shares are up 37% over the past 12 months. Netflix is available in more than 190 countries, and the company plans to expand into India’s growing entertainment culture. 

Netflix has been one of the best stock investments in the past two decades. Despite the recent tech sell-off, analysts believe there is still room to run, with some long-term investors expecting market-beating returns from the stock based on a P/E ratio of just under 100, an EPS that’s grown every year by 77% over the last three, not to mention its popular original content.

Netflix share price performance, NASDAQ interactive chart, as at 11 December 2018

Regulatory headwinds drag Google down only 1% YTD 

Google is immersed in a public relations crisis as it faces scrutiny in Congress for its data collection and filtering practices of user’s data, which has seen customer trust in the company falter. One of the topics that is expected to be discussed in the hearing is its prospective censored search engine project in China, also known as Dragonfly. These headlines, coupled with weak Q3 earnings, have forced its stock to fall 18% since a high of $1,285.50 on 26 July. 

Alphabet share price performance, NASDAQ interactive chart, as at 11 December 2018

However, there is still opportunity in its digital-ad and cloud businesses, which are both expanding by 20% annually. Google also has massive long-term growth prospects in e-commerce, autonomous cars and artificial intelligence. What remains is that Google’s search engine is the backbone of the global internet.     

Battling against downward sentiment in tech

For now, the FAANG group are facing difficulties as they navigate a tough macro environment, the question is whether traders see these factors as a buying opportunity.

The increasing threat of regulation is bound to create a lot of uncertainty surrounding the technology sector in 2019, which Matthew Maley, equity strategist at Miller Tabak, says will keep the FAANG group from outperforming the market. 

Maley believes the regulation issue will take a long time to resolve: “We think the uncertainty surrounding this issue will create a headwind for quite a while and thus investors will continue to re-weight the FAANG stocks lower,” he tells OPTO.