FAANG stocks: will earnings keep boosting share prices?

FANNG stocks – Facebook [FB], Amazon [AMZN], Apple [APPL], Netflix [NFLX] and Google’s parent company Alphabet [GOOG] – have all seen boosts in sentiment toward their respective share prices this month, ahead of their earnings reports.

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The tech-heavy Nasdaq index, often led by the FAANG stocks, has climbed by over 4.7% so far this month. Moreover, Apple, Facebook and Amazon share prices have helped power returns from the S&P 500 this year, which reached a record intra-day level on 28 October.

At the end of trading on 28 October, Facebook’s share price on Nasdaq was up by over 39% so far this year, Amazon’s was over 15% higher, Apple’s share price was up by more than 57%. Meanwhile, Netflix’s was up by close to 5% and Alphabet was almost 22% higher.

Netflix offers a mixed picture

Netflix reported its Q3 results on 16 October, making it the first of the FAANG companies to release quarterly earnings. The stock had climbed by over 6% this month ahead of the results. The streaming platform’s share price jumped by more than 8% when it reported earnings per share of $1.47 versus the $1.04 expected, according to estimates by Refinitiv.

But Netflix missed slightly on revenue, reporting $5.24bn versus the expected $5.25bn. The number of US paid subscribers also disappointed, gaining by 517,000 versus the 802,000 expected.

“Total paid subscriber additions hit 6.8mn, a Q3 record for the company. But this fell 200,000 short of its projections. Is this a huge deal? It depends on what's important to you,” Motley Fool contributor Jason Lee says. “Anytime you set records with new paying customers, it's good. But missing the mark is not something Wall Street likes to see, especially for two quarters in a row.

“Anytime you set records with new paying customers, it's good. But missing the mark is not something Wall Street likes to see, especially for two quarters in a row” - Motley Fool contributor Jason Lee

Amazon takes a nosedive

Among FAANG stocks, Amazon’s share price has had the least growth this month. Its stock fell by close to 10% in after-hours trading on 24 October following the release of its Q3 figures.

The company’s earnings per share fell short of expectations, coming in at $4.23 compared to the $4.62 expected, according to Refinitiv. Revenue of $70bn beat expectations of $68.8bn, but this wasn’t sufficient to impress investors because of poor revenue guidance for the upcoming holiday shopping season.

Amazon issued Q4 revenue guidance in the range of $80bn to $86.5bn, below the average estimate of $87.4bn.

Amazon is currently seeing a positive impact on its bottom line as it spends billions of dollars on expanding its free one-day delivery programme. Yet its stock has been on a downward trend for the past three months after reporting mixed Q2 results, which saw lower-than-expected earnings.

Facebook weathers regulatory scrutiny

Facebook CEO Mark Zuckerberg faced a grilling on Capitol Hill last week as he testified before a Congressional committee on the social media giant’s plans to develop the digital currency Libra. Yet traders still were bullish on the stock ahead of its results on 30 October. The stock contributed 2.9% to the S&P 500’s 2019 gains as of the end of last week, the Wall Street Journal reported.

Facebook’s Q3 revenue came in at $17.652bn, up 29% year-over-year, and above the 26% expected increase, according to Zacks Consensus Estimates. Its full-year fiscal 2019 revenue is projected to climb by 26% from $55.84bn to $70.29bn. Based on these projections, Facebook would have the slowest sales growth in its history as a public firm. However, Q3 earnings did beat Refinitiv’s consensus estimates of $1.91 per share, coming in at $2.12.

Facebook’s share price is down by over 8% from its 52-week high of $208.66 in late July. The stock could have more room to run following the company’s earnings release.

Apple: ready to break out?

The share price of Apple, which is reported its Q4 results on 30 October, has surged by more than 8% since the start of the month, reaching an all-time high of $249.25 on 28 October.

The stock has been buoyed by better-than-expected demand for the iPhone 11 and estimated growth from new services, including Apple TV+.

Apple reported Q4 revenue of $64bn and earnings per share of $3.03, the best revenue result yet despite slowing iPhone sales.

Investors will have paid special attention to management’s revenue guidance for Q1 2020, which came in at $85.5bn-$89.5bn. The seasonality of Apple’s business means that the period often accounts for around one-third of the company’s total revenue during the year, according to the Motley Fool.

The consensus forecast for Apple’s fiscal first quarter of next year sees revenue of $87.2bn, so in the middle of that guided range from Apple, which would be up by over 3% from a year earlier.

“The stock is prone to big moves after reporting earnings and can easily gap up if the numbers are strong. Conversely, if the numbers disappoint, the stock can easily gap down,” Adam Sarhan speaking on Forbes. 

“The stock is prone to big moves after reporting earnings and can easily gap up if the numbers are strong. Conversely, if the numbers disappoint, the stock can easily gap down” - Adam Sarhan

Google faces headwinds

Alphabet is also among the big tech stocks that have been weighed down by increasing political and regulatory scrutiny. Before its Q3 release after the market close on 28 October, Bank of America Merrill Lynch had said it sees some risk to the company’s earnings as a result of various fines and settlements.

Within that context, many had been looking to see if the company could maintain the strong revenue growth it has achieved over the past decade. Third-quarter earnings per share came in at $10.12, below the $12.42 expected, according to CNBC. Revenue was $40.5bn, up by 20% year on year. “While that would be enviable growth for many companies, the clip is below Google’s pace historically,” a report by the Wall Street Journal states.

Alphabet reported Q3 advertising revenue of $33.9bn – a record – which added to an overall profit of $7.1bn. But the latter figure was lower than expected and down by 23% from Q3 2018. Analysts say it appeared that higher costs and weaker company investments offset the solid rise in online advertising sales. As a result, Alphabet’s share price fell by as much as 4% in after-hours trading on 28 October before paring losses.

Trying to gauge FAANG stocks’ outlook

With big tech stocks’ strong year-to-date performance and impressive contributions to the returns of indices like the S&P 500 and Nasdaq, investors will no doubt be trying to figure out how long the gains can continue.

Facebook, Apple, Amazon, Netflix & Google share price vitals, Yahoo Finance, 31 October 2019

Two important things for investors to consider are sudden market reversals for the tech sector and short-term rotations versus longer-term positions. For example, at this time last year, there was a broad sell-off in tech stocks, which was driven by macroeconomic and monetary policy concerns, with the shares taking a hefty beating.

But a few months later, investors appeared to jump back into the sector’s stocks. This not only helped fuel the share prices of Apple, Facebook and Amazon, but it also contributed to the S&P 500’s recent record high.