The Take

The Acronym Is Dead! Long Live The Acronym02/08/18

Our Publications Director Alex Conroy is back for semester two discussing the fall of FAANG and what may take its place in this week’s edition of The Take:

With Facebook feeling all of its loses at once, culminating in a 120 billion USD market value loss. The once immovable, infallible FAANG (Facebook, Amazon, Apple, Netflix, and Google) stocks have begun to wobble, and the blood in the water has the sharks circling with some media outlets crying bubble bursting a la the 2000 dot.com crash. This viewpoint is not without merit, growth rates like those of FAANG can’t last forever and analysts have been warning that investor sentiment has been too high for these stocks carried higher with their ‘glamour’ or momentum investing, rather than traditional financial analysis reasoning.

Facebook’s reputational worries are well documented, and the company’s response to the crisis of faith in Facebook’s handling of user data is everywhere at the moment. It is this response that is arguably responsible for the 20% drop in share price brought about by a weak quarterly report. With CFO David Wehner listing greater user control over privacy as one of the reasons Facebook’s earnings with continue to drop over the rest of 2018.

With a market cap of $949 billion USD, Apple is the largest of the FAANG stocks, and it is its massive size that has begun to turn investors off the stock, with a company’s ability to maintain growth much harder at larger sizes. This has finally begun to expose a weakness in Apple, that has been reported on many times in the past and was of particular prevalence with the poor performance of the iPhone in Asia last year, and that is just how much of Apple’s revenue is tied up in its smartphone division. With user sentiment weaning on flagship phones across the board, this could fast become a big issue. Having said that, Apple is currently in a race to become the first $1 trillion dollar company, a race it is in with fellow FAANG stock Alphabet (Google), so while Apple may struggle to make those double-figure returns investors have come to love, Apple is still one of the largest companies on the planet.

Amazon, in contrast to Facebook, reported a great quarter. However, similar to Apple there are worries about how much longer the growth rate of the stock will be sustainable, particularly with the US economy as a whole potentially slowing through the second half of 2018.

Netflix has always been a stock of great contention, with its original content being a double-edged sword of excellent subscriber growth and massive amounts of debt. Something anyone with completed the financial capstone unit over the previous few years can attest. With Netflix finally falling short of the subscriber target set this quarter, It appears that Netflix is continuing the trend of FAANG stocks. However, with Netflix’s bottom line earning still rising thanks to a 39% segment-level profit in the US market, Netflix isn’t quite as bad off as it seems… yet.

Rounding out the FAANG stock is Alphabet, as mentioned earlier Alphabet is closing in on a 13-figure market capitalisation. Alphabet has a three-year annualised growth of 21.2% and revenue growth accelerating for a third straight year. Even with similar worries about size and abilities to continue large growth, Alphabet is continuing strong, competing with its unbeatable search engine and a slew of new physical products.

The reign of FAANG may be coming to an end, but what comes next? Well, it may just be MAGA, no not Donald Trump, Microsoft, Apple, Google, and Amazon. The latest acronym describing the group of technology companies taking the market higher.

Netflix and Facebook out, but why Microsoft in?

For starters, Microsoft has posted excellent quarterly earnings, beating expectations, with strong growth in Microsoft’s gaming, OS, personal computer and LinkedIn divisions. It also helps that the piles of money that Microsoft has been pouring into Azure, its clouding sharing service, seems to finally be gaining more market share with 3% growth over the year. Microsoft is finally finding itself ahead of the competition having embraced the ‘hybrid cloud’ before both Amazon and Google. Although I do have to say I am a little biased on the topic of Microsoft, considering I am currently typing this article on its flagship Surface device.

An interesting time for technology stock at the moment, but despite the new acronym it is still not an excuse to wear one of those stupid hats.

Alex is the Publications Director at QUTEFS. If you are interested in writing an article for The Take, contact publications@qutefs.org