Diverging trends among FAANG stocks | Calamatta Cuschieri

Markets summary

Major US indices ended October at a record on the back of a solid quarterly reporting season. The S&P 500 posted monthly gains of 6.9% in October, or its best single-month advance since November 2020. The Nasdaq also eked out a fresh record level, even as a couple of heavily weighted technology giants saw their shares dip. Most prominent among these, were shares of Apple and Amazon that were the last to report among the FAANG stocks which also include Facebook, Netflix and Alphabet.

Facebook’s third-quarter revenue rose 35% year-over-year to $29.0 billion but was lower than Wall Street consensus estimates of $29.5 billion. Earnings climbed 19% from a year earlier to $3.22 per share, marginally above expectations of $3.18. The company noted that it faces continued headwinds in the fourth quarter from privacy changes to Apple’s iOS 14 that gives users more control over privacy and has already put a dent in Facebook’s advertising revenue, which is a huge part of the company’s revenue. Monthly active users rose 6% to 2.91 billion, which was just shy of analysts’ expectations for 2.92 billion. Non-advertising revenue almost tripled year-on-year to $734 million.

CEO Mark Zuckerberg said he is interested in the company becoming a leader in the metaverse – a set of virtual reality spaces where one can create and explore with others who aren’t in the same physical space. To that end, the company has even decided to change its name to “Meta” to fall more in line with its goals for the metaverse. Consequently, Facebook’s stock ticker will change to MVRS on December 1. The company also continues to face an onslaught of media reports about internal documents that reveal internal research identifying harmful effects from its products.

Amazon reported its third quarter results after close of trading on Thursday with the company missing on both top- and bottom-line estimates. Revenue of $110.8 billion climbed 15% from last year, but missed analysts’ estimates of $111.6 billion. Earnings of $6.12 per share decreased from $12.37 per share a year ago and badly missed Wall Street’s expectations for $8.92 per share.

Online store sales increased 3% from a year prior to $49.9 billion and physical store sales grew 13% from a year ago to $4.3 billion. Third-party seller revenue jumped 18% to $24.3 billion. The company’s services segment, which brought in $55.9 billion overall, saw sales beat its retail sales segment for the first time in Amazon’s history. Amazon Web Services revenue came in at $16.1 billion, up 39% from a year ago and topping analysts’ forecast for $15.5 billion. The shares are up just under 6% on the year.

Google reported earnings of $27.99 per share, up 70.6% from a year ago and topping analysts’ estimates by around 20%. Revenue of $65.1 billion rose 41% from a year ago and beat Wall Street’s estimates for the quarter by $1.8 billion. Google’s advertising revenue increased 43% year-over-year to $53.1 billion, while YouTube ad sales climbed 43% from a year ago to $7.2 billion.

The company has been more insulated from the changes to Apple’s operating system than Facebook as it owns the Android operating system. The company’s cloud division sales jumped 45% from a year ago to just under $5 billion as Alphabet continues to place significant investments in the segment. Shares popped over 6% after reporting earnings and are up over 70% so far this year.

Apple reported fourth-quarter earnings of $1.24 per share, which was up 70% from a year prior and in line with Wall Street’s consensus expectations. Sales of $83.4 billion were up 29% from a year ago but missed analysts’ expectations by $1.62 billion. The disappointing report marked the first time the company hasn’t beaten earnings estimates since April 2016 and the first time it hasn’t topped revenue estimates since May 2017.

The company blamed supply chain constraints including semiconductor shortages and COVID-related manufacturing disruptions in Asia on lagging iPhones, iPads and Mac sales, which cost the company about $6 billion. iPhone sales climbed 47% year-over-year, but still missed Wall Streets estimates, while iPads revenue increased 21% from a year ago, despite supply side constraints. The company hasn’t provided forward guidance since the pandemic began, but it did say that it expects to see solid year-over-year revenue growth in the coming quarter even though the company expects supply constraints to worsen. The company’s services business, which includes music and video subscriptions and sales from the App Store, shined for the quarter and was up 26% on the year and higher than Apple expected. Apple now has 745 million paid subscriptions, up 160 million year-over-year, and up five times in five years.

Finally, Netflix announced earnings of $3.19 per share, up over 83% from a year ago and beating Wall Street’s consensus estimate for $2.56 per share. Sales of $7.5 billion increased 16% from a year ago and just topped analysts’ estimates by $0.16 million. The company added 4.4 million new paid subscribers, beating analysts’ calls for 3.84 million. Netflix said it now anticipates adding 8.5 million subscribers in the fourth quarter.

Netflix also said it will begin using new metrics to report viewership, switching to hours viewed from the number of accounts that watched, which in part gives proper credit to re-watching content. The company’s new hit show, “Squid Game,” has been its biggest ever, as 141-million-member households around the world watched the show in its first month after debuting. Interestingly, Netflix said its viewership ballooned 14% earlier in the month when Facebook had a global outage. Shares have increased over 6% since the company reported strong earnings and are up over 25%, year to date.


Disclaimer: This article was written by Stephen Borg, Head of Private Clients at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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