Despite the massive financial backing of FinTech firms, they seem to be behind TechFins in terms of swift consumer satisfaction. S...
If you are interested in the stock market, you probably have already heard about FAANG stocks. This guide may help you find out more details about them and their performance.
First of all, the acronym FAANG stands for Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL), the five most prominent and successful tech companies on the planet. The acronym was coined by investors to lay emphasis on the collective strength of these companies and what a mighty market force they are. Therefore, FAANG stocks refer to the shares belonging to these tech giants. The combined market capitalization of FAANG companies was $3.1 trillion in March 2019.
These companies didn’t start so rich, they started just like any other company, but their success lay in their ability to convince big money bags of their profitability and value, which led to a massive investment in their stocks, making them what they are today.
Companies like Renaissance Technologies, Soros Fund Management, Berkshire Hathaway, and lots more have invested in FAANG stocks, and many more will follow soon, considering the bold market moves these companies are making nowadays. After all, nobody would have a desire to miss out on the possibility of mind-numbing profit margins that is possible with FAANG stocks.
The profitability of these companies is not a myth, as many people can testify to their positive impact on their personal finances. These companies do not sit idly, basking in past glories; instead, they are always on the move, breaking new grounds and innovating already existing products, which has made them and their investors so much money and as a result, has placed them on the list of the most profitable companies.
For the past five years, the FAANG companies have recorded recurring successes, and their investors have benefited as well, with swollen purses to show for it. It is not surprising that they all make up the S&P 500 Index and the much larger-cap club, the S&P 100 Index. However, Netflix is yet to join the rest of the team on the S&P 100 Index.
To ascertain their performance from 2014-2018, the S&P 500 index will serve as a suitable measurement since all the FAANG companies are part of it. The FAANG companies alone have taken almost 12% of the total market capitalization of the index.
In those years, we saw such stunning market performance from the FAANG stocks in which they even outdid the index. For instance, the FAANG equally-weighted basket returned 227.05% while the index’s equally-weighted basket returned just 52.58%. To know exactly how well these companies performed, we are going to separate them into individual entities and then evaluate them accordingly against the basket, from the highest to the lowest.
2014-2018 Stock Performance:
Apple stays ahead of the pack with a gain of 39%.
So far, Apple (AAPL) stock has maintained its lead among the FAANG companies by gaining as much as 39% in 2019. All this is going on despite the trade war on the ground, and its stock is expected even to exceed this number once the holiday season arrives. Earlier this month, Apple released three new iPhones, and sales are on the upside.
Facebook follows Apple closely with a little above 26% gain.
Despite the privacy battles, Facebook has been fighting plus the challenge of market volatility, all in 2019, the company was able to outperform other FAANG stocks, excluding Apple, and the broad market indexes to gain just over 36%.
Facebook has acquired all its competitors, which include Instagram and Whatsapp, to become the King of social media. With all its acquired platforms, Facebook is expected to grow its revenue via ads. Facebook is also working towards diversifying into the cryptocurrency and streaming device industries.
Amazon is up by 15%.
Amazon (AMZN) has not lived up to expectations so far in 2019, with only a 15% increase, caused mainly by general market weakness. Also, the company experienced yet another downturn in its stock after it released its June quarter results.
Amazon, together with Apple, made history as the first companies to be valued at $1 trillion by market capitalization. Amazon has a market value of $850.7 billion, while Apple is worth $987 billion.
Netflix stock records a 2.7% loss.
The top streaming platform, Netflix (NFLX), fell by 2.7%, and experts say it is as a result of the influx of new competitors into the streaming business.
The streaming space was previously dominated by a select few, which includes Netflix, Amazon Prime, and Hulu, but now, more companies are ‘streaming’ into it to have a bite of the industry, like Disney and Apple. As if the industry is not congested enough, AT&T’s Warner Media is also making moves to introduce its streaming platform in 2020.
Google has a rise of 16%.
Google (GOOGL) stock has risen by 16% in 2019. Google has also been subjected to legal inquiries concerning the issue of privacy. The company seems to remain above waters going by its success in the stock market.
Google has maintained its position as the most used search engine, and together with its cloud computing, advertising, autonomous vehicles, and artificial intelligence, its revenue is projected to continually be on the increase for years to come.
On May 13, 2019, the prices of stocks tumbled at an announcement made by China in which the country stated that it would impose a $60 billion tariff on all American exports to China, a retaliation to the $250 billion tariffs imposed on the People’s Republic of China by the United States.
The entire stock market, FAANG stocks included, have felt the heat emanating from the trade war between the two largest economies in the world which has been on since January 2019 and investors have wished that the two nations would come to an agreeable trade deal as only that would quell the market tension. In reaction to the market woes from the trade war, four FAANG stocks on the index fell by 2.5 percent, with Facebook (-3.61 percent) and Netflix (-4.37 percent) being the biggest losers.
To worsen the matter, the President of the United States is now facing an official impeachment inquiry, and this has left the US and the whole world at a loss. This new development has left a lot of people wondering about the fate of the US stock market as well as its effect on the trade tension with China.
Now, things don’t seem so scary anymore because, despite the ongoing proceedings against POTUS, the stock market appears to be coming back to life, meaning that there may be hope after all. In addition, President Donald Trump hinted that the trade war between the US and China would soon come to an end, a piece of news that affected the stock market positively.
Reacting to Trump’s announcement, the FAANG companies experienced a surge in their individual stocks. Facebook increased by 1%, while Google, Netflix, Apple, and Amazon climbed 2.3%, 4%, 1.5%, and 1.5%, respectively.
The issue of a FAANG Bubble was first heard of in 2018 when the cash cow of the stock market, technology stocks, began to decline. Things escalated in November 2018 when the shares belonging to FAANG companies lost over 20% of their valuations, making them be declared bearish assets. The sharp drop in the markets which occurred in November 2018 made FAANG stocks to lose an estimated $1 trillion.
FAANG stocks didn’t have it easy in 2018 as they faced a series of problems like privacy and regulatory issues which tackled Facebook and Google, as well as concerns from investors about their balance sheets. Netflix suffered the most in the area of its balance sheet because, for most of its existence, the company has had a negative value cash flow.
Industry experts have come up with theories to explain the massive losses of 2018, and one of them says that the tech companies are more or less like the companies in the dot com era. But other analysts think this theory is wrong, pointing out that today’s tech companies have access to better technologies like social media, artificial intelligence (AI), big data, cloud computing, machine learning, and e-commerce, which have given them the leverage to grow and thrive.
FAANG stocks have made a lot of investors rich, and it will continue to do so for a long time to come, but that does not mean that proper care should not be taken before buying them. Even though they are stocks belonging to strong market forces in the tech industry, they shouldn’t be handled with kid-glove because investors can still be burned, after all, it is still the stock market we’re talking about.
Therefore, anyone looking to diversify their portfolio into any of the FAANG companies should do well to understand the markets properly. They also should seek expert opinion and not merely go by projected returns and growth as not all of them can be trusted. However, with Trump’s impeachment still in the picture, the stock market may yet be unaffected, but investors shouldn’t let their guard down as anything can still happen.