FAANGs ain't what they used to be

via Flickr © PhotoAtelier (CC BY 2.0)

via Flickr © PhotoAtelier (CC BY 2.0)

  • The stock values of tech's ageing wunderkind companies are eroding
  • For Facebook, Amazon, Apple, Netflix and Google the days of investor 'love at first byte' are over
  • FAANGs are still dominant, but it's all a matter of relativity
  • Between them they lost half a trillion dollars in value over the past year

The FAANG companies (that's Facebook, Amazon, Apple, Netflix and Google) just aren't as pearly-white and gleamingly attractive as the used to be. The five companies were the leading drivers of the the US Stock Exchange's bull market for a full decade but that run came to an end last autumn when their share prices took a hammering as many investors sold stock, took profits and reinvested elsewhere in high technology or outside the sector altogether.

Sometime later FAANG share prices did recover to some extent and for a while, particularly this last Spring, but the rebound never reached the stock value heights of early 2018. Indeed, FAANG stocks have lost close to half a trillion dollars in value since this time last year when the combined value of the Big Five was estimated to be US$3.7 trillion. Now, with increasing concerns that out-of-control trade wars between the US and China will precipitate a global recession, analyst sentiment has it that the road to FAANG share price recovery may be difficult and slow with lots of bumps and potholes along the way. 

For many years it has been a matter of love at first byte for investors in the FAANG companies and, despite their being very different entities, analysts and investors alike began to regard them as a bloc of interlocking tech companies - even though they were, and are, nothing of the sort. Nonetheless, given that  their stocks accounted for a fifth of the market value of the S&P500 and other indices, collectively the FAANGs were (and still are) globally dominant and a huge and powerful force in the stock market.

However, in terms of stock prices, that dominance is not as great as it used to be partially because the nippy and nimble upstarts are now middle-aged and tending to organisational sclerosis, bureaucracy and over-management even as the market realises that limitless expansion is a figment of its imagination and FAANG marketing hype. 

Meanwhile various scandals (such as Facebook and Cambridge Analytica) have resulted in ever-louder calls for much tighter regulatory oversight and for some of the companies to be broken-up. And that's why funds are starting to look elsewhere for bigger and better investment returns. Amazon, Facebook and Netflix have been the main targets of late and even Alphabet shares, which had been weathering the storm pretty well, are also in decline.

The New York Times (NWT) recently reported that Brook Dane, a senior portfolio manager at Goldman Sachs’s Technology Opportunities Fund, had confirmed that the fund has adjusted downwards its exposure to Facebook and Apple stocks because both companies “had all kinds of issues popping up, forcing investors to reassess profit margins and growth rates." The NYT also quoted Dan Morgan, a senior high tech sector portfolio manager at Synovus Trust, as saying, “There’s always periods of narrow trading. When it’s so concentrated, that’s when you set yourself up for real problems.”

And problems there have been. Facebook stock lost 25 per cent of its value last year while Netflix shares are down by 20 per cent since the beginning of June this year after subscriber numbers fell and competition in streaming services from the likes of AT&T and Disney took their toll. Meanwhile, shares in the mighty Amazon have taken a knock as well and they were down 7.2 per cent this August as compared to August 2018 and Apple shares are 12 per cent adrift from the heights they hit in October last year.

As Brook Dane of Goldman Sachs observed in the NYT, "The fundamentals of these businesses matter a lot more now for their stocks. It’s healthy the market is starting to discriminate more and the FAANGs are no longer a one-directional buy process.”  So, times are changing and it will be interesting to see how well or badly the companies are doing by, say, FAANGsgiving Day.​

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