Death of the FAANG Stocks?
Is this the End of the FAANG+M stocks?
Over the last two weeks, we have heard Q1 2022 Earnings Reports from all the Big Tech names that for years have provided amazing returns for investors.
However, the recent reports have shown a weakness in these companies. Naturally, questions have begun to arise if this is an end to the Era of the FAANG stocks?
I want to dig a bit into this discussion
Toothache on FAANG
On one hand, we have Netflix and Facebook, which have been getting slapped in the Stock Market. Both are down more than 50% from their all-time highs
On the other, we have companies like Google, Microsoft, Amazon, and Apple are all down more than 10% on the year.
As much as we like to bundle these companies together like an all in one pack of cookies. Each company is very different and faces very different challenges. Just like a chocolate chip cookie is a cookie, it is still worlds better than an oatmeal raisin cookie. But neither comes anywhere close to a white chocolate macadamia nut cookie (fight me on it).
Netoflizu (Netflix for non-anime lovers) - Faces streaming bubble beginning to deflate as people begin to live their lives again
It is beginning to hit the cap on the number of subscribers as the pandemic pulled a ton of growth forward
It also has to figure out how to get the 100+ million households to actually pay for the service without pissing off its existing subscribers
It is trying to find alternative income streams with merch (which should have been a thing LONG AGO) and gaming
But it is now making profit and is able to adjust to invest back in the business
Facebook has an Apple-sized problem.
Apple's decision to give users an option to opt-out of tracking has completely dismantled Facebook's entire business model
It is trying to pivot to the metaverse so it can own the platform of the future
However, businesses cannot do without Facebook various platforms like Instagram and Whatsapp so it is still very dominant
Google has a TikTok and Apple problem
TikTok has caused a shift in the way people want to receive information which challenges Google's current model with YouTube (less search more algo)
Similar to Netflix, it also has an "everyone is back in the real world again" problem with YouTube revenue
Don't forget DOJ still wants to break them up
Trying to make Google Cloud a profitable business is taking a bit longer than anticipated
Apple - supply chain and business diversification
Supply chain issues from the pandemic will continue to be a determinant factor as to what Apple can do. The recent lockdown in China is not helping
Can Apple continue to innovate?
Apple has been one company that has repeatedly chosen to cannibalize its products in order to grow. Will this continue?
Can Apple use its dominance in hardware to facilitate software growth?
Are people willing to pay extra for privacy? Or are we drunk on data for free access?
The government wants a bite
DOJ wants to break them up as well
App Store is facing challenges to be more open
Amazon - Cloud growth stalling, Unionization
Pandemic changed the habits of a lot of people but the supply chain problems almost broke Amazon
Amazon chose to invest heavily in its infrastructure
But now seems people are going back to shopping in person
Can Amazon turn its massive warehouse and transportation business into a service for other businesses (basically can Amazon become UPS and FedEx?)
Cloud continues to grow but with challengers like Google and Microsoft, growth has slowed. Can this continue to be the moneymaker for Amazon?
I like to say Amazon is a Cloud Business with a side hustle of online retail
Does this still hold true?
Of course like Google and Apple, the Government wants Amazon broken up
Plus after years of not taking care of their employees, unions are beginning to form everywhere.
Microsoft - Acquisitions?
This is the silent and usually forgotten part of Big Tech because it is not very consumer-facing. Which has proven to strength for the business
However, how long can they remain under the radar while acquiring almost every company under the sun?
Soon enough it will begin to face the same hurdles Amazon, Apple, and Google face
How long can Cloud continue to grow?
How does it position itself for more success as the Office Software suite is very saturated in the market?
Can it acquire the mindshare of the younger generation to get them on Windows?
I could keep going with the questions surrounding each company but as you can see each company faces very specific problems.
So is this the death of FAANG?
I don't know but with upstarts like Tesla and Nvidia rolling through and planting their flags as the new generation of tech companies. It might be time to do away with the old and enter the NEW.
This is also why picking stocks is SO DAMN HARD!!
Excerpt from Nick Maggiuili's "A Stock is Not an Index":
How so? With economic and technological development over time, new companies have been brought into the index and old companies have been kicked out. As Geoffrey West stated in Scale: The Universal Laws of Life, Growth, and Death in Organisms, Cities, and Companies:
Of the 28,853 companies that traded on U.S. markets since 1950, 22,469 (78 percent) had died by 2009. Of these 45 percent were acquired by or merged with other companies, while only about 9 percent went bankrupt or were liquidated; 3 percent privatized, 0.5 percent underwent leveraged buyouts, 0.5 percent went through reverse acquisitions, and the remainder disappeared for “other reasons.”
West’s research shows that public companies in the U.S. are in a constant state of flux. Based on his analysis, roughly half of all public U.S. companies in existence today won’t be in existence a decade from now. They will either merge, be acquired, go bankrupt, or find some other way out of the market. Because of this, what we call “the market” changes from year to year.
We never realize it but most companies actually die. We forget all about them because we do not use or require their services anymore. Ironically, we always say "Man, how could that company go out of business?" even though we are the reason the company is no more. It is hard for us to realize this because as we get older we have nostalgia and fond memories about the first times we used those services. I mean ask any millennial about Dial-Up Internet and watch their faces light up as they make the Dial-Up sound. They either have forgotten the frustration of having someone pick up the phone and knock them off the internet or they portray the frustrations in a positive light.
Quick Side note: Be careful of your memories, it tends to fail and deceive us more than we think. Things were usually never as GOOD or as BAD as we tend to remember. Our emotions cloud our thought process more than we would like to accept.
So I don't know if the FAANG's reign over our consciousness and the markets is over. But I do know that as long as I am invested in the market as a whole, I will continue to gain the benefits of the new champions whatever they may be.
In the 20s: we had railroads
In the 70s: we had the Nifty Fifty
In the 90s: we had the Dotcom Names powered by Telecoms
In the 00s: we had Energy and Banks
In the 2010s into the early 20s: we have the FAANG+M
In the 2020s: ??
Where will returns come from next? Could be any of the following:
Metaverse
Green Energy
Electric Vehicles
Crypto
US
Europe
Nigeria
Asia Pacific
South America
I have no idea but I do know one thing. I will be a part of the party by investing consistently and continuously in index funds such as The S&P 500 or The Global Market.
This was a bit more technical than normal but just some thoughts I wanted to share. Let me know your thoughts on this one
Remember GENEROSITY > greed
God bless Each and Every one of y’all
✌🏾