What is FAANG?
The abbreviation “FAANG” is used in finance to refer to the stocks of five major American tech firms: Facebook (now referred to as Meta), Amazon, Apple, Netflix, and Google.
In 2013, Jim Cramer, the financial television host of CNBC’s Mad Money, coined the acronym “FANG” to commend these firms for being prominent in their markets. Later in 2017, the second “A” was added as a reference to Apple.
Interestingly, Goldman Sachs devised the acronym FAAMG to represent the top 5 tech companies that have been the key drivers of growth in the US stock market, adding Microsoft to the mix and omitting Netflix. Many people no longer consider Netflix to be one of the big players since its market capitalization has not managed to keep up with all the others.
Netflix has a market capitalization of $176.07 billion, whereas Amazon and Alphabet have market capitalizations of $1.46 trillion and $1.73 trillion, respectively. Apple and Microsoft are both valued at higher than $2.2 trillion.
These FAANG companies are widely known among consumers and are among the largest companies in the world, with a combined market capitalization of nearly $7.7 trillion as of Jan 25 ’22 (Around more than 17% of S&P 500).
FAANG to MANGA: what’s the difference?
Mark Zuckerberg announced about changing Facebook’s name to ‘Meta’, as it better symbolizes the firm’s objectives of ”beyond social media”. It is aggressively invested in what is known as the metaverse, a digital world in which people use various gadgets to interact with one another in a three-dimensional environment. Financial journalists and investors hypothesized on the transition in the acronym for tech businesses. While a few named it MANGA, which stands for Meta, Amazon, Netflix, Google, and Apple, others called it MAGNA, which refers to Meta, Amazon, Netflix, Google, and Apple.
Is it true that these stocks are overvalued?
Many people consider the FAANG group to be modern-day blue-chip stocks, not only tech businesses. Over the previous few years, these equities have performed brilliantly, frequently outperforming traditional indexes. During the Covid-19 pandemic in 2020, they also steered the stock market’s recovery. While past performance isn’t always indicative of future performance, given their size in the S&P 500, it appears that these tech stocks will continue to have a significant impact on the market.
These stacks also include intangible assets, which should help them become more successful in the future. Facebook, Amazon, and Google all have vast amounts of consumer data that can be used to target advertisements. These competitive advantages make these stocks ideal investment options. Their stock prices are supported by their core business strengths. As a result, they are fairly valued, making them an appealing long-term investment.
The Future of FAANG
It’s impossible to predict what will happen in the future. While Netflix is a phenomenally forward-thinking firm, it is in no way comparable to any of the other four “FAANG” corporations. To begin with, it only has one product and one revenue stream, whereas the other four companies have several revenue streams based on a diverse range of tangible (hardware) and intangible (software) products.
Should we consider Microsoft? They’re a name that doesn’t come up very often these days when it comes to bright and shiny tech. They are, nonetheless, stronger than the majority of these businesses. There’s that, plus the reality that, while any of the MAGMA companies might easily buy Netflix – Netflix is unlikely to buy any of them. Also, don’t be surprised if Tesla makes the cut.
The FAANG Earnings Charts: A Detailed Analysis
Meta Platforms, Inc. ( also known as Facebook)
Meta Platforms, widely recognized as Facebook, has won six consecutive quarters. In 2022, shares of this social media giant are down 5.4 percent. As the corporation invests in constructing the metaverse, Meta Platform’s earnings are predicted to be mostly stable in 2022. Despite this, the stock is still reasonably priced, with a projected P/E of just 23.8. On a P/E basis, the Meta Platforms are the cheapest of the FAANG stocks.
Apple has the best track record of the FAANG stocks in terms of earnings surprises. In the last five years, it hasn’t missed an earnings target. Even if you don’t include a pandemic in that time frame, that’s excellent in general. It’s not easy to beat the same quarter for five years in a row. Apple’s stock rose to fresh all-time highs to begin the new year but is currently down 4.4 percent for the year. With a projected P/E of 29.8, Apple remains expensive. Earnings are only predicted to increase by 3.7 percent in fiscal 2022.
Amazon happened to miss in the most recent quarter, but it was the company’s first shortfall in six quarters. The stock has been stuck in a limited trading range for almost a year, with only a 4.5 percent growth rate. Amazon’s stock has dropped 4.7% since 2022. However, earnings are predicted to increase by 22% in 2022, while sales are expected to increase by 17.6%. The P/E has declined to 65, as the shares remain halted but the “E” is growing. That would be an extremely high P/E ratio for any other firm, but it’s on the low end for Amazon.
Netflix has outperformed the market in two of the last four quarters, including a 24% gain this quarter. However, the stock has dropped 15.2% year to date as a result of the growth stock sell-off. Netflix’s earnings are predicted to increase by 23.6% in 2022, following a 76% increase in 2021. Among the FAANG stocks, this is the one with the most rapid increase. Netflix has a forward P/E of 39.7, so you’ll have to pay a premium to buy it.
Alphabet has managed to win six consecutive quarters. It was the best-performing FAANG stock during the previous year, with shares rising 57.4%. However, Alphabet, like the other FAANG stocks, has begun 2022 with a loss, losing 6.1% year to date. Earnings are predicted to increase by 85% in 2021, then moderate in 2022, with another 4.8% expected to expand. Alphabet has a forward P/E of around 24.5, making it one of the most affordable FAANG stocks.
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