When the Dow Jones Industrial Average fell nearly 900 points in two days following the knee-jerk market reaction to the surprise Brexit vote, American traders learned very quickly that European politics can have a big impact on U.S. stocks.
Facebook Inc (FB)
More than half (54%) of FB’s revenue coming from outside the U.S., and 24% of that revenue comes from Europe. FB stock traders can’t afford to ignore the Brexit.
CNBC’s Julia Boorstin reported last week that FB won’t lose European users, but a recession in Europe could cost the company advertising dollars.
Despite the uncertainly involving the Brexit, Cantor Fitzgerald analyst Youssef Squali believes traders should buy high-quality internet stocks like FB, GOOG and AMZN on any post-Brexit dips. Squali expects that the Brexit will have “no meaningful impact” on Facebook’s earnings.
FBN Securities agrees that FB’s Europe exposure is “relatively low” and names FB stock its top technology pick.
Alphabet Inc (GOOG, GOOGL)
GOOG’s biggest Brexit-related threat may not come from European consumers, but rather from EU regulators.
The U.K. had pushed for lighter EU regulations on GOOG. Now that the U.K. has gone, France and Germany may decide to crack down. The EU recently approved the new General Data Protection Regulation framework, which is set to take effect in May 2018. The new rules will help regulate the data collection that is central to GOOG’s critical advertising business.
GOOG is likely not thrilled about the details of the new EU rules, including massive fines for privacy violations and provisions allowing EU citizens to opt out of online profiling. But at least the rules were set to be uniform across all of Europe. Now, the U.K. may have its own set of rules that could complicate data flow in and out of Britain and the rest of Europe.
In terms of direct earnings impact, however, Squali argues that GOOG is mostly in the clear. About 10% of GOOG’s total revenue comes from the U.K. But Cantor Fitzgerald predicts that GOOG’s hedging activities will offset most of the potential forex headwinds.
Amazon.com, Inc (AMZN)
Among the three stocks discussed in this article, AMZN has the least international revenue exposure (33%) and only 8% direct exposure to the U.K.
While AMZN is an internet company at its core, it also has more of a physical retail presence than GOOG or FB. Investors may have initially been worried about the impact that the Brexit would have on international goods delivery within Europe, but the company recently assured the market that its sales have not been impacted by the vote.
“Our sales are in line with expectations… It’s business as usual as far as we are concerned,” U.K. manager Doug Gurr said this week.
Amazon also said it intends to create another 1,000 jobs in the U.K. on top of the 2,500 U.K. jobs it announced in January.
It’s still unclear what (if any) impact the Brexit will have on the availability and cost of labor in the U.K., particularly immigrant labor. However, AMZN doesn’t seem to be concerned, which is a good sign for investors.
As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.