The FANG stocks, minus Amazon.com, Inc. (NASDAQ:AMZN), are showing additional signs of weakness. Beset by strengthening competition and lacking significant innovation, Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) have clearly lost their aura of invincibility and tremendous superiority.
These FANG stocks will all continue to rake in tremendous amounts of revenue and will, with the exception of Netflix, make huge profits. But their best days are behind them — at least for the short and medium terms. Consequently, I recommend selling the FANG stocks: Facebook stock, Apple stock, Netflix stock and Google stock.
Time on Facebook fell by roughly 50 million hours per day or 5% in the fourth quarter. The company tried to blame the decline on its efforts to “encourage meaningful connections between people rather than passive consumption of content.” According to CEO Mark Zuckerberg, Facebook attempted to accomplish this goal by reducing the amount of videos and articles shown on the site and prioritizing videos “that encourage meaningful social interaction.”
But during the company’s first-quarter results conference call, Zuckerberg did not clearly explain why and how prioritizing some content over other content had caused overall time spent on the website to decline.
The strong user results posted by Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP), however, suggest that intensifying competition was key in the decline in overall time spent on Facebook. Daily active usage at Twitter jumped 12% year-over-year last quarter. Snapchat’s daily active user count surged 18% year-over-year and 5% sequentially.
Perhaps contributing to the success of Twitter and Snapchat is the lack of meaningful innovation by Facebook in the last few years. The site has remained largely unchanged during that time. The rejuvenation of Twitter and Snapchat doesn’t bode well for Facebook stock.
The behemoth sold 77.32 million iPhones last quarter, which encompasses the very important holiday shopping season. That’s down from 78.29 million during the same period a year earlier. It provided revenue guidance for the current quarter of $60 billion-$62 billion, versus the consensus outlook of $65.73 billion. The company barely sold more devices than Samsung last quarter, unloading 77.3 million iPhones versus Samsung’s 74.1 million devices.
As I’ve pointed out multiple times, none of Apple’s post-iPhone products has really taken off. And as I discussed in a previous column, the throttling scandal seems like a really big problem for Cupertino. The decline in iPhone sales numbers is probably largely attributable to the throttling revelation.
The Department of Justice’s decision to investigate the giant over the issue should keep it in the news — and consumers’ minds — for many months to come. This will lead to more disappointing numbers for the company. And that will cause Apple stock to deliver lackluster returns.
The content provider is growing at a significant pace, adding a net total of 8.33 million members in the fourth quarter. The company, however, expects its growth to slow to 6.35 million new members during the current quarter.
Moreover, it is spending tremendous amounts of money on content to stay ahead of the competition. NFLX predicts that it will have to shell out $7.5 billion to $8 billion for this year. As a result, the streaming giant estimates that its free cash flow will come in at negative $3 billion to negative $4 billion, versus negative $2 billion in 2017. And that’s before Disney, bolstered by the vast content it obtained from Fox, unveils its competing streaming product, likely in 2019.
With Netflix stock trading at a forward price to earnings ratio of nearly 60 and a price to sales ratio of over 9, it shouldn’t be long before investors figure out that they’re overpaying, even after the recent declines in NFLX stock, for a company with increasing negative free cash flow and much stronger competition on the way.
The search giant’s fourth-quarter revenue beat expectations. But its earnings per share were lower than expected, driven by high traffic acquisition costs. Meanwhile, Google’s cloud business is reportedly running behind those of Amazon and Microsoft, and “a handful of big name companies pulled their advertisements from YouTube” due to “several reports of disturbing content,” CNBC reported.
Additionally, research firm Stifel downgraded Google to Hold from Buy, citing competition from Amazon on the advertising and cloud fronts. So far, the performance of Google’s other businesses, including its Google Fiber Internet service and its connected device maker Nest, have not delivered great results. The jury is still out on its driverless car unit, Waymo.
As for the other FANG stock, Amazon, its business has been expanding rapidly. It has little competition on the horizon and great potential. But I remain cautious on Amazon stock due to President Trump’s disdain for the company.
As of this writing, Larry Ramer did not have shares of any of the stocks mentioned.