For the broader stock market, the first quarter of 2018 was one to forget. But how was it for the FANG stocks?
The S&P 500 dropped more than a percent in the first three months of 2018, its worst performance under Trump and its first quarterly drop since 2015.
On it’s own, that’s bad.
But it’s even worse when you consider how good January was. The S&P 500 roared nearly 6% higher in January, led by tech stocks. The NASDAQ-100 was up nearly 9% in January — and finished the quarter up just 3%.
Amid all these gyrations, how did the big beauties of the stock market hold up? How did the widely followed and largely loved FANG group do?
Overall, the four FANG stocks had two wins, one tie, and one loss in Q1. Let’s take a deeper look.
How Did The FANG Stocks Perform in Q1?
#4. Facebook Inc (FB)
Performance: Shares of social media giant Facebook Inc (NASDAQ:FB) dropped nearly 10% in the first quarter of 2018, making it the worst performer in the FANG group.
Rationale: By now, everyone knows why Facebook stock dropped so much in the first quarter of 2018. The company was victim to a data breach in 2015, which the company did not fully follow-up on at the time. Thus, Cambridge Analytica gained private data on 50 million users that should’ve been deleted, and it was subsequently used without Facebook’s knowledge — most notably in the 2016 Presidential Election.
The hashtag #deletefacebook started trending as users threatened to drop the social media platform. Some advertisers temporarily pulled ad spend. Regulators spoke out harshly against Facebook. So did other technology leaders, like Elon Musk of Tesla Inc (NASDAQ:TSLA) and Tim Cook of Apple Inc. (NASDAQ:AAPL).
All together, Q1 was very ugly for Facebook stock.
Q2 Outlook: Investors should expect near-term choppiness in Facebook stock. The stock is trading purely on sentiment right now, and the sentiment remains negative as other tech leaders continue to attack Facebook for their use of data.
But the sentiment on Facebook stock will likely shift after the company reports quarterly earnings. Those numbers should be pretty good because usage hasn’t gone down (the number of Facebook downloads has actually gone up in the iOS App Store since this data breach scandal went public). No big advertisers have pulled any money from platform, and no advertisers have pulled money permanently from the platform. And the regulatory pushback should be nothing more than a slap on the wrist.
Overall, Facebook should have a bounce-back Q2. But not until near-term negative sentiment is corrected by strong earnings.
How Did The FANG Stocks Perform in Q1?
#3. Alphabet Inc (GOOGL,GOOG)
Performance: Shares of digital search giant Alphabet Inc (NASDAQ:GOOG) fell about 1.4% in the first quarter of 2018, making it the second worst performer in the FANG group.
Rationale: GOOG stock fell in Q1 largely in sympathy with Facebook. Put simply, the same regulatory concerns regarding data usage that hang over Facebook stock also hang over Google stock, since both companies leverage user data for targeted advertising purposes.
Google is also a bigger digital advertising player than Facebook, so its potential fallout from a regulatory blow is actually bigger.
Moreover, a fatal accident involving a self-driving Uber car in Tempe, Arizona put the brakes on what was a red-hot self-driving industry. Google has a ton of exposure to that industry through its self-driving car unit Waymo.
Q2 Outlook: GOOG stock should be able to bounce back in Q2 as sentiment surrounding data usage improves, regulatory concerns fall into the rear-view mirror, and the company continues to build out its businesses outside of digital advertising.
Namely, Google Cloud is gaining market share in the hyper-growth public cloud market. This should persist because retail companies don’t want to align themselves with Amazon (who is their biggest competitor), so they continue to choose Google Cloud over Amazon.
Also, Google just launched Shopping Actions, which is essentially an attempt to turn Google into an e-commerce marketplace. This could be big for the company.
All together, then, GOOG stock has a solid outlook for the second quarter. The valuation is reasonable, growth is still big, and risks should ease over the next several months.
How Did The FANG Stocks Perform in Q1?
#2. Amazon.com (AMZN)
Performance: Shares of e-commerce and cloud giant Amazon.com, Inc. (NASDAQ:AMZN) rose nearly 24% in the first quarter of 2018, making it the second best performer in the FANG group.
Rationale: Despite broader market turmoil, Amazon stock was able to have a strong first quarter thanks to the company’s sustained dominance in its core retail and cloud markets.
Amazon reported Q4 numbers that were head and heels above expectations. Revenue growth simply refuses to slow down, and is getting a big boost from a now wholly integrated Whole Foods business. Margins keep ramping higher, mostly thanks to AWS scale but also thanks to improving margins in the retail business. Earnings are soaring.
All together, this growth story didn’t slow down at all in the first quarter of 2018. And neither did AMZN stock.
Q2 Outlook: Despite the robust Q1 performance, AMZN stock has gotten off to a rocky stock in Q2. It is already 14% off its 2018 highs.
The recent under-performance can be attributed largely to Trump’s attacks on Amazon and its business model — and the feared effects. Recent tweets from the President regarding how Amazon is taxed have investors concerned that legislation is coming which could hamper Amazon’s progress.
As I’ve pointed out before, that is not likely. There isn’t much Trump can realistically do to impede the Amazon growth narrative. But AMZN stock does look richly valued here, so it needs perfect conditions to head higher.
All together, Q2 for AMZN stock will be a battle between valuation and sentiment. If sentiment dramatically improves, then the stock will head higher. If not, then valuation will keep a lid on the stock.
How Did The FANG Stocks Perform in Q1?
#1. Netflix (NFLX)
Performance: Shares of streaming giant Netflix, Inc. (NASDAQ:NFLX) rose more than 50% (72% at its peak!) in the first quarter of 2018, making it the best performer in the FANG group by a long shot.
Rationale: Everything went nearly perfect for Netflix in the first quarter of 2018.
The company’s fourth quarter earnings report was a huge beat on all important metrics. Subscriber growth topped expectations by a healthy amount. Same with revenue, margins, earnings and outlook. Investors started to buy into this “world domination” narrative supported by unparalleled original content, robust expectations for international subscriber growth, and price hikes. This pushed NFLX stock above $300 for the first time ever.
Q2 Outlook: Much like Amazon, Netflix isn’t off to a great start in Q2. Its 15% off its 2018 highs. Also much like Amazon, Netflix is victim to a big valuation, and that makes the stock susceptible to big drops on any negative news.
Netflix hasn’t been victim to much negative news recently. The recent drop in NFLX stock has more to do with deteriorating sentiment across the entire tech sector than anything else (although there is the #deleteNetflix movement in Brazil).
From this perspective, quarterly earnings should be able to right the ship when it comes to NFLX stock. But valuation remains a concern. Thus, any big quarterly earnings beat will have to be accompanied by improving sentiment in the tech sector in order for NFLX stock to head materially higher in Q2.
As of this writing, Luke Lango was long FB, GOOG, and AAPL.
