You may recall that the FAANG stocks consist of five tech stocks — Meta Platforms, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). The FAANG stocks, plus Tesla (NASDAQ:TSLA) and Microsoft (NASDAQ:MSFT), make up nearly half of the NASDAQ. The tech giants are some of the biggest companies in the world. In fact, Amazon, Apple, Alphabet and Microsoft all boast market caps north of $1 trillion.
But following their latest earnings results, two of the FAANG’s reign may be coming to an end.
So far this year, Netflix has been a huge disappointment following weaker-than-expected earnings reports. Facebook has struggled, too. Facebook shares plunged more than 26% back in February in the wake of the company’s mixed earnings report for its fourth quarter, losing more than $230 billion from its market cap along the way. About half of its market cap has been erased since June 2021, when Facebook’s market cap broke $1 trillion.
As a result, NASDAQ and the Nasdaq-100 have come under significant pressure. As I discussed in yesterday’s Market360, we saw an almost 4% decline in the NASDAQ on Tuesday as investors braced themselves for the tech companies’ latest results. Following Amazon’s miss on Thursday, the broader market fell on Friday and the NASDAQ slipped more than 2% lower.
We reviewed Netflix’s earnings last week, so let’s start with Alphabet.
Alphabet (GOOGL, GOOG): Earnings Announced on Tuesday, April 26
Alphabet disappointed Wall Street on Tuesday evening with first-quarter earnings and revenue that fell short of expectations. Despite the strength of its advertising and cloud businesses, Alphabet reported earnings of $24.62 per share on $68.01 billion in revenue, which missed estimates for earnings of $25.94 per share and revenue of $68.07 billion.
Earnings have fallen 6.4% year-over-year from earnings of $26.29 per share in the same quarter a year prior. Revenue grew 23%, up from revenue of $55.3 billion in the first-quarter 2021. This year’s first-quarter sales growth of 22% marked the company’s lowest growth rate since 2020. This time last year, the company reported 34% growth rate, as businesses’ ads targeted consumers stuck in their homes due to the pandemic.
Digging deeper into the report, Alphabet achieved a 14% increase in its YouTube advertising revenue. The tech giant also noted that Google Cloud sales jumped 43% to $5.8 billion in the first quarter.
“Q1 saw growth in Search and Cloud in particular, which are both helping people and businesses,” CEO Sundar Pichai said. “We’ll keep investing in great products and services and creating opportunities for partners and local communities around the world.” The stock dropped over 6% after earnings, but I’m not worried about it. Alphabet is a monopoly, and a lot of people buy it on a pullback. In fact, we saw a little bit of this on Thursday when the stock jumped nearly 4%.
Meta Platforms (FB): Announced on Wednesday, April 27
Facebook shares soared 18% after hours on Wednesday following the company’s mixed earnings bag for its first quarter. The company beat analyst earnings estimates by 6.2%, reporting earnings of $2.72 per share while analysts expected earnings of $2.56 per share. Revenue of $27.91 billion missed analysts’ estimates of $28.2 billion by about 1%.
Earnings dropped 18% year-over-year from earnings of $3.30 per share in the same quarter a year ago. Revenue increased by only 7%, the first time the company has seen sales growth in the single digits and its slowest ever growth rate since going public a decade ago.
CEO Mark Zuckerberg cited ad changes, privacy issues in Apple’s iOS and the war in Ukraine as contributions to the slowdown.
This mixed bag was still a huge contrast to earnings for last year’s fourth quarter. As I mentioned, the stock tumbled 26% in its worst day to date. And while seemingly on the mend for now, the stock is still down nearly 50% for the year.
But Facebook is obsessed with subscriber and user growth. People think consumers don’t want to stream or add new services, but Facebook contradicted everyone on that.
Amazon (AMZN): Earnings Announced on Thursday, April 28
Amazon shocked Wall Street with an incredibly disappointing first quarter for its fiscal year 2022. The company reported adjusted earnings of $7.56 per share, well below analysts’ estimates for earnings of $8.73 per share. Revenue rose 7% year-over-year to $116.44 billion, slightly above analysts’ projections for revenue of $116.3 billion. This compares to earnings of $15.79 per share on revenue of $108.52 billion in the same quarter of last year.
The 7% revenue growth marked the company’s slowest rate of any quarter since the dot-com bubble burst in 2001. For reference, last quarter’s sales growth rate was 44%. The net loss of $3.84 billion is the company’s first loss since 2015.
CEO Andy Jassy said in a statement that “the pandemic and subsequent war in Ukraine have brought unusual growth and challenges…This may take some time.”
The company also noted a $7.6 billion loss from its investment in electric vehicle (EV) automaker Rivian for the poor results.
Now the talking heads in the media are trying to create this narrative that consumers aren’t spending what they used to. But the consumer spending report for March showed consumer spending rose 1.1%, while income only rose 0.5%. So, consumers are still spending, almost double their income, and are drawing on their savings and taking on some debt to do so.
The stock plunged as much as 15% on Friday in the wake of its disappointing results.
Apple (AAPL): Earnings Announced on Thursday, April 28
Apple beat analyst estimates for its second quarter in fiscal year 2022 on both the top and bottom lines. The tech giant reported earnings of $1.52 per share, beating analysts’ estimates for earnings of $1.43 per share by 6%. Revenue came in at $97.28 billion. Analysts expected revenue of $93.89 billion, so the company posted a 6% beat on revenue.
For the same quarter a year ago, the company reported earnings of $1.40 per share on revenue of $89.58 billion, so earnings and revenue both increased year-over-year by 9%.
The company also increased its dividend to $0.23 per share, a 5% increase from its previous dividend of $0.22 per share.
Despite the strong earnings, the stock dipped 4% after hours on Thursday after CFO Luca Maestri and CEO Tim Cook warned of coming supply chain challenges and coronavirus impacts on sales that the company will likely face in the future. Keep in mind that the company makes most of its products from the Shanghai province, which is still under lockdown.
But Apple has always been about the third quarter. The company will release a new iPhone in September and it’s making its own very efficient chips. So, we’ll see what that looks like at the end of the year.
For the third quarter in fiscal year 2022, analysts expect earnings of $1.25 per share on revenue of $86.49 billion.
Where to Invest Next?
All of this craziness with the FAANG stocks has set up stocks with strong fundamentals like Cadence Design Systems (NASDAQ:CDNS), Fortinet (NASDAQ:FTNT), which I recommend in Growth Investor, and several others tech stocks as exceptionally good near-term buys.
I should add there are even more exciting opportunities brewing in the energy sector. I revealed five exciting new buys in yesterday’s Growth Investor Monthly Issue for May — two energy-related stocks and one chemical company, as well as an oil and gas company and a metals company. I also shared my latest Top Stocks lists.
So, if you’re not sure where to look for other good buys, you’ll want to consider my Growth Investor Buy Lists. If you join me at Growth Investor today, you’ll be just in time to receive my brand-new energy stock recommendations.
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It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Amazon (AMZN), Alphabet (GOOG), Fortinet (FTNT), Microsoft (MSFT)