The second full week of the first-quarter earnings season begins on Monday, which means it’s time for Alphabet Inc. (GOOG), Amazon.com, Inc. (AMZN) and Meta Platforms, Inc. (META) to step up to the earnings plate and share their quarterly results.
We can thank Jim Cramer for that catchy acronym, who coined it back in 2013 while recommending four of these high-growth tech stocks: Facebook (now Meta Platforms), Amazon, Netflix and Google (now Alphabet). Cramer had stated, “These stocks have the potential to really take a bite out of the bears.”
He wasn’t wrong. Over the past decade, the FAANG stocks shares have outpaced the overall S&P 500 and NASDAQ with a 24.06% annualized return, compared to the S&P 500’s and NASDAQ’s returns of 10.34% and 14.28%, respectively.
In 2017, FANG grew to FAANG when Cramer added Apple to the mix.
However, the FAANG stocks were eventually defanged due to a combination of rising interest rates, market saturation, increasing competition and weakening fundamentals, which resulted in quarter-after-quarter of disappointing earnings results.
I should add that the acronym changed again in 2021 to MAMAA, due to Facebook’s name change to Meta Platforms and Netflix being swapped out of the group with Microsoft Corporation (MSFT).
Now, while the acronym may have changed over the years, investors’ interest in these tech heavyweights’ earnings (including Netflix’s) has not. Given this, all eyes will be on them next week as they post their quarterly earnings in the coming days. So, in today’s Market 360, I’ll preview the big techs’ earnings reports so you know what to expect. Then, I’ll share if these stocks are good buys ahead of their earnings announcements.
But first, let’s take a quick look at Netflix’s first-quarter earnings results, as the company published its quarterly numbers Tuesday afternoon.
Netflix Posts Mixed Results
Netflix, Inc. (NFLX) released its earnings on Tuesday, April 18, after market close. For the quarter, Netflix reported adjusted earnings of $2.88 per share on revenue of $8.16 million, or a 22.6% year-over-year earnings decline and a 3.6% year-over-year revenue growth. Analysts were expecting earnings of $2.86 per share and revenue of $8.18 billion, so Netflix topped earnings expectations, but missed on the bottom line.
For the second quarter, company management anticipates earnings will decline 11.3% year-over-year to $2.84 per share, down from earnings of $3.20 per share in the second quarter of 2022. Revenue is expected to increase 3.4% year-over-year to $8.24 billion. This is below analysts’ estimates for second-quarter earnings of $3.05 per share and revenue of $8.48 billion. Operating income is expected to be about flat year-over-year at $1.6 billion.
More important to note: Netflix brought in 1.75 million subscribers in the first quarter, but this was well short of analysts’ expectations for 2.2 million subscribers. It did not provide specific forecasts for subscriber growth.
The company also gave an update on its timeline for its password sharing crackdown. While rollouts for this crackdown began early February in Canada, New Zealand, Spain and Portugal, the company announced it expects to roll out a program in the U.S near the end of the second quarter in June. Chief Financial Officer Spencer Adam Neumann stated:
We’re pleased with the most recent launches of paid sharing, and while we could have launched broadly in Q1, we found opportunities to improve the experience for members. We learn more with each rollout and we’ve incorporated the latest learnings, which we think will lead to even better results. To implement these changes, we shifted out the timing of the broad launch from late Q1 to Q2. While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome for both our members and our business.
What to Expect From the “MAMAA” Stocks
Alphabet, Inc. (GOOG) is scheduled to release its first-quarter earnings after market close on Tuesday, April 25. Analysts expect earnings of $1.06 per share, a 13.8% year-over-year decrease from earnings of $1.23 per share in the same quarter of last year. Revenue is estimated to increase 1.2% year-over-year to $68.81 billion, up from revenue of $68.01 billion in the same quarter a year ago.
Microsoft Corporation (MSFT) is set to announce its quarterly earnings for its third quarter in fiscal year 2023 after market close on Tuesday, April 25. Earnings are expected to come in at $2.23 per share, up just slightly from earnings of $2.22 per share in the same quarter of 2022. Revenue is estimated to be $51.02 billion, a 3% year-over-year increase from $49.4 billion in the year prior.
Meta Platforms, Inc. (META) is slated to reveal its first-quarter earnings on Wednesday, April 26, after the closing bell. Analysts estimate earnings of $2.02 per share and revenue of $27.61 billion, down from earnings per share of $2.72 and revenue of $27.9 billion in the same quarter last year.
Amazon, Inc. (AMZN) is up on deck with its first-quarter earnings results after market close on Thursday, April 27. Analysts estimate earnings of $0.22 per share, up from earnings loss of $0.38 per share in the same quarter a year ago. Revenue is expected to increase 7% year-over-year to $124.6 billion.
Apple, Inc. (AAPL) rounds out the MAMAA earnings reports on Thursday, May 4, after the market closes, with its second-quarter earnings for fiscal year 2023.Earnings are expected to come in at $1.43 per share, down 6.3% from earnings of $1.52 per share in the same quarter of last year. Revenue is estimated to be $92.94 billion, a 4.5% year-over-year decline from $97.3 billion in the year prior.
To Buy or Not To Buy…
Given the weak fundamentals, it’s no surprise that most of the companies rate poorly in my Portfolio Grader.
As you can see in the Report Card above, Apple, Alphabet, Meta Platforms and Microsoft have a C-rating, making them each a “Hold.” And Amazon has a D-rating, making it a “Sell.”
Interestingly enough, The Wall Street Journal has recently reported that although the FAANG stocks as a group flamed out, Apple and Microsoft now have their highest weightings ever in the S&P 500 at a combined 13.3%, since they have been deemed an oasis by many investors.
I find this particularly ironic considering that Apple has negative forecasted sales and earnings growth, while Microsoft’s first-quarter earnings are only forecasted to rise 0.5%. Furthermore, both Apple and Microsoft have had negative analyst earnings revisions in the past three months, which does not bode well for quarterly earnings surprises.
The bottom line: These stocks are not good buys ahead of their upcoming earnings results.
The fact of the matter is that to be rewarded by Wall Street right now, companies must top analysts’ earnings and revenue expectations and provide positive future guidance. In other words, they need superior fundamentals and positive growth prospects.
Companies that disappoint are punished by investors, which we saw on Wednesday following Netflix’s disappointing results, and then again on Thursday with Tesla’s mixed first-quarter earnings. NFLX shares fell more than 3% on Wednesday and TSLA shares plunged more than 9% on Thursday.
So, instead I recommend you invest in fundamentally superior stocks, as these are the stocks that should emerge as the market leaders this earnings season.
Case in point: Two of my Growth Investor stocks – Nucor Corporation (NUE) and Steel Dynamics, Inc. (STLD) – rallied 3.4% and 7.6%, respectively, on Thursday in the wake of their strong earnings results. Both companies beat analysts’ earnings estimates and provided positive forward-looking guidance.
Overall, I’ve had eight Growth Investor stocks announce results so far this season, and all eight topped expectations.
To ensure that you’re also invested in the best companies for this earnings season, click here and become a member of Growth Investor today.
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