Lonsec questions whether FAANG label still has bite

7 August 2018

Discussion surrounding the FAANG shares and their earnings performance following the slump in Facebook shares shows that investors should not be misled by the market’s bucket mentality, which tends to group together certain stocks for superficial reasons.

According to research house Lonsec, the recent round of US earnings announcements shows that the five FAANG shares – Facebook, Apple, Amazon, Netflix and Google (which trades as Alphabet) – are hitting or exceeding their earnings per share (EPS) estimates but have experienced wildly divergent share price reactions.

“While the FAANG shares have largely risen together in recent months, Facebook’s violent decoupling from the FAANG growth trajectory shows it is a mistake to think of these shares as behaving as a group,” the research house said.

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“While Facebook met the market’s EPS target, it undershot the consensus revenue estimate and suffered the consequences.

“In contrast, Amazon reported strong EPS growth and slightly downbeat revenue versus consensus, leading to only a moderate fall in price. Netflix reported lower-than-expected revenue and subscriber growth and saw a small bump in its price.”

Lonsec said while the FAANG shares may have much in common, all being technology-related shares, they are fundamentally different businesses.

“What they have most in common is that they are, with the exception of Netflix, among the highest value shares in the index. When they move in the same direction they can move the market with them, but when they diverge it can leave investors wondering how meaningful the FAANG label is.”


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