FAANG 1st Quarter Earnings Scorecard

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FAANG stocks — Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOG , GOOGL) — have crushed the stock market over the last few years, posting average returns of 163%, compared to 28% returns for the S&P 500 index.

Indeed, headwinds crated by a combination of factors, including negative headlines, political strife and regulatory pressures, the first three months of the 2018 wasn’t kind to these tech giants. But evidenced by their first quarter earnings results, combined with their Q2 and full-year outlooks, there’s no reason to expect these blue chips tech giants do deliver anything other than their consistent stellar stock performances.

Let’s take a look at how things unfolded in Q1.

Let’s start off with Facebook, which reported strong Q1 earnings on April 25, forcing institutional investors, which had exited the name amid the data fiasco with Cambridge Analytica, to rush back into the social media giant. Q1 earnings surged up 63% year over year to $1.69 per share, while revenue increased almost 50% to $11.97 billion. Driven by a 50% surge in ad revenues which reached $11.8 billion, both top- and bottom line numbers easily cruised by analysts’ forecast of $1.36 per share on revenue of $11.41 billion.

Notably, and even more impressive, of the $11.8 billion in ad revenue, mobile accounted 91%, compared with 85% of the total a year ago. Ahead of the quarter, there were concerns that the so-called Delete Facebook campaign would stunt user growth and engagement, thus forcing advertisers to scale back spending on the platform. That was not the case. Daily active users rose 13% to 1.45 billion, while Monthly active users also grew 13%, to 2.2 billion.

Amazon reported Q1 earnings on April 26, coming in a week after CEO Jeff Bezos announced in the company’s annual shareholder letter that the e-commerce giant had reached 100 million Prime subscribers. And it was a sign of good things to come as the company crushed Q1 results that beat revenue estimates by $2 billion, thanks to a 43% surge year ever year. On the news, AMZN stock surged 7%, adding about $50 billion in market cap in the after-hour session.

Revenue from the company’s bread-and-butter AWS (Amazon Web Services) Cloud business rose 49% to $5.44 billion, accelerating from the 40% growth average of the previous four quarters. This was impressive, particularly given the competitive pressures AWS is facing from the likes of Microsoft (MSFT) and Google. Of note, Q1 marked the fifth consecutive quarter during which the retail giant topped expectation on revenue and guided for sequential revenue to be in-line.

As with Amazon, there were concerns ahead of Apple’s earnings report, which came out on May 1. Fears around weak iPhone X demand, which sparked rumors that Apple had cut its iPhone X production, sent Apple stock into correction territory after investment bank Barclays, while reiterating its Equal-Weight rating, cut its price target on Apple stock to $157 from $168. The "softening iPhone franchise is a big problem," noted Barclays analyst Mark Moskowitz. Apple, however, had other ideas.

Following better-than-expected results, Apple shares rose as much 5% in the after-hour session, thanks to the company's better-than-expected outlook and a hefty capital return program. Earnings per share grew to $2.73, topping the $2.67 analysts were looking for, while revenue came in at $61.1 billion versus expectations of $60.82 billion. Services revenue, its second-largest segment, grew 31% to $9.19 billion, topping Street forecast of $8.4 billion.

With year-to-date returns of more than 70%, best among all the FAANG names, Netflix continues to be rewarded for consistently crushing even the most-bullish expectations. Not only did the tech giant easily beat analysts’ Q1 subscriber estimates, delivering an impressive 2 million, but thanks to song guidance for Q2 and full-year, it forced a handful of research firms to raised their price targets on Netflix stock and reiterated their Buy ratings.

It didn’t matter that the company’s top and bottom-line metrics of 64 cents per share on $3.7 billion in revenue were merely in-line with Street views. As with Amazon, Netflix’s “if we build it they will come” strategy lead to 1.96 million domestic streaming additions, compared to 1.48 million consensus and above its own guidance for 1.45 million. Better still, the company's operating margin jumped to 12.1% from 7.5% in Q4, showing that its content spending — once perceived as an Achilles heel — is actually an asset.

Finally, there’s Google parent Alphabet, which reported its Q1 earnings on April 23. Concerns about rising expenses and lower profitability pressured the stock, despite a top- and bottom-line beat that showed a 26% jump in revenue to $31.16 billion versus estimates of $30.36 billion. Of note, this quarter saw revenue, which had fallen to a sub-15% growth level a few years ago, jumped back impressively to north of 25%. This lead to an easy beat on the bottom line of $9.93 per share, ahead of estimates of $9.28 per share.

However, increase spending on YouTube and video content was not well received by investors and GOOGL shares fell about 5% on the announcement. Aiming to keep up with Amazon, the company said it also plans of invest in Cloud computing and areas like smartphones and artificial intelligence projects. And these investments imply lower future margins, which during the quarter arrived 40.6%, below analyst projections for 41.9%. Still, with gains of more than 6% over the past month and 12-month returns of over 100%, Google deserves more time to to adjust its business to adapt to a changing regulatory landscape.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Earnings , Investing Ideas , Stocks , Technology
Referenced Symbols: FB , AAPL , AMZN , NFLX , GOOG , GOOGL

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