What is FAANG?
The answer to the question “what is FAANG” is here – it stands for Facebook (which is now known as Meta), followed by Apple, and then Amazon, Netflix, and Alphabet-owned Google, which dominated the stock market for the previous ten years.
Over the past ten years, the FAANG stocks have significantly outperformed the market. With a return of 1,750%, Netflix took the top spot, followed by Alphabet and Amazon, with gains of 651% and 847%, respectively. Finally, advances of 438% and 535% were produced by Meta and Apple Platforms.
After the market meltdown in March 2020, FAANG stocks drove the stock market recovery. These major tech companies gained greatly from consumers remaining at home while spending hours browsing rather than going out and buying at big-box stores during the peak of the pandemic.
Many have claimed that Microsoft and Tesla, which has developed something of a devoted fan base, should be added to the group. According to Morningstar, the world’s major stock in the market in 2020—Apple, Microsoft, Amazon, Meta, and Tesla—contributed 37% of the returns on the market.
How Have The FAANG Stocks Performed in 2022?
Now that you know what FAANG is note that the Nasdaq 100 index holds about 30% of FAANG stocks, whereas the S&P 500 index holds about 14% of FAANG stocks. Over the previous five years, the FAANG stocks have seen enormous success. Following the epidemic, there has been a renewed emphasis on technology, which has aided in the expansion of the profits of tech firms. These stocks have disrupted industries by altering how people work, shop, and enjoy themselves. The previous five years have been among the best for technology equities in the previous ten years because of strong profit growth and an optimistic outlook. The CAGR gains of the FAANG stocks in the previous five years are displayed in the following table. The CAGR gains have ranged from 23% to 40%.
What Are FAANG+ Stocks?
There is a considerable possibility that the characteristics that made the FAANG stocks companies successful—industry leadership, rapidly increased revenues, and a sizable market opportunity—will also characterize the upcoming FAANG+ stocks. In light of this, the FAANG+ stocks or STAR (Shopify, Tesla, Airbnb, and Roku) stocks may produce market-shattering gains in the ensuing decades.
Shopify (NYSE: SHOP) offers software development applications that let business owners run their operations through both traditional and modern channels, including direct-to-consumer (D2C) websites. This sets it apart from marketplace providers like Amazon. D2C business models provide retailers with more control over the customer journey, which can aid in long-term client retention.
In the commercial sector, Shopify has grown to be a major player. According to market presence, it ranks as the top e-commerce software vendor, and its platform serves over 2 million firms. Perhaps more significantly, Shopify accounted for more than any retailer apart from Amazon in the U.S. during the last year, powering 10.3% of all e-commerce transactions.
The company has achieved good financial success as a result of its strong competitive position. Last year, there were $4.9 trillion in total online retail sales, but as e-commerce overtakes traditional retail, this number will rise. Shopify now has significant potential. By going global, engaging customers through its smartphone application, providing payment services to merchants that aren’t using Shopify, and developing a fulfillment network that enables next-day delivery, management is attempting to improve its market presence.
If Shopify is successful in implementing those plans, in ten or twenty years it may rank among the most valuable businesses in the world. For patient investors, that would most likely translate into market-crushing gains.
Tesla (NASDAQ: TSLA), with its direct sales strategy, semiconductor competence, and battery cell technology, has completely transformed the auto industry. Tesla maintained its position as the global leader for electric vehicle sales during the first quarter, taking 15.5% of the market. And it is succeeding in its continuous quest for production efficiency. In the third quarter of 2021, it reported a profit margin of 14.6% that led the sector; in the first quarter of 2022, it increased to 19.2%.
The launch of the Semi and Cybertruck, as well as increased production from new factories in Texas and Germany, should all help Tesla achieve its goal of growing vehicle deliveries by 50% annually. According to CEO Elon Musk, the biggest opportunities are in robotics and artificial intelligence.
Musk predicts that full self-driving (FSD) tech would ultimately serve as the principal profit generator for the automotive industry. Tesla has a robotaxi scheduled for production in 2024. Tesla will start autonomous ride-hailing services once its FSD software is ready, entering a market that, according to Ark Invest, could provide $2 trillion in annual earnings by 2030. Musk believes that Tesla’s autonomous humanoid robot project may outperform its vehicle industry in terms of value. Even next year could see the commencement of production. Tesla has the potential to change the course of history if its goals are realized.
Airbnb’s (NASDAQ: ABNB) asset-light business model has impacted the travel sector. Its business approach is more cost-effective than traditional hotels since it sources rental homes from hosts in thousands and thousands of cities. With little expenditure, Airbnb can quickly enlist new hosts, and its network provides visitors a wider range of housing options.
Despite encountering tremendous challenges during the start of the pandemic, Airbnb has quickly recovered. In particular, their free cash flow margin of above 40% is significant. Airbnb is developing into a search algorithm thanks to recent advancements like adjustable search criteria and listing categories (such as “treehouse” or “castles”). Its platform might inspire travelers who are open to changing their vacation plans. By allowing visitors to book events while traveling, it also aims to upend the tourism sector.
The gross booking value for Airbnb over the last year was $53.8 billion, which is a small portion of all its $3.4 trillion marketplace. If the business keeps coming up with new ideas, this growth stock might yield enormous rewards.
The most widely used streaming service in the United States, Canada, and Mexico is Roku (NASDAQ: ROKU). In Q1, it had 31% of all streaming time worldwide, more than double the share of the market of its next-closest rival, Amazon Fire TV. The Roku Channel, an ad-supported streaming channel, and the expanding selection of free programmes (including original content) are both responsible for its popularity.
Roku has established itself as a major player in the quickly expanding digital ad market as a result of its competitive advantage. Roku is in a good position to keep up the momentum. As per BMO Capital Markets, connected TV advertising spending in the U.S. will increase from $21 billion to $100 billion by 2030. Roku might succeed as the doorway to streaming entertainment in the same manner that Google gained its ad dominance by presenting itself as the internet’s entry point.
Roku also recently unveiled a tool called shoppable advertisements for businesses, which would use its payment system, Roku Pay, to let users make purchases directly from advertisements on the platform. Roku might have a significant digital payments company in ten or twenty years in addition to huge digital advertising business.
Can FAANG stocks recapture their earlier highs?
The FAANG stocks, along with their other enormous tech peers, aren’t what they once were. According to Morningstar Direct data, only 8% of the market returns in 2021 and so far in 2022 were generated by Microsoft, Alphabet Class A, Apple, Amazon, and Tesla. The tech-heavy Nasdaq dropped almost 28% for the year, compared to 18% for the S&P 500, amid a selloff in the general stock market brought on by investors’ response to the Federal Reserve’s rising interest rates. Additionally, many recent tech profits failed to excite investors.
- In February, according to Bloomberg, Meta’s stock had the largest one-day value wipeout of any U.S. firm in history when it fell 26% in a single day.
- Netflix broke some terrible news to investors in April: The streaming service announced a loss of 200,000 subscriptions during the year’s first quarter, marking the company’s first decrease in paid users in more than a decade. In the meantime, Amazon’s first-quarter results showed sluggish growth and increased expenses.
FAANG stocks started facing some difficulty as once the pandemic effect started wearing out and more competition also entered the market, the growth in subscribers or volumes started to fizzle out, spooked the investors. Despite having a stellar Wall Street track record, FAANG stocks have had a challenging year in 2022. Leading growth stocks have struggled to regain the form that drove several businesses to new all-time high prices last year after taking a beating from tech stock sell-offs following supply chain and inflation concerns caused by the Covid-19 pandemic. Geopolitical tensions also have had a significant negative impact on normally stable stocks, as seen with companies like Netflix, which had a sizable presence in Russia until stopping operations in the aftermath of the Russian invasion of Ukraine.
How was the latest 2022 earnings release of FAANG+?
Facebook is the weakest link in the FAANG with earnings disappointing the street.
The company that owns Facebook, Meta, revealed a steeper-than-anticipated loss in revenue, missing on profitability, and gave an unexpectedly bleak sales forecast. Extended trading saw a 3.8% decline in the shares.
Here is how the business fared:
|Earnings||$2.46 per share||$2.59 per share|
|Revenue||$28.82 billion||$28.94 billion|
|Daily Active Users or DAUs||1.97 billion||1.96 billion|
|Monthly Active Users or MAUs||2.93||2.94|
|Average Revenue Per User or ARPU||$9.82||$9.83|
Earnings: $2.46 per share contrary to $2.59 per share expected, as per the reports of Refinitiv
Revenue: $28.82 billion contrary to $28.94 billion expected, as per the reports of Refinitiv
Daily Active Users or DAUs: 1.97 billion contrary to 1.96 billion expected, as per the reports of StreetAccount
Monthly Active Users or MAUs: 2.93 contrary to 2.94 billion expected, as per the reports of StreetAccount
Average Revenue per User or ARPU: $9.82 contrary to $9.83 expected, as per the reports of StreetAccount
Apple’s fiscal third-quarter earnings, which were disclosed on Thursday, showed the iPhone maker’s lackluster growth but beat Wall Street projections for revenue and profit. In prolonged trading, Apple stock increased by more than 3%.
According to Refinitiv estimates, these major figures compare to what was being anticipated by Wall Street:
|EPS||$1.20 (up from the expected, but down 8% from last year)||$1.16|
|Revenue||$83 billion (increased by 2%)||$82.81 billion|
|Revenue from the iPhone||$40.67 billion (increased by 3% annually)||$38.33 billion|
|Revenue from services||$19.60 (up 12% annually)||$19.70 billion|
|Revenue from other products||$8.08 billion (8% less than the expected)||$8.86 billion|
|Mac revenue||$7.38 billion (fell 10% year over year)||$8.70 billion|
|iPad sales||$7.22 billion ( 2% year-over-year decline)||$6.94 billion|
EPS: $1.20, up from the projected $1.16 but down 8% from last year
Revenue increased by 2% year over year to $83 billion from the projected $82.81 billion.
Revenue from the iPhone was $40.67 billion, up from the expected $38.33 billion and 3% annually.
Revenue from services was $19.60 billion compared to the projected $19.70 billion, up 12% annually.
Revenue from other products was $8.08 billion, 8% less than the projection of $8.86 billion.
Mac revenue fell 10% year over year to $7.38 billion from the projected $8.70 billion.
iPad sales were $7.22 billion versus the projected $6.94 billion, a 2% year-over-year decline.
Gross margin: 43.26% versus a projected 42.6%
In the extended trading on Thursday, Amazon shares increased by more than 13% after the business revealed second-quarter revenue that was higher than anticipated and provided a positive outlook.
Here is how the business fared:
|EPS||A 20-cent loss|
|Revenue||$121.23 billion||$119.09 billion|
|Amazon Web Services||$19.7 billion||$19.56 billion|
|Advertising||$8.76 billion||$8.65 billion|
EPS: A 20-cent loss
Refinitiv estimates that revenue was $121.23 billion compared to the $119.09 billion predicted.
Here are the results of other significant Amazon segments for the quarter:
- According to StreetAccount, Amazon Web Services brought in $19.7 billion versus the $19.56 billion anticipated.
- According to StreetAccount, advertising generated $8.76 billion vs the $8.65 billion predicted.
Following the company’s announcement that it lost fewer customers than expected during the second quarter, Netflix shares increased. The streaming service added that it planned to introduce its less expensive, ad-supported level in early 2023. This follows Netflix choosing Microsoft as its partner for the ad-supported service. Netflix had previously informed investors that it anticipated losing about 2 million subscribers during the previous quarter, but it only lost about 970,000 over the three months ending on June 30.
These are the outcomes:
|EPS||Increased to $3.20 from $2.94|
|Revenue||$7.97 billion||$8.035 billion|
- According to Refinitiv, the EPS increased to $3.20 from $2.94.
- According to a poll by Refinitiv, revenue was $7.97 billion as opposed to $8.035 billion.
Worldwide paying internet users, in contrast to projections of a decrease of 2 million members, StreetAccount anticipates a decrease of 970,000 customers. The business presently has 220.67 million customers and anticipates third-quarter net ads to be at least 1 million, recovering some of the year’s first-half losses. According to analysts, Netflix (ad-supported) was created to assist in the growth of about 1.8 million.
For the second quarter, Alphabet’s earnings and revenue were lower than anticipated. Over 4% of the stock increased during prolonged trading.
Here is how the business fared:
|Revenue||$69.69 billion||$69.9 billion|
|YouTube advertising income||$7.34 billion||$7.52 billion|
|Google Cloud’s revenue||$6.28 billion||$6.41|
|Traffic acquisition costs||$12.21 billion||$12.41 billion|
Refinitiv reported EPS of $1.21 versus $1.28 expected.
Refinitiv estimates that revenue was $69.69 billion compared to the $69.9 billion projected.
In contrast to expectations of $7.52 billion, YouTube advertising income was $7.34 billion, according to StreetAccount.
According to StreetAccount, Google Cloud’s revenue was $6.28 billion as opposed to the $6.41 billion anticipated.
According to StreetAccount, traffic acquisition costs were $12.21 billion compared to the $12.41 billion anticipated.
As consumer spending increased and the corporation benefited from the post-pandemic recovery, revenue growth reduced to 13% from 62% a year earlier.
Tesla released its earnings, and the results caused the stock to rise somewhat after trading hours. Even during high inflation Tesla’s EPS were better than the rest.
- Refinitiv estimates that EPS were $2.27 (adjusted), compared to $1.81 predicted.
- According to Refinitiv, revenue was $16.93 billion compared to the $17.1 billion anticipated.
- The automotive gross margin dropped from 32.9% in the past quarter to 27.9% as a result of inflation and growing competition for battery cells and other materials used in electric vehicles.
- The company’s overall revenues were $14.6 billion, of which $1.47 billion came from operations.
How to invest in FAANG Stocks from India?
If you are wondering how to invest in FAANG Stocks from India, here are your options: you can invest through super-apps like stockal which make the process of owning US companies very convenient. Also, You can open international trading accounts with any domestic brokerage company. As an alternative, residents of India might think about setting up trading accounts with an international stockbroking firm that conducts business there. Exchange Traded Funds are another option for investing in FAANG stocks (ETFs) from India. ETFs are a grouping of numerous equities and bonds that trade as a single fund. Some of the popularly traded stocks on Stockal include Tesla Inc., Bed Bath & Beyond, Alphabet Inc., and Amazon.com Inc.
The Bottom Line
Risks like slowing volume growth, competition, inflation, USFed interest rate hikes and quantitative Easing have caused these growth stocks to correct sharply. This correction caused by temporary inflation and war has presented investors with the opportunity to own great US Companies at a reasonable cost and a high margin of safety. Investors with different risk appetites may choose different avenues to own them (ETF or direct). As inflation lowers by September due to the high base the USFed will be dovish on measures to curb inflation and will set the economy back on the path of growth. To take advantage and to stay adhead of the game learn how to invest in FAANG Stocks from India.