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Facebook, Apple,, Netflix, Google - ain't no stopping us now (except maybe Netflix)

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The first-quarter results season in the US featured a lot of sparkling results from technology stocks, but who were the winners?

All of them, except maybe Twitter.

The tech giants, including the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google – which spoilt the whole FAANG thing by changing its name to Alphabet), seem unstoppable, with the pandemic in the main only cementing their dominance.

In the past, companies perceived as all-conquering, such as IBM and Microsoft were eventually eclipsed but it took a long time for that to happen. Barring some sort of regulatory crackdown or maybe an unforeseen technological innovation the tech giants look set to go from strength to strength for some time yet.

Facebook: even Nick Clegg can’t ruin it

Facebook, Inc (NASDAQ:FB) was once runner-up to the almost forgotten MySpace, of course, so overthrows can happen.

It has a market capitalisation of US$936bn based on a share price of US$329.51, and its trading range over the last 52 weeks has been US$199 – US$332, give or take a few cents.

First-quarter revenue of US$26.2bn and net income of US$9.5bn – equivalent to US$3.30 a share – were both well ahead of analysts’ estimates.

Even with former Liberal Democrat leader Nick Clegg in a senior management position (well, it’s better than David Cameron), the company is undeniably doing fantastically well, and on a price/earnings ratio of 28.23 (based on trailing 12-month earnings) is not even that stupidly expensive on fundamental grounds.

The company bought back US$3.9bn of stock in the first quarter, which should give a handy tweak to earnings per share in the future.

The major cloud on the horizon, apart maybe from the fact that early adopter types stopped using its platform years ago, is a looming dust-up with Apple, Inc (NASDAQ:AAPL), which has introduced a new privacy update to its operating system that could undermine the very basis on which Facebook earns its corn, i.e. harvesting data about its users and flogging that to advertisers.

“We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently launched iOS 14.5 {Apple operating system] update, which we expect to begin having an impact in the second quarter,” said Facebook’s chief financial officer, Dave Wehner.

Apple: a control freak at core

Talking of Apple, its P/E ratio is not exactly stratospheric at 30.00. It bought back US$19bn of shares in the first quarter and has spent US$77bn on share repurchases over the last year.

Its quarterly earnings clocked in at US$23.6bn (US$1.40 a share), more than double the year before. Earnings per share of US$1.40 trounced The Street’s consensus forecast of US$0.99.

A series of fines have been shrugged off. Just this week Russia imposed a US$12mln fine on Apple for allegedly abusing its dominant position in the smartphone market and the EU has provisionally ruled Apple breached anti-monopoly rules by abusing its control over the dissemination of music streaming apps after a complaint by streaming service Spotify.

Chicken feed.

Apple is the ultimate control freak company. Its model relies on controlling every aspect of what happens inside the Apple walled garden (and charges accordingly). It’s going to get these sorts of fines time and time again. It can afford them but they are piling up. As well as cheesing off Spotify, it has irked Epic Games, the company behind the phenomenally successful Fortnite game.

The dispute has been described as Silicon Valley’s highest-profile court case in a decade and could set a precedent that would clip Apple’s wings a bit. one store to rule them all and in the darkness bind them, Inc (NASDAQ:AMZN) must be making out like a bandit more than others because its P/E ratio is 82.99, suggesting the market is pricing in an acceleration of its inevitable world domination.

First-quarter revenue of US$108.5bn topped The Street’s consensus forecast of US$104.57bn while earnings per share of US$15.79 versus the median forecast of US$9.69 were impressive.

The company has undoubtedly done very well out of global lockdowns; it’s a double-bubble bonus for the company, as shopping online has become more ingrained as a habit while Amazon’s bricks and mortar rivals have been perhaps mortally wounded by the pandemic.

Yes, the company remains under fire for its controversial working practices and its fast-and-loose tax-avoidance strategies but it is not alone among the tech giants with the latter and by the time any government does anything about levelling the playing field between online retailers and traditional retailers, there won’t be many old school retailers left.

Netflix: no Disney-like ending for the runt of the litter?

Netflix, Inc (NASDAQ:NFLX) is regarded as the weakest of the FAANG stocks, with some even suggesting that computer chip company Nvidia should replace it.

Nevertheless, it is doing more than OK. The shares trade at US$509, valuing the company at US$225bn with a P/E ratio of 61.6, and have traded between US$398 and US$593 over the last year.

Its “moat” – the competitive advantage that deters competitors from challenging – looks less wide than most of the FAANG stocks, with big names lining up to muscle in on the media streaming market, including and Disney.

Google: an advertising company, not a search company

Google parent Alphabet Inc (NASDAQ:GOOG) – no comma before the “Inc” because that’s how iconoclastic the company is – is a corporation with a similar model to Facebook. Google users allow the company to snoop on them and the data is then sold to advertisers.

Other search engines are available, such as (which does not track its users online) but only weirdos say, “I don’t know, why don’t you DuckDuckGo it?”.

Asian rivals may yet usurp it as king of the search engines but in the west, at least, its dominance in search looks unassailable.

Efforts to branch out from its core business have met with success; the Facebook killer Google+ failed but the investment in YouTube looks like a winner; the Chrome browser, which can effectively act as an operating system, certainly put the wind up Microsoft, as did Google Office, although Microsoft is still around, probably miffed that having a name beginning with M prevented it from muscling into the FAANG team.

While Microsoft is not exactly Kodak – a company that waited too long to change because it would have killed its cash cow – it is an example of how sitting on laurels for too long can eventually lead to a newer, hungrier rival stealing its crown.

Story by ProactiveInvestors


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