August 02, 2018, 00:38 / Technology / Finance Exclusively by subscription

The tech giants have gone their separate ways.

Until now, buying FAANG shares has been a sure way to make money Mikhail Overchenko FAANG – Facebook, Amazon, Apple, Netflix and Google (now Alphabet)

Investments in the FAANG (Facebook, Amazon, Apple, Netflix, Google - now Alphabet) have become the most popular investment idea: in July, rates on them were the highest among all asset classes for the sixth month in a row, according to a Bank of America survey of asset managers. Specialized technology investment funds have raised more than $20 billion this year, more than in the record full year of 2017. The total market capitalization of FAANG companies, which did not exceed $1 trillion at the beginning of 2013, amounted to $3.3 trillion at the end of July 2018. Moreover, last year the FAANG overtook the British stock market in capitalization (100 companies from the FTSE index), and in mid-July this year - the Japanese one (225 companies from the Nikkei index).

“They're amazing because they're all huge and growing fast, and that rarely happens,” says George Pirkis, strategist at Bespoke Investment Group (as quoted in the Financial Times). FAANG companies represent the core uses of the Internet, says Steve Chiavaroun, portfolio manager at Federated Investors: Google is search, maps, video; Amazon - shopping; Apple - mobile devices; Netflix - entertainment; Facebook – social media. “These are powerful vertical structures of the Internet,” he says. “But while they all benefit from what we call the digital revolution, they are different entities and face different challenges.”

Investors love catchy names that combine assets on which they can make money. You can recall the abbreviation BRIC, which was popular in the last decade: with the light hand of Goldman Sachs, who invented it, it was believed that such leading developing countries as Brazil, Russia, India and China would demonstrate some of the fastest growth rates in their economies and stock markets. But the FAANG results for the second quarter showed how different the fates of seemingly similar participants can be (just as the economic paths of the BRIC countries have radically diverged this decade).

Netflix lost $24.6 billion in capitalization due to poor audience growth

The video service lowered its forecast for new users in the third quarter of 2018

Facebook and Netflix have reported problems growing user numbers. As a result, Facebook shares collapsed by 19% on July 26, capitalization during trading was reduced by $150 billion, and due to the subsequent slide in quotations, the company’s value dropped below $500 billion by July 31. After the publication of Netflix data, its shares were traded over-the-counter after the main session on 16 July lost 14%. Although the decline on the next trading day was not as large (5.2%), the decline did not stop, and by the end of the month the capitalization decreased by 19.5% to $147 billion.

Previously on the topic: The American stock market remains one of the most attractive for investment

Among the FAANG companies, Netflix is most reminiscent of the tech bubble of the late 1990s: growth financed by loans with speculative credit ratings, barriers to entry for competitors are low, and stock prices are disconnected from any fundamentals, so a massive correction It’s only a matter of time, said Jon Treacy, co-publisher of the investment newsletter Fuller Treacy Money, even before the publication of the results. Netflix just announced growing competition. In particular, Amazon is trying to take away its market share.

At Facebook, despite the slowdown, its growth rate and its prospects remain high, its profitability can be the envy of many, points out Marco Pirondini, head of US equity trading at Amundi Pioneer Asset Management. “Tech stocks have done very well and need a correction, but these companies are real leaders with strong business models.”

Facebook quotes fell by 20%

The company lost $120 billion in capitalization - this is the largest drop in history

All three A-ranked companies confirmed their leadership during the reporting season – Alphabet, Amazon, Apple. Moreover, Alphabet’s capitalization at the end of July was approaching $900 billion (it was $888 billion), Amazon briefly exceeded it, and Apple is close to reaching $1 trillion. On July 31, the company was worth $935.3 billion; The reporting published after the end of trading inspired investors so much that on August 1 they raised quotes to a historical record of $200.2 per share (+5.2% at 20.00 Moscow time). Capitalization during trading almost reached $987 billion.

Previously on the topic: Twitter shares fell by 15% after the opening of trading

“They created this device [iPhone] that you can stream data and entertainment content through. All you have to do is stand behind the cash register and wait for customers,” Robert Nichols, CEO of Windward Capital Management, told The Wall Street Journal.

Previously on the topic: Amazon's quarterly profit exceeded $2 billion for the first time