In the past year the aggregate market capitalisation of Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet has gone up by 45%, or almost $1.3 trillion, even as combined consensus earnings estimates for 2019 and 2020 have fallen by 7% and 8%, or $10.7 billion and $9.6 billion respectively, says Russ Mould, AJ Bell Investment Director.
“This combination of soaring share prices and sliding earnings mean that the FAANGs have a group have been hugely re-rated from 21 times earnings for 2020 to nearly 30 times now.
“This makes the imminent quarterly reporting season particularly interesting as the FAANGs try to demonstrate that the earnings blips of the last 12 to 18 months are just that. Netflix will be the first to publish its results on 21 January and Alphabet the last of the five on 3 February.
| Change from 1 year ago | Forecast Earnings Per Share ($) | Market cap | |||
| 2019 E | 2020 E | 2021 E | |||
| (20%) | (3%) | (5%) | 50% | ||
| Amazon | (23%) | (31%) | (15%) | 17% | |
| Apple | 4% | 2% | (1%) | 93% | |
| Netflix | 2% | (5%) | (12%) | 2% | |
| Alphabet | 1% | 1% | (6%) | 35% | |
| Aggregate (%) | (8%) | (7%) | (8%) | 45% | |
| Aggregate ($ billion) | (10.7) | (9.6) | (14.3) | 1,264 | |
Source: NASDAQ, analysts’ consensus forecasts, Refinitiv data
“The drops in earnings forecasts reflect a range of issues, such as saturation in the smartphone market and slower upgrade cycles, regulatory pressure and increased investment in content, customer facilitation or new projects. The effect of the Trump tax cuts which helped to boost earnings in 2018 is also now wearing off, with Netflix actually noting a big jump in its tax charge in 2019.
“At the moment, investors are being very forgiving in the view that new product or services releases will fire earnings growth, customers are being more tolerant of data use than regulators and those investments will pay off in the long term by opening new markets or boosting returns from existing ones.
“Even if earnings forecasts have dropped slightly in the past year, analysts and investors continue to expect rapid progress going forward. Such consistent growth is rare in the current low-growth, low-inflation and low-interest-rate interest environment and as a result firms that can increase profits on a secular basis thanks to the strength of their products, services and competitive position will naturally be very highly prized.
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