For technology investors, this is one of the most challenging times to remain faithful.
After having produced three-digit gains over the last five years, a few tech giants show signs of a spike, prompting some analysts to put an end to this unprecedented bull run.
Facebook (FB – Green) Vs. Netflix (NFLX – purple) Graph of 1 month
Strategists at Bank of America recommend keeping all FAANG shares short: Facebook (NASDAQ :), Apple (NASDAQ), Amazon (NASDAQ), Netflix (NASDAQ :), and Google parent alphabet (NASDAQ 🙂 . They mentioned rising interest rates in the United States, which could reduce the liquidity of the economy and affect the equity values ​​of these high flyers.
These calls carry some weight. Facebook and Netflix, the two titans in the last five years among the top three favorites in FAANG, plummeted after disappointing results in the second quarter, which raised doubts about user growth and the elevated ratings that these names have.
Investors brought these two giants to the shed. On July 26, Facebook lost $ 119 billion in market capitalization – the largest one-time loss in history – after reporting that revenue in the second quarter rose by 42% compared to 43% growth. The company also warned against future revenue growth.
Netflix, on the other hand, reduced its price gains for the year to 70% of more than 100% after missing the growth forecast for Q2 by one million users.
What haunts investors after these catastrophic failures, wonders whether they should paint all the members of FAANG with the same brush and completely close this trade. The downside is that the latest slump appears to be as short-lived as we saw earlier this year, which has cost FAANG-bears a lot
We believe that gambling on FAANG as a group is no longer a prudent strategy and risk averse investors are better off by following a selective approach.
Facebook or Netflix? Know your investment style
After the income decisions in Q2, Facebook and Netflix present a different risk-return comparison. These shares are not bad purchases for patient investors who are willing to compensate for this volatility. But Facebook and Netflix face different challenges and each stock should be traded on its merits.
For Facebook, the biggest challenge is to convince investors that, while the days of easy growth are over, it still holds the most valued digital properties that advertisers love. WhatsApp, Messenger and Instagram each have more than 1 billion users. The entire Facebook package has 2.5 billion monthly users.
Among these apps, Instagram is already contributing significantly to Facebook’s revenue and that trend will grow as CEO Mark Zuckerberg tries to compensate for the slower growth on his main social platform.
Netflix, on the other hand, has no clear competitor in the category of streaming video, where there is a huge global opportunity. Close competitor Hulu passed 20 million subscribers in May and has little international appeal compared to Netflix. Netflix has approximately 130 million worldwide subscribers.
The growth of the domestic subscriber base will peak at a given moment. But the growth of global subscribers still has a lot of room to run, especially since Netflix has started investing in local content to reach major markets such as India.
Facebook is likely to deviate from the FAANGs and underperformations in the next six to twelve months because it is investing heavily to make the platform acceptable to regulators and politicians after Cambridge Analytica Scandal and accusations of Russian manipulation during the last US presidential election. . But that deviation must be seen as a buying opportunity in a company that has reported an average growth of 50% in the past ten quarters and has a lot of ammunition to make a quick turnaround and exceed expectations
Netflix shares should resume their upward journey faster than Facebook. For emerging countries with a high octane number, such as Netflix, there is always a risk of a bumpy ride and we do not see the latest disappointment as a trend.
