Here’s a peak into the midyear progress and current potential of four of the world’s highest regarded internet giants: Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google/Alphabet (NASDAQ:GOOGL), AKA FANG.
The FANG stocks have been atop the fast-growing tech industry for years, showing little, if any, sign of losing their reign. These companies, representing the four largest market caps in the sector, have brought many bulls charging to their sides, but they still have their flaws.
Canaccord’s top analyst Michael Graham (ranked #57 out of 4,843 analysts on TipRanks), weighs in on each of these tech titans, reviewing their Q2 and predicting their future performances. Graham investigates how factors like digital advertising, digital video consumption, and eCommerce both translate into ongoing revenue growth and impact potential prosperity. These aspects have helped him establish his outperform rating on all but one of these internet powerhouses.
Immediately after viewing its recent stock growth, Amazon stands out as one of the top FANG players. Thanks to its rapidly growing scale of investment, Amazon stock is up over 50% since the beginning 2018. Graham predicts the eCommerce superpower will have a 38% revenue increase in Q2, which may even be modest, considering it would mark a 4.5% decrease from Q1. AMZN has realized five consecutive quarters of income acceleration, so this trend could very well continue. This year, Prime subscriptions have already increased from $99 to $119/year in the U.S. (~50% of Prime users), and there has only been miniscule impact on demand. In fact, assuming no additional price jumps and consistent numbers from 1H18, Prime is on pace for 42% revenue growth solely in 2018 ($8B to $11B). Prime subscriptions alone will soon be able to cover all shipping costs ($11.3B), and as its long-term investments continue to show promise, the analyst expects Amazon to have “the most robust and durable growth outlook in the group.”
TipRanks exhibits a consensus of this stock almost as optimistic as Graham’s. Of the 36 analysts polled in the last three months, a whopping 34 are bullish on AMZN, while only 2 are sidelined. The stock’s 12-month average consensus target price of $1,900.66 suggests 4.83% upside potential from current levels.
Just because AMZN’s 50% YTD stock jump has made it difficult for the other internet giants to keep up, doesn’t mean Facebook isn’t thriving. Its stock price may have only increased 16% throughout the year, but the company itself is doing as well as ever. For Q2, Graham estimates an impressive 41% revenue growth and 31% EPS growth. The analyst maintains that even though Facebook has considerably slowed down ad load, it shouldn’t have much trouble making up foregone revenues with its new analysis technology. FB’s new Facebook Audience Network (FAN) and Watch Ads are providing useful data to the company to make ads much more relevant, enabling higher quality engagements and thus higher ad pricing. Not to mention the revenue contribution from Instagram ads, which are also only becoming more prevalent and costly. Though some analysts are wary about Facebook’s 39% expense growth in Q1, Graham is confident this figure will shrink amid a “significantly back-half weighted” year and is very comfortable assigning FB a $240 price target.
TipRanks bats for Facebook bulls as well. Of the 28 analysts surveyed in the last three months, 27 rate the stock a Buy, 1 maintains a Hold, and only 1 issues a Sell. FB’s consensus target price of $229.44 indicates an upside potential of 10.67% from current prices.
Lately, Netflix stock has been red-hot, having more than doubled over the last year. Many investors, including Graham, expect upward trend to persist. Optimistic of more than just subscription growth, the analyst maintains that the entertainment leader’s new season releases for established series are going to be absolute sensations, attracting audiences everywhere. These names include hits like Unfortunate Events (season 2), Arrested Development (season 5), Unbreakable Kimmy Schmidt (season 4), and more. NFLX has showcased traditional television series as well as its own originals for several years, and now it is localizing its service across various international markets. The company has begun producing local language originals, which Graham views as a “key driver of international sub growth” and has contributed to Canaccord’s raising its target price from $350 to $500. Though this $150 jump may seem steep, with current subscriber momentum, Graham views this target as very achievable.
TipRanks, however, suggests much more caution compared to the analyst. Of the 32 analysts polled in the last three months, 20 rate the stock a buy, while 10 maintain a Hold and 1 issues a Sell. NFLX’s target price of $396.90 implies a mere .28% upside from current levels.
Some say “Save the best for last,” but today with Alphabet (NASDAQ:GOOGL), this is not the case. Graham estimates a 26% core Properties revenue growth for the brand this quarter and at least 20% growth for the rest of the year, as GOOGL is mature relative to most stocks in the tech industry. However, Google is no average tech company; it’s one of the FANG big four. Because of its Q1 expansion, the analyst expects gross margins to continue to decrease in Q2. Profits have been trending downward over the previous two quarters, and as they currently sit at the mid-50% level, Graham expects this trend to persist with EPS to follow. As “the multiple is at a historically full level,” the analyst reiterates that “stock appreciation may be limited.” After only a 12% boost in stock price over the last year and a bleak future, Alphabet is rated a Hold with a $1050 price target.
TipRanks, on the other hand, exhibits a much more optimistic consensus of GOOGL. Of the 26 analysts surveyed in the last three months, 23 are bullish and only 3 are sidelined on the stock. With a 12-month average target price of $1,267.73, GOOGL displays upside potential of 5.26% from current levels.