Apple made history on 2 August 2018, becoming the first company ever to reach one trillion US dollars in market value. Five weeks later Amazon followed, crossing the trillion dollar threshold intra-day momentarily.
Along with Facebook, Alphabet (Google) and Netflix, these tech giants have dominated the headlines and portfolio returns of global investors over the past few years.
But 2018 will be remembered as the year that each of them stumbled.
Facebook was first. The Cambridge Analytica scandal broke in March, and a few quarters later Facebook announced a shock downgrade and reset of growth and margin expectations on an earnings call. Then Netflix missed its subscriber growth targets, and despite redeeming itself by beating expectations the following quarter later its share price has continued to languish.
Apple was doing better than the group until recently, when we found out that its new phones aren’t selling as rapidly as expected. Management aggravated investor’s concerns by deciding not to disclose volumes in the future. Volumes are misleading for investors, apparently. Rumours of multiple rounds of production cuts have continued to pressure the share prices of Apple and its suppliers since.
Alphabet and Amazon haven’t been in the spotlight as much, but regulators continue to circle and there are some niggles around growth. Their share prices have also retreated.
Due to these issues as well as the market correction these FAANG stocks are down between 20% and 40% from their peaks this year. Apple is still clinging to the top spot as the most valuable company among this group with a market value of $749 billion, but further from its one trillion record than at the start of the year. Facebook’s value has crashed 40% from its peak of $630 billion to $377 billion. Amazon and Netflix are down 26% and 36% from their peaks respectively, but are still higher than the start of the year. Of the group Alphabet has fared best: down “only” 19% from its peak, but it hadn’t risen as fast as the others and is back to where it started the year.
Asia’s high flying tech stocks, Baidu, Alibaba, Tencent and TSMC haven’t fared any better. Each have had their own issues as well as facing the general market correction, and have fallen between 19% and 44% from their peaks.
It’s a new year. These companies look a lot cheaper than they did for much of 2018 but many of their issues are not resolved. Given their size and importance investors can’t ignore them, and making the right call on these stocks will be critical for global investors in 2019.
Author: Lachlan MacGregor, Portfolio Manager
