Summary
For September, FAANGM lagged the overall market for a 4th consecutive month, losing -5.7%. The S&P 500 and Nasdaq were also down -4.9% and -5.1%, respectively, as the overall market began to reprice a higher-for-longer interest rate narrative set by the Fed. The overall performance of FAANGM was underwhelming, with 5 of the 6 companies recording share price declines. It seems that growth investors are erring on the side of caution while awaiting earnings, with forward guidance from Big Tech companies expected to provide more clarity moving into 2024. Current FAANGM valuations are looking relatively more attractive, with its 12M forward P/E ratio (28x) moving -1 Std Dev away from its 10-year average.
Gainers: META was the biggest gainer (+1.5%) as it saw some price consolidation after a sharp decline in the prior month (Aug 23). In addition, positive news surrounding its developments in AI helped to sustain META’s share price.
Laggards: NFLX was the main laggard (-12.9%) likely due to concerns over tepid advertising revenue growth in the near term and vague long-term margin guidance. AAPL slipped -8.9% over weak semiconductor sales numbers from its partners and worries of a China government agency ban on the use of iPhones.
Review
Meta Platforms Inc (META US, ACCUMULATE, TP US$360)
Comment: Improvements in Meta’s new Quest 3 headset seem to be heading in the right direction, with a slimmer form factor from each upgrade and better overall performance. It is unclear whether Quest 3 could contribute meaningfully to the company’s revenue growth given the slowing sales in such hardware. Meta has also continued to leverage AI in developing new LLMs and other products to rival OpenAI, Google, and other AI-related companies.
Apple Inc (AAPL US, NEUTRAL, TP US$183)
Comment: We believe any potential iPhone sales growth will be driven by volume and mix as there is minimal increase in the average selling price (ASP). The iPhone lifecycle is estimated to be 3-4 years, implying that current iPhone 12 users are highly likely to upgrade this year. This presents a huge opportunity for Apple due to the large installed base of iPhone 12, as evidenced by the ~40% YoY iPhone sales growth back in FY21. However, the continued sales decline from major suppliers, such as Foxconn and TSMC, suggests that we should not expect an immediate rebound in sales growth. As for the new ban by China, we think it will not have a significant impact on Apple as it will only affect a fraction of the overall sales in the country.
Amazon.com Inc (AMZN US, BUY, TP US$175)
Comment: We believe the FTC lawsuit will not have a significant impact on Amazon’s financial performance in the near term. This is because such lawsuits typically take years to reach a verdict. Furthermore, the resolution sought by the FTC still remains unclear.
Netflix Inc (NFLX US, NEUTRAL, TP US$446)
Comment: The end of the Hollywood writers’ strike is a double-edged sword for Netflix, as content production can now continue, but it would seem at a higher price given the upgraded contracts for writers. This could hurt Netflix’s margin moving forward as costs rise, unless the company decides to increase subscription prices again. In addition, comments from the company’s CFO about ad revenue not contributing meaningfully to overall revenue growth in the near term, and vagueness surrounding long-term company margin guidance failed to shore up investor confidence.
Alphabet Inc (GOOGL US, BUY, TP US$144)
Comment: Given past experiences, the antitrust trial vs the DOJ could be an overhang for quite a while, with relatively unclear implications for GOOGL’s business. Additionally, GOOGL is also fighting to overturn a EUR2.4bn antitrust fine imposed by EU regulators in 2021, the first of 3 antitrust fines totalling EUR8.3bn.
Microsoft Corp. (MSFT US, ACCUMULATE, TP US$372)
Comments: For MSFT, we like the robust corporate demand for its cloud computing platform Azure and expect strong 1Q24e earnings results. Microsoft projects Azure revenue growth of 26% YoY in constant currency while Office 365 commercial revenue is expected to grow by 16% YoY. Meanwhile, Windows and Devices segment revenues will continue to decline due to continued PC market weakness.
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