• FAANGM was up 4.3% in April, beating the S&P 500’s gain of 1.5%, and the Nasdaq’s gain of 0.5%. META was the top gainer, up 12% on the back of better-than-expected 2Q23e guidance. NFLX was the main laggard, down 4.7% for the month due to soft 2Q23e revenue guidance.
• For the quarter ending Mar23, FAANGM revenue grew 4.0%, but Adj. PATMI was down 3.4%. Revenue growth guidance (excl. GOOGL) for the next quarter ending Jun23 was ~4.4%, similar to growth from the previous quarter.
• FAANGM P/S valuations have been creeping up towards +1 std dev away from its long-term average even as revenue growth has remained relatively flat. We also continue to see near-term weakness in demand for tech consumer goods, digital advertising, and Cloud. We remain NEUTRAL on FAANGM.

Review

Meta Platforms Inc (META US, NEUTRAL, TP US$235)

• Lukewarm results, optimistic 2Q23e guidance. Meta’s 1Q23 revenue was slightly above expectations, topping its own guidance range for the quarter, although still only a 3% YoY increase. Earnings beat estimates by ~10% as expense growth continued to slow (11% YoY vs 22% YoY in 4Q22), but still declined 24% YoY. Meta’s 2Q23e revenue guidance range of US$29.5bn-32bn indicated an expected re-acceleration in revenue trends, with FX less of a headwind. Meta also expects another round of job cuts to take place in May 2023.

Comment: Meta’s results were relatively lukewarm. They came in slightly above expectations but still showed growth headwinds persisting. Earnings also continued to decline, although less than previous quarters which was a positive. 2Q23e guidance was the main catalyst for its share price performance, with revenue growth expected to re-accelerate to 7% at the midpoint, and 11% at the top end, indicating that we could see some positive revenue trends for Meta. Reels monetisation is also improving rapidly, narrowing the gap between Feed/Stories, which should be less of a revenue headwind moving forward. Additionally, Meta also reduced its FY23e total expenses guidance by another 5%, indicating no YoY expense growth.

Apple Inc (AAPL US, ACCUMULATE, TP US$183)

• Wins appeal in Epic Games lawsuit. A federal appeals court sided with Apple and upheld a 2021 ruling that rejected all but one of Epic’s claims. It declared that Apple does not have monopolistic control over mobile game transactions. However, the appeals court also upheld the one claim that Apple lost in the case, ruling that Apple violated California’s Unfair Competition Law by not allowing app makers use payment methods outside of App Store.
• Announced 2Q23 earnings. Although revenue dipped 2.5% YoY, it was better than the company guidance of 5% decline due to better-than-expected iPhone sales, which grew 2% YoY. Mac/iPad revenue declined 31%/13% YoY, in line with guidance, while Services grew 6% YoY. Apple guided for 2-3% revenue contraction in 3Q23 with Services maintaining its growth.

Comment: We expect Apple’s FY23e revenue to contract, relative to FY22, as we believe customers will defer their iPhone purchases until the expected iPhone 15 launch in September. This should create a pent-up demand and result in positive growth returning in FY24e.

Amazon Inc (AMZN US, ACCUMULATE, TP US$120)

• Announced 1Q23 earnings. Revenue grew by 9% YoY to US$127.4bn, beating the top end of US$126bn company guidance. International segment revenue grew by 1% YoY, its first positive growth since 4Q21. AWS grew 16%, in line with guidance. Operating margins also improved with the North America segment posting its first positive margins since 4Q21, while International segment’s negative margins decreased QoQ. However, AWS growth is expected to further decelerate to 11% for 2Q23.

Comment: Amazon’s 1Q23 results were within our expectations. We think AWS slowing growth is short-term in nature and we believe growth will re-accelerate in FY24e as AWS lands new customers and existing customers extend their expiring contracts. This should provide tailwind for the segment as both new and existing customers are expected to increase their computing demand when the macro improves.

Netflix Inc (NFLX US, ACCUMULATE, TP US$388)

• Streaming continues to take market share. A March 2023 report by Nielsen showed that streaming’s overall share of TV usage in the US declined slightly by 0.2% MoM to 34.1%. Cable TV jumped 0.9% to 31.1% with a boost from March Madness, with Broadcast TV down -0.5% MoM to 23.3%. Of the 34.1% streaming share, Netflix remains second with 7.3% (flat MoM), trailing YouTube at 7.8% (-0.1% MoM), with Disney+ at 1.8% (flat MoM).
• 1Q23 results within expectations, guidance disappoints. Netflix showed stable revenue growth of 4% YoY (8% in constant currency) for 1Q23, supported by a 5% increase in its membership base, and in line with the company’s guidance. Operating income was slightly above guidance due to an incremental expansion from advertising. Earnings of US$2.88 were also in line with guidance of US$2.82. Netflix issued relatively soft revenue guidance for 2Q23e, with US$8.2bn (3.4% YoY) representing a deceleration in topline growth.

Comment: Netflix’s results showed a healthy start to the year for the company. Memberships continued to grow at a healthy rate, with a significant proportion of additions for the quarter coming from the APAC region – which currently does not monetise as well as more developed regions. We do think the operating metrics will only continue to improve with the introduction of Netflix’s new paid-sharing program, as well as higher-margin advertising revenue continuing to tick up due to strong demand.

Alphabet Inc (GOOGL US, BUY, TP US$131)

• 1Q23 results within expectations, with Cloud finally profitable. Alphabet saw some re-acceleration in its revenue growth, up 3% YoY vs 1% in 4Q22, driven by Search revenue from the travel and retail verticals. The company also saw its Cloud business post its first quarter of operating profit even as revenue growth momentum started to wane slightly, implying significant improvements in its operating efficiencies. Earnings were in line with our forecasts but still saw an 8% YoY decline due to a US$1.6bn one-off restructuring related charge. Adj. earnings growth was flat YoY.

Comment: Alphabet’s earnings were fairly positive. Even as revenue growth remained relatively slow, profitability in one of its fastest growing segments (Cloud) should help to expand bottom line margins moving forward. Like Meta’s Reels, Shorts monetisation is also improving, with the platform seeing strong user momentum continue.