• The FAANGM was up 11.3% in January, beating both the S&P 500 and Nasdaq, which were up 6.2% and 10.6% respectively. We suspect that this could be a bear market rally given the lack of any catalysts for FAANGM growth.
• META, AMZN, and NFLX were the biggest gainers, all up more than 20%; with META and AMZN buoyed by higher-than-anticipated holiday sales (8.3% YoY) and cooling goods inflation, and NFLX 4Q22 subscriber additions surprising to the upside of 3.2mn. MSFT was the laggard, up only 3.2%.
• We expect the near-term slowdown in digital advertising, weakness in consumer tech demand and pullback in Cloud spending to weigh on FAANGM price performance, with FAANGM LTM P/S trending in a similar direction. FY23e revenue growth for FAANGM is expected to be in the mid-high single digits (roughly half its 5-yr CAGR of 15% and similar to FY22). We remain NEUTRAL on FAANGM.

Review

Meta Platforms Inc (META US, NEUTRAL, TP US$182)

Comment: Meta’s 4Q22 earnings were largely in line with our expectations; revenue beat slightly on higher holiday ad sales and continued user growth, although still declining by 4% YoY. The adjusted earnings beat by 58% due to lower expenses. Meta also remained fully committed to streamlining costs moving forward with plans on reducing CAPEX, and further cutting headcount to improve its fixed costs base. Near-term digital advertising demand is still expected to remain weak, with 1Q23e revenue guidance to be an expected 2% YoY contraction.

Apple Inc (AAPL US, BUY, TP US$186)

• Plans for more in-house components. Apple plans to replace Broadcom’s Wi-Fi and Bluetooth chip from its devices with an in-house design in 2025, while also looking to swap out Qualcomm’s cellular modem chips with its own by the end of 2024 or early 2025. Furthermore, Apple is also reportedly planning to start using custom displays that it develops in-house for its products, which could affect suppliers like Samsung and LG.
• Launches MacBook Pro with M2 chips. The new laptop will come with either the M2 Pro or M2 Max chip, which are the successors of the M1 – Apple’s first in-house designed processor that replaced Intel’s. The new chips are said to be more power-efficient which should result in a longer battery life.

Comment: Apple’s 1Q23 earnings were a modest miss from our expectations. Revenue was down 5.5% YoY, dragged by 8% decline in iPhone sales and 29% drop for Mac but was partially offset by 30% growth in iPad and services growth of 6% YoY (13% in constant currency). Gross margin also expanded QoQ despite a stronger FX headwind. Apple expects 2Q23e revenue to experience a similar decline of 5% YoY with Mac and iPad expected to be down by double digits due to tough comparison and macro headwinds.

Amazon Inc (AMZN US, ACCUMULATE, TP US$117)

• Laid off 18,000 workers. The cuts mainly affected the company’s corporate ranks and represent ~5% of that element of its workforce, and 1.2% of Amazon’s overall workforce of about 1.5 million employees. CEO Andy Jassy said majority of the layoffs are from the retail and recruiting areas of the company.
• New health offering for Prime members. Amazon launched a subscription service that offers Prime members unlimited access to commonly prescribed medication for US$5/month. Amazon Prime customers can enroll for the subscription service, called RxPass, to receive medications that treat >80 common conditions. However, Prime members with Medicare or Medicaid are not able to use the service.

Comment: Amazon’s 4Q22 earnings were largely in line with our expectations. Revenue beat company guidance due to a sales boost from Prime Early Access Sale in October and Thanksgiving-Cyber Monday weekend sales outperformance. Its advertising revenue also grew 19% YoY despite competitors seeing decline in their digital ads business. AWS was still the fastest growing segment at 20%, but this is expected to decelerate in 1Q23 as customers continue to opt for lower-cost products. The layoffs came as no surprise as improving efficiency has been Amazon’s focus throughout 2022 and it made progress  as evidenced by the average revenue per employee increasing by 13% YoY.

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

• Streaming continues to lead. A December 2022 report by Nielsen showed that streaming’s overall share of TV usage in the US ticked down slightly for the first time in 10 months, reaching 38.1% (-0.1% MoM). Cable TV also declined for the 4^th straight month by -0.9% to 30.9%, with Broadcast TV also down -1.0% MoM to 24.7%. Video Gaming saw the largest jump of 2.0% MoM to 6.3%, boosted by the school holiday period. Of the 38.1% streaming share, Netflix remains second with 7.5% (-0.1% MoM), trailing YouTube at 8.7% (-0.1% MoM), with Disney+ at 1.9% (-0.1% MoM).

Comment: Netflix’s 4Q22 earnings were in line with our estimates. Revenue grew 2% (10% in Constant Currency), boosted by an outperformance in subscriber additions (7.7mn reported vs 4.5mn guidance). Additionally, its new ad-supported plan continues to show early signs of promise, with engagement and growth trending above expectations. Netflix also looks to have turned the corner on FCF. It generated US$1.6bn in FCF for FY22, compared to -US$159mn in FY21, led by a moderation in content spend, and improved operating efficiency.

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

• 12,000 job cuts globally. Alphabet announced that it plans to cut roughly 12,000 jobs (~6% of its workforce) as it looks to cut back on expenses moving forward amidst slowing revenue growth. The cuts are expected to be broad-based, affecting teams ranging from recruiting to engineering, with expected severance-related charges of ~US$2bn incurred in 1Q23e.

Comment: Alphabet’s 4Q22 earnings were in line with our expectations, with revenue growth of 1% YoY (7% in Constant Currency). Revenue growth was led by strong cloud momentum, offset slightly by an expected 2% decline in advertising revenue. Alphabet also expects to slow expense growth moving forward, with a 6% cut in workforce, and stagnant CAPEX levels in FY23e compared wth FY22. Operating margins are expected to remain fairly flat in FY23e due to consolidation and severence-related charges, but to expand more meaningfully in FY24e to about 35%.

Microsoft Corp. (MSFT US, BUY, TP US$298)

• Laying off thousands of employees. On Jan 18, Microsoft announced its largest round of layoffs in nearly a decade, affecting 10,000 employees (5% of the workforce). The company anticipates that these headcount reductions will be completed by 3Q23. As a result, Microsoft took a US$1.2bn charge in 2Q23, suggesting US$0.12 of negative impact to EPS.
• Investment in ChatGPT maker OpenAI. On Jan 23, Microsoft announced a new investment worth US$10bn in OpenAI. OpenAI’s ChatGPT was launched on Nov 30 and has become an internet sensation allowing users to write essays, articles, poems, answer questions, as well as computer code in just seconds. The collaboration positions Microsoft to compete with Google in commercialising new AI breakthroughs that have the potential to transform numerous professions as well as the internet search business.

Comments:  1H23 results was within expectations, with revenue/PATMI at 48%/46% of our FY23e forecasts. Strength in its cloud-computing services continued to drive growth for Microsoft, with Azure revenue growing 38% YoY in constant currency in 2Q23. Azure guidance for 3Q23e was soft with expectation of 30% YoY growth in constant currency as large customers paused their spending amid the economic slowdown. Overall, cloud is the growth driver for Microsoft as companies prioritize digital transformation, but the short term is weighed down by FX headwinds and the middle term by PC market weakness.

Apple Inc. (Daily Chart) – Technical BUY at US$149 upon retest of the uptrend support line

Broke out of a downtrend resistance line recently and found support at US$142 upon the retest. The price could continue its bullish momentum as it also broke out of a horizontal resistance level at US$149 and found support upon the retest, while being supported by an uptrend support line. The current resistance will be the US$157 level which was a recent swing high. Further resistance upwards will be at the US$163 level, which was a previous swing high in September 2022.