• FAANGM was up 13.6% in March, beating the S&P 500’s gain of only 3.5%. Nasdaq also performed well, gaining 9.5%. FAANGM ended 1Q23 up 24.5%, beating both the Nasdaq (20.5%) and S&P 500 (7.0%) as investors piled back into Big Tech.
• META was the top gainer, up 21% due to some follow through positive sentiment on improving efficiency, and news of a potential ban on TikTok in the US – META is up 74% YTD. NFLX was the main laggard, but still gained 7.2% for the month.
• Even with FAANGM forward earnings revised up due to increasing cost-cutting measures (forward P/E -1 std dev below its long-term average), near-term revenue headwinds still linger. 2Q23 demand for PC and other electronic hardware remains weak, with digital advertising headwinds persisting. Layoffs seem to be the only positive, with growth catalysts yet to be seen. We remain NEUTRAL on FAANGM.

Review

Meta Platforms Inc (META US, NEUTRAL, TP US$200)

• Cutting another 10,000 jobs. Meta is set to cut another 10,000 jobs (~13% of headcount), and close around 5,000 vacant job positions as it continues its efforts to reduce its overall cost structure.

Comment: This new round of job cuts comes as no surprise with the company hinting that further cuts were to be expected during its 4Q22 earnings call. It is also in line with the company’s theme for the year – “Year of efficiency”, and should help to alleviate its declining margins. Operating margins were at 25% in FY22, down significantly from 40% in FY21.

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

• Foxconn plans to boost production in India. Apple’s main manufacturer is set to expand production of iPhones at its existing plant near Chennai. Foxconn is said to be boosting iPhone production to around 20 million units annually by 2024 and roughly triple the number of workers to as many as 100,000. An Indian government official said the plant currently produces about six million units. Foxconn is also reportedly planning to build a new production facility where it would manufacture products including the iPhone in Bengaluru.

Comment: Foxconn’s expansions for both the existing Chennai plant and the new plant in Bengaluru would have a combined output of ~40-50 million iPhones annually (20%-25% of the total). This is positive for Apple as it shows that its suppliers are willing to make new investments to maintain Apple’s business and help it build a more diversified, resilient supply chain.

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

• Lays off 9,000 more employees. The cuts are on top of the previously announced layoffs that began in November, which affected ~18,000 employees. The latest round will primarily impact Amazon’s cloud computing, human resources, advertising and Twitch live-streaming businesses.
• Paused construction of second headquarter. Amazon said it will temporarily hold off on breaking ground on the second phase of its development in Arlington, while the first phase with two office towers, capable of accommodating 14,000 employees, is almost complete. Amazon said the construction pause is not connected to the layoffs and does not mean more cuts are on the way.

Comment: The 9,000 figure represents about 0.6% of Amazon’s total number of employees or 2.6% of its corporate workforce. This brings the number of affected employees to 27,000 (~1.8% of the total as of 4Q22).  Although the magnitude of cost reduction is yet to be seen, we still like the move as it shows that the company remains committed to cutting costs and improving margins. Based on our forecast and taking into account the latest round of layoffs, the average revenue-per-employee should improve by 11% YoY for FY23e, assuming that Amazon does not go through any more layoffs.

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

• Streaming continues to take market share. A February 2023 report by Nielsen showed that streaming’s overall share of TV usage in the US jumped 1.5% MoM to 34.3%. Cable TV declined for the 6^th straight month by -0.2% to 30.2%, with Broadcast TV down slightly, -1.1% MoM to 23.8%. Of the 34.3% streaming share, Netflix remains second with 7.3% (-0.2% MoM), trailing YouTube at 7.9% (0.6% MoM), with Disney+ at 1.8% (0.1% MoM).

Comment: Streaming tailwinds continue to support the growing popularity of Netflix, with a clear trend of gaining market share on incumbents like cable TV or broadcast TV. We do expect this to continue moving forward as streaming companies consistently churn out high quality content for their users.

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

• Releases AI chatbot Bard for public use. In response to AI bots like ChatGPT which have surged in popularity, Alphabet also released its chatbot – Bard, for public use as it looks to leverage on public users to improve its large language model (LLM). The chatbot will be available to a limited number of users in the US and UK before being offered in more countries.

Comment: We think that Generative AI applications like Bard could be a powerful tool for Alphabet users, especially in the areas of idea generation, and comprehension of complex topics. Integration of Bard with Alphabet’s regular search function could be on the cards soon, which could significantly bolster search and advertising performance.

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

• Microsoft announces a quarterly dividend payout. On Mar 14, Microsoft declared a quarterly dividend of US$0.68 per share. It’s set to be paid on June 8 to shareholders of record as of May 18. The ex-dividend date is May 17.

Comments: While Microsoft’s cloud business is growing rapidly as customers try to accelerate their digital transformation journey to save money, the company has been hit hard by currency fluctuations and weakness in the PC consumer market. For 3Q23e, Azure revenue growth is expected to further slow down (~30% YoY growth in 3Q23e vs. 49% in 3Q22) as large customers pause their spending amid the economic uncertainty. Meanwhile, Windows OEM revenue is expected to fall in the mid-to-high 30% range as the PC market continues to deteriorate.