• The FAANGM was relatively flat in October, down only 0.2%. The Nasdaq fared slightly better, gaining 4.0%, while the S&P 500 outperformed, up 8% for the month.
• Aside from NFLX and AAPL, the rest of FAANGM disappointed during their 3Q22 earnings calls, weighed down by higher expenses and slowing revenue growth.
• META was the laggard, down 32% as earnings were cut in half compared with 3Q21, while NFLX was the biggest gainer, up 24% due to subscriber outperformance and an earlier-than-expected launch of its new ad-supported subscription plan.
• Near term uncertainties such as rising inflation and weakening consumer demand continue to weigh on FAANGM. However, we remain OVERWEIGHT on FAANGM as we still believe that long term secular tailwinds remain intact.

Review

Meta Platforms Inc (META US, ACCUMULATE, TP US$113)

• Launched Quest Pro headset during Meta Connect. Priced at US$1,499, the Quest Pro headset is Meta’s first product in its new line of advanced headsets – a more streamlined version of the Quest headset with 37% more pixels per inch. The launch of Quest Pro comes as Meta continues to pour more money into its loss-making Reality Labs segment.
• Ordered by UK Competition and Markets Authority (CMA) to sell Giphy. Meta announced that it would divest animated search engine – Giphy, upon orders from the UK’s CMA on grounds that the acquisition could limit other social media networks access to GIFs, making them less attractive to users. Giphy was acquired by Meta in 2020 for ~US$400mn.

Comment: Meta’s 3Q22 earnings were mixed, with revenue in line with expectations, while earnings missed by 12% on contracting margins. Revenue growth slowed as a result of weakening advertiser spend, with earnings hurt by a 19% rise in expenses. Meta also guided to another quarter of negative revenue growth in 4Q22, painting an uncertain picture in the near term. We downgraded Meta to an ACCUMULATE rating to reflect near term weakness.

Apple Inc (AAPL US, BUY, TP US$190)

• Raised prices for Apple Music and Apple TV+. Apple Music’s subscription price has increased by US$1 per month, while the price of Apple TV+ increased by US$2. Apple One, which is a bundle of Apple Music, Apple TV+, and some other services also experienced a US$2 per month increase. The price increase took effect in late October. Apple said the Apple Music price increase was due to the increased licensing fees, while the new pricing for Apple TV+ is to reflect the wider selection of shows and movies.
• 4Q22 revenue grew despite negative industry sentiment. Overall revenue grew 8% with the iPhone growing 10% YoY, while Mac grew 25% amid the industry-wide expectations of slowing demand for smartphones and PCs. Services grew 5% YoY, a deceleration from 12% in 3Q22 due to FX headwinds. Management expects 1Q23’s revenue growth to be <8% that it recorded in 4Q22 due to increasing FX headwinds and expected substantial YoY decline in Mac sales.

Comment: In its earnings call, Apple indicated that its iPhone 14 Pro, 14 Pro Max, and Apple Watch Ultra continued to face supply constraints, suggesting that the higher-end models of the iPhone and Apple Watch are selling better. This should benefit Apple as it increases the ASP of its devices and this contributes towards revenue growth. However, we believe volume growth is going to be challenged by the lower demand compared with FY22, and the continued lockdowns in China that pose uncertainties to Apple’s supply chain.

Amazon Inc (AMZN US, NEUTRAL, TP US$108.44)

• Freezes hiring in retail division. Amazon is pausing hiring through the end of the year for corporate roles that include tech positions in its core retail business. However, the hiring freeze does not include other parts of the company, such as its AWS or its warehousing operations. The decision to halt hiring is part of Amazon’s effort to improve its efficiency, especially since the company has been experiencing slowing growth this year. Despite this, Amazon has made preparations for the upcoming holiday season by raising the average starting pay for warehouse employees as it aims to maintain enough head count for the busiest period of the year.
• Reported mixed 3Q22 results. Revenue grew 15% YoY during the quarter to US$127bn, while net income was recorded at US$2.9bn, its first quarterly profit for 2022. Net income had largely been hurt by the losses from its equity investment in Rivian throughout 1H22. However, its 9M22 normalized PATMI (PATMI excluding non-operating income) still missed our expectations. Amazon guided 4Q22 revenue to be between US$140bn and US$148n, which is below our forecast and consensus estimates.

Comment: Amazon’s weaker-than-expected guidance for 4Q22 was mainly because of the moderating sales growth across its businesses towards the end of 3Q22. YoY growth for its AWS segment is also expected to decline to mid-20% levels from the 27% it experienced in 3Q22, and this is because of the reduced spending by its customers. We view the lackluster 4Q22 guidance as a signal that the Prime Early Access sale event held in October was not as successful as what Amazon had hoped for, and this could be due to the fact that consumers had already made purchases during the original Prime Day back in July.