The FAANG stocks -Facebook, Amazon, Apple, Netflix and Google- have defined this market era. In spite of recent stumbles, FAANG Earnings reports consistently show how these companies have consolidated power in their respective markets.

The BLX FAANG Revenue index tracks changes in the trailing twelve month aggregate revenue of the FAANG stocks as a group. Since 2014, it has gone nearly straight up, illustrating the rapid growth of these businesses.

FAANG Earnings Reports Show Continued Revenue growht

FAANG earnings have gone in the same direction  as revenue.  Indeed, market power leads to profitability.

Yet the  FAANG companies face maturing markets, and increasing competition, often from each other. Further, their ambitious plans are increasingly far from their core businesses, and will require ever larger capital expenditures. Additionally, regulatory risk is high in the current political environment. Meanwhile, market multiples imply absurdly high embedded expectations.  Consequently, some investors are skeptical that FAANG earnings growth and market dominance can continue.

Portfolio Strategy and Analyst Expectations

Investors need to be prepared, and position their portfolio accordingly. The decision to be overweight or underweight FAANG stocks has been a primary contributor to active investor performance in recent years. There is no way to remain truly passive. If FAANG growth disappoints, it would have devastating second order impacts across the market. Yet even if they do deliver on revenue and earnings, further shifts downward in expectations would drive down stocks. In any case, investors who find themselves on the wrong side of FAANG earnings trends will struggle to meet performance expectations.

Netflix, Amazon, and Alphabet(Google) have already reported earnings.  Netflix results were received favorably.  However, Amazon and Alphabet disappointed.  Facebook and Apple report earnings at the end of the day today  Here is a quick snapshot of how things are shaping up relative to the analyst expectations:

 

Company BLX FAANG Revenue Index Weighting Q3 Revenue Surprise BLX FAANG Earnings Index Weighting Q3 Earnings Surprise
Apple (AAPL) 34.3% Reporting 10/30 AMC 47.4% Reporting 10/30 AMC
Amazon (AMZN) 35.2% +1.7% 9.6% -8.4%
Facebook(FB) 8.3% Reporting 10/30 AMC 14.4% Reporting 10/30 AMC
Alphabet (GOOG) 19.7% 0.4% 27.6% -13.3%
Netflix (NFLX) 2.5% -0.1% 1.2% 41.0%

Source: Refinitiv

Investors can maximize alpha and hedge idiosyncratic risk by using BLX FAANG Indexes to disaggregate changes in FAANG earnings from changes in sentiment.  Click here to learn more.