FAANG earnings are expected to be one of the few bright spots in a brutal earnings season.    Sell-side analysts have revised forecasts down, but are still expecting continued growth in revenue and earnings for the group.  Yet, given the extreme uncertainty in the market right now,  buyside investors likely have different views.   This is likely setting up an investment opportunity using earnings derivatives linked to the BLX FAANG Revenue Index or the BLX FAANG Earnings Index.

Netflix will report earnings after market close today.   Facebook, Apple, Amazon, and Alphabet will follow in the next week or so.  BLX Global Indexes, and any derivatives based on them, will reprice upon the release of the company 10-Qs(see Earnings Power Indexing for details)

 

Company Report Date % of Analysts Revising Annual Forecasts Down
Netflix Inc (NFLX) 4/21/2020 9%
Alphabet Inc (GOOGL) 4/28/2020 62%
Facebook Inc (FB) 4/29/2020 64%
Apple Inc (AAPL) 4/30/2020 56%
Amazon.com Inc (AMZN) 4/30/2020 18%

FAANG Revenue Index  (.BLXGLFAANGR )

The BLX FAANG Revenue Index (.BLXGLFAANGR ), which tracks changes in the aggregate TTM revenue of the FAANG companies is a key barometer for the modern economy. Based on the median sell side estimate, Wall Street is expecting the index to increase by 3% this quarter from 249  to 256. That means that after this quarter’s earnings release, the TTM revenue for FAANG Stocks will be 2.56x their level at the index inception in 2014.   Wall Street is also expecting further gains in Q2

FAANG Revenue Expectations

BLX FAANG Earnings Index(.BLXFLFAANGE)

BLX FAANG Earnings Index(.BLXFLFAANGE), which tracks changes in the aggregate TTM earnings of the FAANG companies, is the key indicator for profitability of the the stock market’s most popular firms.  based on the median sell side estimate, Wall Street is expecting the index to increase by 6% this quarter from 238  to 253. That means that after this quarter’s earnings release, the TTM revenue for FAANG Stocks will be 2.53x their level at the index inception in Q1 2014.   Analysts are expecting further modest profit growth for FAANG companies into Q2, despite the coronavirus lockdown.  FAANG Earnings Expectations

FAANG Earnings Drivers

Competing factors will drive FAANG results during the coronavirus lockdown. On the one hand, people are stuck at home, and consequently are likely to be spending more time and money online.  On the other hand, advertising is cyclical, and a recession is likely to negatively impact ad businesses at Google and Facebook.  Some on the buyside are skeptical of rosy sell-side forecasts.

Although there are definitely more eyeballs on online ads, overall ad spend is down sharply.

 

FAANG Earnings Drivers

Yet analysts also know that Facebook and Google ads are far more well targeted and effective than ads on other online platforms.  Advertisers are likely to cut their Twitter and Snapchat advertising before they cut their Facebook and Google Advertising?

Which of these factors will dominate over the next few months?  Investors will need to position their portfolio accordingly.

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