Will FAANGs Have Enough Bite This Earnings Season?

Wall Street’s tech bigwigs are now gearing up to announce their last financial results of 2019. And market pundits are predominantly focusing on the FAANG group. After all, FAANG’s huge market value determines broader stock market movements, and any let-downs in their quarterly earnings report will surely have far-reaching implications. Let us, thus, look at what investors may expect when the FAANGs pull back the curtain on their latest quarterly earnings results.

The first of the FAANG stocks to report earnings is the provider of Internet entertainment services, Netflix, Inc. NFLX. The streaming giant is set to report to fourth-quarter 2019 results on Jan 21, after market close. The focus is sure to be on Netflix’s subscriber base. After all, the company is likely to have faced serious competition from Apple TV+ and Disney+, which were launched on Nov 1 and Nov 12, respectively. Needless to say, Netflix’s net subscriber additions lagged their forecasts in the previous two quarters.

By the way, Netflix is also in debt. Last October, the company announced plans to raise nearly $2 billion through bond sales in the United States and Europe. Netflix had ended the third quarter with almost $12.4-billion debt. So now, the latest bond sales will pile up $14.4 billion in debt for the company, something that doesn’t bode well.

However, its shares jumped more than 30% since it bottomed in late September. And it’s primarily because of massive growth witnessed overseas. Netflix’s strong content release also helped its stock scale north. Overall, the company’s management is optimistic about fourth-quarter performance. For the quarter, Netflix expects earnings per share growth of 70% on a year-over-year basis. Revenues are expected to increase 30% year over year.

iPhone maker Apple Inc. AAPL is scheduled to report first-quarter fiscal 2020 earnings on Jan 28, after market close. Economic weakness and lingering trade issues impacted iPhone sales. After all, China is Apple’s second-largest market. But there is some good news! iPhone sales improved in December and iPhone 11 is widely expected to have seen strong demand in the last three months of 2019. All these have likely boosted the company’s top line. The company is, thus, projected to report revenue growth of more than 4% on a year-over-year basis.

What’s more, its services and wearables segment, which includes products such as Apple Watch, Air Pods, and Beats earphones, is doing pretty well. In the fiscal first quarter, the company’s wearables segment is expected to have become Apple’s biggest earnings growth driver. Apple now forecasts earnings growth of more than 8% year over year. Wearables segment revenues had jumped more than 50% on a year-over-year basis in the fiscal fourth quarter.

To top it, Apple currently has an Earnings ESP of +4.08%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Facebook, Inc. FB is slated to report fourth-quarter results on Jan 29, after market close. The social media giant shrugged off regulatory concerns, surging more than 56% last year. Recently, the company’s shares scaled new all-time highs. Facebook added more than 100 million daily active users over the last 12 months, which eventually boosted its stock. And with daily active user count increasing at a steady pace, Facebook expects fourth-quarter earnings growth of 5% year over year.

However, management has set a low bar for revenue growth. CFO Dave Wehner said that “we continue to expect a more pronounced deceleration of our revenue growth rate in Q4. We expect our Q4 reported revenue growth rate will decelerate by a mid-to-high single-digit percentage compared to our Q3 rate.” Facebook’s year-over-year revenue growth was 29% in the third quarter.

And what about e-commerce giant Amazon.com, Inc. AMZN? Will its earnings fall short of expectations in the fourth quarter as was the case in the past two? For the fourth quarter, Amazon expects operating income between $1.2 billion and $2.9 billion, suggesting a decline of 24% to 68% from the year-ago period. Its operating income is going to take a hit as the company continues to spend on improving Amazon Prime’s core free delivery benefit from two days to one day. Amazon has spent an estimated $1.5 billion on one-day Prime shipping.

Against this backdrop, Amazon’s stock underperformed the broader market last year. Shares of Amazon gained 21% versus the S&P 500’s gain of 31.5%. Naturally, analysts widely expect Amazon’s profits to decline 34.1% year over year in the fourth quarter. Amazon is slated to report earnings on Jan 30, after market close.

Last of the big five to report fourth-quarter results is Alphabet Inc. GOOGL. Recently, the provider of online advertising services joined the trillion-dollar club. It’s the third company to achieve a market cap of one trillion U.S. dollars, after Microsoft and Apple.

Analysts now expect Alphabet’s fourth-quarter revenues to surge on stupendous growth in its ‘Google other’ business segment. Lest we forget, cloud and YouTube advertising revenues have grown in recent times. Alphabet’s top line grew 22% year over year, both in the third and second quarter. Analysts expect revenues of $38.44 billion for the fourth quarter, indicating a 20.7% increase from the same period last year.

Apple and Alphabet flaunt a Zacks Rank #2 (Buy), while Netflix, Facebook and Amazon have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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