FAANG quarterly earnings preview: Where next for share price?

The top six US technology companies by market capitalisation (excluding Microsoft Inc), namely Facebook, Apple, Amazon, Netflix, and Google (Alphabet) – affectionately and collectively known as FAANG – will all be reporting their fourth quarter (Q1 in Apple's case) earnings next week.

Take a look at what analysts are saying ahead of those announcements.

Facebook Inc (NASDAQ: FB) – 29 January

In terms of stock performance, the social media company’s share price has gained 8.2% as of 17 January since the start of the new year, versus the S&P 500’s overall 3.1% yield.

Going back further, stock value has burgeoned 16.7% since November, on the back of solid third quarter earnings that saw revenue grow 29% year-over-year in Q3 and 28% over the previous quarter.

Still, Facebook’s Chief Financial Officer Dave Wehner cautioned against over-optimism concerning the upcoming Q4 earnings. He said during the Q3 earnings call that the company continues ‘to expect a more pronounced deceleration of our revenue growth rate in Q4’ by ‘a mid-to-high single-digit percentage compared to Q3 rate’.

A total of 12 brokers on Zacks have given a consensus earnings per share (EPS) estimate of US$2.50, up 5.04% from a year ago.

Facebook Inc shares currently have a majority ‘strong buy’ rating from 29 out of 33 analysts. The average price target is US$241.53 per share with a high forecast of US$300 and a low end of US$120. The average price target represents an 8.73% increase from the last traded price of US$222.14.

Apple Inc (NASDAQ: AAPL) – 28 January

iPhone maker Apple Inc, which is set to announce Q1 FY2020 results on 28 January, continues to grow in market value, as its share price rose to an all-time high of US$318.74 on Friday (17 January).

Earlier that day, Morgan Stanley had increased its price target for Apple from US$296 per share to US$368 per share.

Analysts had stated that they expect the company to turn in a solid first quarter, with services and the iWatch now constituting a larger part of overall earnings. Even then, demand for the iPhone remains strong – it was once again the top selling technology product of 2019 with 185 million units sold globally.

The company had previously provided a revenue guidance of between US$85.5 billion and US$89.5 billion for its fiscal 2020 first quarter, up from the US$84.5 billion recorded in Q1 2019. Comparatively, a NASDAQ poll of 43 brokers revealed a consensus earning estimate of US$88.3 billion for the quarter.

The outlook for the rest of the year is also robust, with analysts estimating a ten percent increase in iPhone 12 orders for the second half of 2020, as compared to the iPhone 11.

Morgan Stanley also added that longer battery life and the upcoming deployment of 5G technology would also potentially mean shorter phone replacement cycles and higher phone sales.

As IG last reported, some analysts believe that Apple shares are headed for US$400 this year, while others feel the stock is overvalued.

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Amazon Inc (NASDAQ: AMZN) – 30 January

For the most part, it can be said the e-commerce platform had a relatively decent 2019, as shares were able to achieve a close-to-historic-peak-price of US$2,035.80 in July, despite falling earnings.

The flip side is that share value grew only 23% against the S&P 500’s 31.5% return, which was a reaction to Q3 profits declining for the first time in two years to US$2.13 billion, from US$2.88 billion the same period a year prior.

Amazon.com Inc was also conservative in its fourth quarter guidance, expecting operating income to be between US$1.2 billion and US2.9 billion, a drop of between 24% and 68% from Q4 2018’s US$3.8 billion.

Much of this tepid outlook stems from the company having invested an estimated US$1.5 billion into one-day Prime shipping, which Moody’s Investors Service analyst Charlie O’Shea said continues ‘to weigh heavily’ on the retail business’ profitability.

While CEO Jeff Bezos is optimistic things will turn around for the company soon – with Amazon Web Services also growing, Wall Street is not biting the bait yet, providing a consensus EPS estimate of US$4.05, the lowest forecast out of all the quarters in 2019.

Netflix Inc (NASDAQ: NFLX) – 21 January

The ‘smallest’ of the FAANG gang by far, this is an important quarter for Netflix Inc, as it would set the tone for 2020.

Share price has been down as much as 2.5% in the last 52 weeks, as the streaming service fell short of its own subscriber growth targets for the second and third quarters. In the US, paid net adds totalled 0.5 million versus a 0.8 million forecast, and paid net adds are 2.1 million in the first nine months of 2019 versus 4.1 million the preceding nine months.

With new competition in the form of Disney+, Apple TV+, Comcast’s Peacock, and HBO Max, the pressure is greater than ever for Netflix to add subscribers, not just in the US but globally.

The company’s expectation for Q4, however, is not huge, as it is forecasting 7.6 million global paid net adds, down from 8.8 million for Q4 2019. That implies a total paid net adds of 26.7 million for the full year, against 28.6 million in 2018.

Over 40 analysts polled by FactSet have given a consensus EPS estimate of 52 cents a share, down from 83 cents a share predicted at the beginning of the quarter.

Netflix currently has a majority ‘buy’ and ‘overweight’ rating and an average share price target of US$367.04 – eight percent above the latest closing price.

Goldman Sachs last week also raised its Netflix price target to US$450 from US$400 in anticipation of better-than-expected paid global user adds.

Google (Alphabet Inc.) (NASDAQ: GOOGL) – 03 February

The last of the big five to report fourth quarter results is also the latest to join the ‘trillion-dollar club’.

Last week, the parent company of the world’s largest search engine saw share price rise steadily to a historic high of US$1,450.16 per share, making it the fourth company to achieve a market cap of one trillion US dollars, after Microsoft, Apple, and Amazon.

And share price could rise even higher, with analysts at US investment banking firm Evercore predicting that Google’s global revenue will gain 18% in 2020, on the back of larger cloud and YouTube advertising revenue.

Share value could go even higher, with analysts expecting the search engine giant’s 2019 fourth quarter earnings to be in line with those of the first three.

Alphabet Inc top-line rose 22% in the Q3 and Q2, and 19% in Q1. Its ‘Google Other’ business segment, which includes mobile, YouTube, and cloud computing, was a main driver of revenue growth.

For the fourth quarter, analysts are forecasting a revenue of US$46.9 billion, which would represent a 19.5% increase from the same period last year. With that in mind, Evercore brokers raised their Alphabet share price target to US$1,600 from US$1,350, an 18.5% upside.

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