PhillipCapital analysts Timothy Ang and Jonathan Woo have given an “overweight” rating to FAANGM companies, made up of Facebook (now known as Meta), Apple, Amazon, Netflix, Google (now under parent company Alphabet), and Microsoft.
The brokerage has given “buy” ratings to all six companies, with Meta getting a target price of US$424, Apple a target price of US$187, and Amazon receiving a target price of $4152.
As for the other three companies’ target prices, Netflix was at US$724, Alphabet was put at US$3380, and Microsoft was handed a target price of US$405.
In a Jan 11 note, the analysts noted that FAANGM lagged the S&P 500 in December, returning 3.1% vs 5.6% respectively.
Elaborating, Woo and Ang said Amazon and Netflix were the laggards, declining 3.2% and 2.5%.
On the other hand, outperformers in the FAANGM group were Apple and Meta, gaining 7.8% and 8.3% respectively.
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Apple benefited from a successful appeal in the US appeals court for a delay in the App Store payment ruling which gave users the option to pay outside the App Store, and is also seeing success in China with its iPhone 13 line.
According to Counterpoint Research, Apple claimed a 24% stake of China’s smartphone market in November, up from 22% in October, making it the top smartphone seller in China.
Other tailwinds for Apple also include its new AR/VR headset set to be launched in the second half of 2022, as well as easing lead times for its products amid a supply crunch.
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Meta saw strong holiday demand for its Oculus products, with much talk focusing on its potential metaverse.
According to an unnamed employee quoted by Woo and Ang, Instagram has surpassed two billion monthly active users (MAU), three years after it hit one billion MAU in 2018, representing a 3-year CAGR of 26%.
“Meta does not actually publicly disclose MAU for Instagram, but if these numbers are accurate, it definitely shows continued strength in user growth. Instagram’s 26% CAGR growth in MAU is more than triple Facebook’s (8%) MAU, proving again that its an additional growth driver for Meta Platforms,” they write.
Furthermore, Meta’s messaging app WhatsApp has introduced a crypto payments feature on its platform. This feature is currently on trial to a select group of users, allowing them to conduct cryptocurrency transactions seamlessly on the WhatsApp platform.
The transactions can be conducted using USDP (US Pax Dollar), where 1 USDP = US$1, and the analysts believe “there is a huge runway for revenue growth in the company’s payments vertical, given the tremendous potential in commercializing WhatsApp further.”
For laggards Amazon and Netlflix, Woo and Ang highlighted increasing FTC scrutiny of Amazon's cloud and advertising businesses while Netflix slashed subscription prices in India due to growing competition.
According to a Bloomberg report, Federal Trade Commission head Lina Khan is advancing an antitrust inquiry into Amazon's cloud computing business. Meanwhile, a complaint filed with the FTC on Dec 8, 2021 accused Amazon of “unlawful deception” in its advertising.
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The complainant, the Strategic Organizing Center, notes Amazon is not distinguishing its paid search results from organic results and is “unlawfully deceiving millions of consumers” in the process.
As for Netflix, it has cut its subscription prices in India by up to 60% in an attempt to attract a newer set of audiences onto its platform.
The analysts note that currently, Netflix's biggest competitor in India, Disney+Hotstar, has been actively growing its market share, capitalising on significant advantages in their streaming products - such as the streaming of popular live sports.
The remaining two companies, Alphabet and Microsoft, were not classified by PhillipCapital, but Woo and Ang observe that Alphabet has teamed up with Verizon to deliver 5G mobile edge computing.
This collaboration will support real time enterprise applications like autonomous mobile robots, intelligent logistics, and factory automation.
Meanwhile, Microsoft was granted approval by the European Commission for its US$16 billion acquisition of speech recognition and artificial intelligence software company Nuance Communications.
Nuance will allow Microsoft to expand into cloud services for healthcare where demand for speech recognition remains high, and the combination of Nuance’s and Microsoft’s capabilities will result in more sophisticated offerings and higher interoperability.
The deal would be Microsoft’s second largest, following its US$26.2bn deal for LinkedIn. The deal is currently undergoing evaluation by British antitrust regulators.
Furthermore, the analysts are also forecasting that there will be more price increases for Microsoft Office products for monthly subscriptions.
Microsoft intends to raise prices on its Office suite of products for some customers unless they switch to longer subscriptions, CNBC reports.
The report cited some of Microsoft’s partners who have confirmed a 20% price hike for monthly subscriptions. This could drive customers to longer-term subscriptions, improving Microsoft’s income visibility.
Woo and Ang conclude by saying that secular tailwinds remain intact for FAANGM companies, with them singling our Amazon as their preferred stock.
This is as pressure on its share price lifts from the eventual easing of freight costs and supply constraints, as well as easier comparables this year compared to 2021.
