FAANG stocks (Facebook Inc. (FB) , Apple Inc. (AAPL) , Amazon.com Inc. (AMZN) , Netflix Inc. (NFLX) , Alphabet Inc. owned Google (GOOGL) ) may still be in high growth mode, but that doesn't mean they're not subject to real risks.
Aside from the hit the FAANG stocks took in last week's two-day sell-off, a few risks exist for each stock in the group. Perhaps the biggest risk for the data-centric Facebook and Google is privacy regulation. Big questions over the sanctity of users' data privacy came to the surface after not just the Cambridge Analytica scandal, but also Facebook's latest few scares and Google's Google Plus scare. Also important to mention, Facebook's July quarter badly missed estimates and slashed full year guidance, partly because of slowing user growth in Europe, where the General Data Protection Regulation had an impact.
It could get worse.
"Regulation is just starting to come down on a lot of these companies," Naomi Shah analyst at Union Square Ventures told Jim Cramer at his October 13 investing teach-in event. She added, "especially overseas, like the European Union, obviously is very outspoken about wanting to distribute all of the data to individual users." Still, "it's only going to get tougher in the next few years from a regulation standpoint, especially overseas," Shah said.
"Facebook's a company that points to -- there's a lot of regulation crackdown on it -- users are becoming more wary of certain security issues, and if you look at user growth numbers, it might point to a trend that's -- it was huge when it started -- but maybe not as valuable today as it was at one point," Shah said.
Cramer's Action Alerts Plus team cut its position in Facebook significantly in January, and then trimmed a bit more after Facebook slashed full year 2018 guidance in July. The AAP team may eventually add some Facebook shares back into its portfolio if it sees faster Instagram monetization, and if Facebook continues to stay at its current price-to-earnings multiple of 24.