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FAANG Earnings Are All In -- Here's How They Did and What to Watch Going Forward

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All the FAANG stocks have reported earnings. 

Breathe out, FAANG investors and journalists.

But before we do that, let's recap how the companies performed and what to expect.

The Earnings

Facebook (FB) beat revenue and earnings expectations, driven by key metrics analysts were looking for.

Q3 EPS was $2.12, beating expectations of $1.91 and growing 19% year-over-year. Revenue was $17.65 billion, beating estimates of $17.37 billion.

With Instagram still in its early stages of user and advertiser adoption and the core Facebook platform decelerating and remaining much of the business, total users grew only 9%.

But the revenue growth translated to a beat on average revenue per user -- $7.26 versus expectations of $7.07. This was driven by strong user engagement, analysts said.

Apple (AAPL) posted a "clean" earnings and guidance beat, as Morgan Stanley analyst Katy Huberty put it.

Apple posted an adjusted $3.03 for its fiscal fourth quarter, beating estimates of $2.84. Revenue was $64.04 billion, beating estimates of $63.02 billion.

Apple's iPhone 11 sold well and beat expectations, which were already beginning to rise. Services and wearables, two growth areas for the company, also beat expectations. Apple needs to maintain its roughly 20% revenue growth in its high-margin services business to sustain its valuation.

For the current quarter, Apple guided for revenue of between $85.5 billion and $89.5 billion, with the midpoint higher than analysts' expectation of $86.74 billion.

Gross margin is guided for between 37.5% and 38.5%, better than expectations of 37.5%. Analysts said the guidance encourages the bull thesis on Apple, which is that its services business is viable enough to make the world's most valuable company a good stock pick.

Amazon's (AMZN) EPS fell 26% from a year earlier, driven by elevated logistics and other costs related to the startup of one-day delivery for Prime members. Other costs below operating expenses also contributed to the behemoth  missing EPS expectations.

EPS was $4.23 versus estimates of $4.62. Revenue grew to $70 billion, beating estimates of $68.8 billion. 

Management guided for fourth-quarter revenue of between $80 billion and $86.5 billion, the midpoint of which undershoots analysts' expectations of $86.11 billion. The company expects operating profit in the current quarter to range $1.2 billion to $2.9 billion, missing expectations of $3.05 billion. 

Still, analysts pointed to several positive revenue trends going forward, while the elevated costs are expected to abate. 

One point to monitor: Amazon's cloud revenue of $9 billion missed estimates of $9.1 billion, while Microsoft's (MSFT) cloud revenue impressed, as the two tech giants race to be No. 1 in global cloud computing. 

Netflix (NFLX) beat subscriber and earnings estimates.  Netflix reported third-quarter GAAP earnings per share of $1.47, beating Wall Street estimates of $1.03. Revenue was $5.25 billion, up 31% year-over-year and in line with estimates. 

Total net paid subscribers added for the third quarter were 6.8 million, beating expectations of 6.7 million. International subscriber additions were 6.3 million, beating estimates of 6.05 million. 

But EPS guidance for the current quarter missed estimates by more than 50%. Subscriber and revenue guidance missed, and management said up-and-coming streaming competition from large players was reflected in the guidance. 

Google (GOOGL) missed earnings estimates but beat on revenue. That earnings miss was largely due to nonrecurring and initial costs. Stripping those out, the quarter looks much better and the company much healthier. 

GAAP earnings per share came in at $10.12, missing Wall Street estimates of $12.32. EPS grew 18% year-over-year. Revenue was $40.5 billion, beating analysts estimates of $40.31 billion and growing 20% year-over-year. Google's operating margin was 23%, lower than last year's third-quarter margin of 26% and lower than analysts' expectation of 23.4%

But Google took a $550 million hit on a settlement in France, hired a wave of new engineers and took a $1.5 billion equity investment write-down. Meanwhile, analysts liked revenue growth in core segments. 

The Future of FAANG

All FAANG stocks are now valued at much lower earnings multiples than they used to be. Here are the forward multiples:

  • Facebook: 20
  • Google: 23
  • Apple: 19
  • Netflix: 52
  • Amazon: 65

And it's clear that the growth rates are not what they used to be. 

So are they fairly valued or undervalued? 

It differs per FAANG stock, but one Google analyst mentions Google has relatively undiscovered revenue opportunities found on its core platform. Many believe the same for Facebook's Instagram, which could be home to so much growth and is clearly undervalued, several analysts say.

Apple needs to maintain stable iPhone sales and growing services. Amazon must stave off cloud competition from Microsoft and execute its ambitious delivery goals for e-commerce. Netflix must capture more international streamers than the competition does. 

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