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Tech companies entered the Q2 earnings season coming off a stellar rally in the first half of the year, having recovered impressively from the sector's significant underperformance in 2022. However, individual earnings results have since uncovered some distinct winners and losers from within the group.
For example, the earnings season for FAANG companies began with Netflix’s (NFLX) results on July 19, and wrapped up last week when Amazon (AMZN) and Apple (AAPL) released their quarterly reports. While shares of Netflix and Apple fell after their quarterly releases, Amazon, Alphabet (GOOG), and Meta Platforms (META) gained ground.
All of these FAANG stocks are still outperforming the markets in 2023, and in fact, Meta Platforms is the second-best performing S&P 500 Index ($SPX) stock this year. But in the wake of their latest quarterly earnings, which FAANG stock looks strongest?
Here are the key takeaways from the most recently released FAANG earnings, including which stock looks like the top pick for investors right now.
Netflix: Mixed Q2 Earnings
Netflix posted mixed Q2 results, as revenues of $8.3 billion fell short of estimates, but EPS of $3.29 and subscriber growth of 5.9 million outpaced what analysts expected.
Netflix also raised its 2023 free cash flow guidance from $3.5 billion to $5 billion, but that higher forecast is partially due to timing issues – its content spending in 2023 will be lower than previously expected due to the strike among Hollywood actors and writers.
Alphabet Stock Rises After Earnings
Alphabet was the next FAANG to report Q2 earnings. Ahead of the report, market sentiment towards the stock was quite cautious amid a slowdown in the digital ad market and concerns over market share competition from Microsoft’s (MSFT) Bing browser.
However, the company managed to impress with its earnings, and Alphabet stock rallied as it beat on both the top and bottom line. Adjusted EPS of $1.44 comfortably surpassed analysts’ estimate of $1.34, and Alphabet reported YoY increases in YouTube and Google Search revenues - a welcome improvement after revenue for both of these segments fell in the first quarter.
Finally, Google Cloud reported a 28% YoY rise in revenues, with an operating income of $395 million. The unit previously posted an operating loss of $590 million in Q2 2022 before swinging to an operating profit in the first quarter, and that performance improved sequentially in Q2.
Meta's Double-Digit Growth
Meta Platforms – which was already the best-performing FAANG stock of 2023 heading into its Q2 report – continued its positive price action after earnings. The company posted revenues of $32 billion in the quarter, which not only surpassed analysts’ estimate of $31.12 billion, but marked the first time since 2021 that the Mark Zuckerberg-led company posted a double-digit rise in revenues.
Menlo Park-based Meta reported EPS of $2.98 for the period, ahead of the $2.91 that analysts expected, and up 21% YoY. Plus, Q3 revenue guidance of $32 billion to $34.5 billion was well ahead of what markets were expecting, and implies YoY growth of at least 15%.
Amazon Shattered Earnings Estimates
Amazon was the next FAANG to release its Q2 earnings and posted a strong set of numbers, generating revenues of $134.4 billion versus the $131.5 billion that analysts expected. Its operating income was $7.7 billion in the quarter – easily outpacing its previous guidance for $2 billion to $5.5 billion.
After the last few quarters of slower growth, evidence that the enterprise-focused Amazon Web Services (AWS) segment is now stabilizing was quite reassuring. Equally impressive was Amazon's Q3 revenue guidance of $138 billion-$143 billion, and operating income guidance of between $5.5 billion-$8.5 billion.
Apple Down on iPhone Worries
Apple stock, by contrast, fell after its fiscal Q3 earnings – even as its revenues of $81.8 billion and EPS of $1.26 arrived slightly ahead of estimates.
The quarterly beat was driven by strength in the high-margin Services business, where revenues rose 8% YoY to $21.21 billion, and Apple now boasts an installed base of over 2 billion devices, along with the prospect of recurring revenues from 1 billion paid subscriptions.
However, disappointed investors turned their attention instead to a steeper-than-expected fall in iPhone and iPad sales for the quarter.
Apple’s elevated trading multiples already left little opportunity for a post-earnings rally, and that high-profile decline in hardware sales - coupled with guidance for another flat-to-lower overall revenue performance in the fiscal fourth quarter - effectively spooked investors, sending the shares to their lowest levels since mid-June immediately after earnings.
Amazon: The FAANG Standout
I believe that Amazon’s Q2 earnings stand out among its FAANG peers, and the company’s cost-cutting efforts aren’t being fully appreciated by the markets – even as fellow FAANG name Meta Platforms has soared over 150% this year on the back of its much-publicized “year of efficiency.”
Wall Street analysts were also quite impressed with AMZN’s earnings, and at least 28 of them raised the stock's target price in response. Plus, Rosenblatt Securities analyst Barton Crockett upgraded the stock from a neutral to buy.
Amazon is a play on multiple high-growth and secular themes, including e-commerce, cloud, streaming, digital advertising, and AI – and its growth potential in AI remains quite underappreciated.
During the Q2 earnings call, Amazon talked about its AI initiatives extensively, and CEO Andy Jassy said that data is the “core” of AI, adding, “AWS not only has the broadest array of storage, database, analytics, and data management services for customers, it also has more customers and data store than anybody else.”
Amazon's business-to-business (B2B) platform, Amazon Business, is another potential growth driver to watch, as annualized gross revenues for the division are now at $35 billion. Likewise, digital advertising continues to report double-digit revenue growth.
With Amazon stock still below its 2021 highs, I believe the strong Q2 performance and encouraging guidance should help support the next leg of the rally in the shares, making this the top FAANG stock to buy after earnings.
On the date of publication, Mohit Oberoi had a position in: AAPL , GOOG , MSFT , META , SPY . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
