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The earnings season for FAANG stocks is now over, after Apple (AAPL) released its fiscal Q4 earnings last Thursday. It was a mixed earnings season for the elite group. While it started with a bang after Netflix (NFLX) reported stellar subscriber numbers, it was a less-than-ideal end as Apple’s earnings left the markets disappointed.
In this article, we’ll look at the September quarter earnings of FAANG constituents and try to pick the winners and losers.
Netflix Shattered Subscriber Estimates in Q3
Netflix reported in-line revenues in Q3, but adjusted earnings per share of $3.73 came in ahead of the $3.49 analysts were expecting. The biggest takeaway from Netflix’s Q3 earnings report was the stellar rise in subscriber numbers.
The company added 8.76 million net subscribers in Q3, while analysts were expecting the number to be around 5.5 million. For context, that's the highest since Q2 2020, when the streaming industry’s growth was turbocharged due to the global lockdowns. Equally impressive was the guidance for Q4; Netflix said that the net subscriber adds in Q4 would be similar to Q3, “plus or minus a few million.”
Netflix headed into the Q3 earnings season as the worst-performing FAANG stock, but after its impressive earnings report, the shares surged by double digits – the only member of the mega-cap group to do so this earnings season.
Alphabet’s Cloud Business Disappointed in Q3
Alphabet’s (GOOG) revenues rose 11% YoY to $76.69 billion in Q3 - which was not only ahead of what markets expected, but also the first quarter since Q3 2022 when the Google parent posted a double-digit rise in revenues. Its per-share earnings of $1.55 were also 10 cents higher than consensus estimates.
However, Alphabet's cloud revenue of $8.41 billion fell short of the estimated $8.64 billion, which spooked investors. The stock’s post-earnings price action was the worst among its FAANG peers as it fell by almost double digits, marking its worst day since Mar. 16, 2020 - which investors will recall was around the same time broader markets crashed amid the initial COVID-19 scare.
Meta Platforms Stock Also Fell After Q3 Earnings
Meta Platforms (META) was the next FAANG member to report earnings, and its quarterly report failed to please markets. The Facebook parent reported revenues of $34.15 billion for the September quarter, which was ahead of the $33.56 billion that analysts expected and towards the upper end of the company’s guidance. Earnings per share came in at $4.39, which was also well ahead of the $3.63 that analysts expected.
However, what spooked markets was its guidance and commentary on the fourth-quarter outlook. Meta said that it expects to post revenues between $36.5 billion to $40 billion in Q4 - which, at the midpoint, was below the $38.9 billion that analysts expected. Also, the guidance range was wider than usual, which the company’s CFO Susan Li attributed to “more volatility” since the beginning of Q4, which coincides with the start of the Israel-Hamas war.
Meta is the best-performing FAANG stock of the year, and continues to hold on to the title despite the post-earnings sell-off – thanks to its massive lead over the other constituents.
Notably, Meta CEO Mark Zuckerberg touted 2023 as the “year of efficiency” for the company, and as part of the exercise, the Menlo Park-based company has embarked on an aggressive cost-cutting spree. The company sees artificial intelligence (AI) as a key short-term driver, and while Zuckerberg did not specifically term 2024 as the “year of AI,” the overall tone of the Q3 earnings call seems to suggest as much.
Amazon Stock Rose After Q3 Earnings
Amazon also reported a strong set of numbers in Q3, and generated revenues of $143.1 billion - which was 13% higher than the corresponding quarter last year, and ahead of the $141.4 billion that analysts expected. Revenues were also slightly higher than the top end of Amazon’s (AMZN) own guidance.
The company reported a net profit of $9.9 billion, which was a new record – thanks to mark-to-market gains in its investment in electric vehicle startup Rivian (RIVN). Amazon's operating margin – which is a much better indicator of performance – also rose to 7.8% in Q3, which is the highest since early 2021.
However, the company provided Q4 revenue guidance of $160 billion to $167 billion, with the midpoint of this range arriving below what the Street expected. Nonetheless, continued stabilization in the enterprise-focused Amazon Web Services (AWS) segment and a strong rebound in margins more than offset the tepid guidance, and AMZN shares rose after the company’s Q3 earnings report - the only FAANG stock apart from Netflix to see upward price action after releasing September quarter earnings.
Apple’s Guidance Also Spooked Investors
One common thread among the majority of FAANG companies, with the notable exception of Netflix, was the dismal forward guidance. Keeping with the trend of this earnings season, Apple also posted better-than-expected revenues and profits, but gave disappointing guidance and said that its revenues in the December quarter would be “similar” to the corresponding quarter in 2022.
Wall Street analysts expected the iPhone maker to report a mid-single-digit revenue increase for the period, after four consecutive quarters of decline. To be sure, Apple faces a tougher YoY comparison this year, as the December quarter will have 13 weeks compared to 14 weeks last year. CFO Luca Maestri stressed that “revenue from the extra week last year added approximately 7 percentage points to the quarter’s total revenue.”
However, the clarity failed to reassure markets. While Apple shares managed to recoup most of their intraday losses, they still closed in the red - even as the S&P 500 Index ($SPX) gained almost 1% on Friday to log its best week of the year. Apple shares also fell after the fiscal Q3 earnings report as sagging growth and rich valuations are making investors apprehensive.
Which FAANG Stocks Look Like a Good Buy After Q3 Earnings?
I believe Meta and Amazon look like good buys after the Q3 earnings season. Meta still trades at reasonable valuations, and the company looks like it's back on the growth track after reporting its first yearly decline in revenues last year.
Amazon also looks like a decent buy, despite having popped after the Q3 report. The e-commerce and cloud giant might continue to impress with strong growth in profits and cash flows in 2024, even as sales growth might not rise to the levels we saw a couple of years back.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , META , GOOG , RIVN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
