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Black Friday for The FAANG Who May Lose a Member

It’s a first quarter that will leave a lot of scars. 

While concerns were already surrounding tech as the Federal Reserve hiked interest rates to curb inflation, there was still hope that tech tenors would provide some reassurance on the outlook for companies much more established. 

It’s true that investors were worried about this earnings season, but to imagine that it was going to turn into a nightmare was unthinkable. 

There was the hope that Apple  (AAPL) – Get Apple Inc. Report, Amazon  (AMZN) – Get, Inc. Report, Google (Alphabet)  (GOOGL) – Get Alphabet Inc. Class A Report could make people forget the possible underperformance of Facebook (Meta)  (FB) – Get Meta Platforms Inc. Class A Report, or even Netflix  (NFLX) – Get Netflix, Inc. Report.

But the reality finally overcame investors’ worst nightmares. From the first quarter results of Facebook, Apple, Amazon, Netflix and Google, the famous FAANG, it appears that fears about a possible recession are well founded. 

There is the new lockdown in China to try to limit the spread of the resurgence of Covid-19 which has given a blow to companies’ supply chains. 

Added to this is the soaring prices of raw materials which increase the cost of manufacturing products. Russia’s invasion of Ukraine already appears to be slowing growth in Europe. Basically, there wasn’t much to like about the quarterly releases of the big tech names.

Netflix Started The Nightmare

The Nightmare debuted with Netflix on April 21. The streaming platform had announced said earnings for the three months ending in December were pegged at $3.53 per share, down 5.9% from the same period last year and firmly ahead of the Street consensus forecast of $2.89 per share, as TheStreet’s Martin Baccardax reported.

Revenues came in at $7.87 billion, up 9.9% from last year. The company lost 200,000 global subscribers over the period, and Netflix warned it will lose another two million global net paid additions over the three months ending in June.

But in a sign that the future does not look rosy, Netflix has indicated that it is exploring the introduction of advertising on the platform, thus breaking with what had made it famous: The absence of advertising. 

Netflix stock is down 68.4% since Dec. 31 with a market cap at $84.57 billion. This nosedive has some saying that Netflix no longer belongs in the FAANG club.

Fortunately for Netflix, we hadn’t seen the worst yet. While Google and Facebook reported mixed quarterly results, mainly due to competition from TikTok in online ads, this was not the case for Apple and especially Amazon.

$206 Billion in Market Cap Wiped Out in One Session

Amazon said on April 28 that it recorded a loss of $3.8 billion during the past quarter, or $7.56 per share, compared with a profit of $8.1 billion a year ago, or a profit of $15.79 per share. 

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Revenues rose 7% from last year to $116.4 billion, the slowest year-on-year growth in more than a decade.

Amazon said it sees operating income of between -$1 billion to +$3 billion on revenues in the range of $116 billion to $121 billion, compared to the Refinitiv forecast of around $125 billion, for the current quarter.

“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” said CEO Andy Jassy. “Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network. We know how to do this and have done it before.”

“This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020,” he added.

The numbers and the comments caught investors off guard as they believed Amazon could weather the end of the pandemic economy which had seen consumers turn to online shopping. 

But the reopening of the economy seems not to spare Amazon’s core retail business. At the same time the operating expenses of the e-commerce giant continue to increase. Amazon has in particular had to hire people in its warehouses and must now face soaring logistics and labor costs.

“While sales were short of expectations by a mere $6 million, the bigger headline was the company’s first quarterly loss since 2015, at a loss per share of $7.56, or nearly $16.00 shy of the Street’s earnings per share expectations,” William Blair analysts wrote in a note to their clients.

Amazon shares fell 14.05% at $2,485.63, their worst day since July 2006. Around $206 billion in market cap went up in smoke in 24 hours. Market cap remains at $1.26 trillion.

Apple Does Not Reassure

Apple shares fell 3.66% to $157.65 in the same April 28 session.

The company said it would see a hit in the “$4 billion to $8 billion range” during the current quarter after China closed some cities to mitigate the spread of Covid-19 and ongoing silicon shortages.

“These constraints are primarily centered around the Shanghai Corridor and… on a positive front, almost all of the affected final assembly factories have now restarted,” CEO Tim Cook told analysts during the earnings’s call. 

“And so the range, the $4 billion to $8 billion range, reflects various ramps of getting back up and running. We’re also encouraged that the COVID case count that’s been reported in Shanghai has decreased over the last few days, and so there’s some reason for optimism there.”

Facebook shares fell 2.56% to $200.47, while Google shares fell 3.72% to $2,299.33.

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