Amazon: have the FAANGs lost their bite?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

News that Amazon expects sales in the first three months of this year to come in lower-than-expected, immediately sent the shares down almost 5%. And that was despite the online behemoth posting record sales and profits over the all-important Christmas trading period.

Looking ahead to the first quarter, Amazon said it expects sales to grow by between 10% and 18%, slightly lower than analysts had pencilled in. However, sales at the end of 2018 actually came in higher than analysts had expected, up 20% to $72.4 billion.

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Still largely regarded as first and foremost a retailer, that 20% rise was no mean feat in a market where so many retailers are struggling. But eagle-eyed investors will also know that that was actually the weakest sales growth Amazon has seen since early-2015. And Amazon has openly acknowledged that its retail business is seeing revenue growth slow.

Of course, Amazon is much more than ‘just a retailer’, as it demonstrated with this latest set of figures, which showed that the bulk of its profit growth is being generated by its advertising, cloud and third-party seller services. It also has plenty of other revenue streams it can tap into. So Amazon is far from coming unstuck.

However, there does seem to be a shift in investors’ appetites for these once seemingly un-touchable tech giants. And that’s not surprising when we’ve seen Apple reporting falling sales and even Netflix, cleverly but openly admitting it’s got some stiff competition.

After what we’ve heard of late from some of the other so-called FAANG companies - Facebook, Amazon, Apple, Netflix and Alphabet-owned Google - it’s beginning to look like these tech giants could be about to be cut down to size, on the stock markets at least.

At the tail-end of last year as much as $1 trillion was wiped off the collective value of the FAANGs as we saw what has been described as the worst tech stock sell-off since the dot.com bubble burst. None of the tech giants were left untouched.

Of course there is more to it than simple ‘investor sentiment’, or even consumer belt-tightening. Mounting tensions between China and the US certainly haven’t helped, nor did Federal Reserve Chairman Jerome Powell’s comments on interest rates back in December, or the fall in the price of Crude oil, or for that matter the fact that the 10 year US Treasury yield went flying above 3% for the first time in a decade.

But all that aside, in the day-to-day running of these businesses there are problems and pressures aplenty. The question for many investors is whether there are bargains to be had among the FAANGs - or better risky assets to be found elsewhere, if you’ve got an appetite for them.

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