FAANG Stocks are Bleeding after Google’s Quarterly Results
Wall Street’s coveted ‘FAANG’ complex plunged on Tuesday, capping off a volatile month for technology shares. The rout, which was sparked by rising 10-year yields, was exacerbated by a noisy earnings call from Alphabet that revealed a bigger than expected rise in spending.
Alphabet’s Q1 Earnings Report
Revenues and earnings at the Google-parent company came in better than expected during the first quarter, but a spending binge on new business ventures made it more difficult to assess the company’s future.
Alphabet’s Q1 statement was clouded by the acquisition of HTC, which added more than 2,000 workers to the company’s payrolls., as well as a significant markup in the company’s $3 billion investment stake in Uber. Alphabet’s spending boost not only dampened investor sentiment toward the stock, it ignited fresh concern over competition.
Alphabet’s new business outlays suggest the company is trying to compete on multiple fronts with some of its biggest rivals. For example, the company lost $621 million expanding its Nest smart home business while making only $726 million in revenue last year. With products like Google Home and Nest, Alphabet faces clear competition from Amazon’s Echo line.
With HTC, Alphabet is competing in an entirely different tech industry dominated by Apple and Android devices. Then there’s Pixelbook and other Chrome-based laptops, which pits the Google parent against Microsoft.
The FAANG universe of stocks, which includes Facebook, Amazon, Apple, Netflix and Google-parent Alphabet, declined sharply on Tuesday. In fact, four of the five companies (minus Apple) shed $85 billion in market cap on Tuesday.
With the exception of Apple, the FAANG category underperformed the stock market on Tuesday. The S&P 500 Index fell 1.3%, while the technology-heavy Nasdaq closed down 1.7%.
The recent selloff wasn’t the first time this year that FAANG stocks rolled over. In fact, it wasn’t even the biggest. The stock category declined a whopping $324 billion over a three-week stretch ending in early April. The declines contributed to Wall Street’s worst second-quarter start since the Great Recession.
In terms of earnings, Facebook and Amazon are scheduled to report their first-quarter results this week. Facebook has been mired in controversy since the Cambridge Analytica scandal shed light on the company’s data-collection practices. Facebook CEO Mark Zuckerberg struck a positive tone with investors when he testified before Congress earlier this month. However, investors may need more convincing should Q1 results fail to deliver.
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