Will It Get Better For FAANG Stocks This Earnings Season?

Market pundits have time and again questioned whether dominant technology firms have more room to run after missing estimates in the last two quarters. Most of these technology firms make up the closely-watched FAANG group (Facebook, Apple, Amazon, Netflix and Alphabet-owned Google).

But, many of their shares moved north this month reflecting a broad improvement in stock market sentiments as the year gets underway. Undoubtedly, the FAANG’s huge market value determines broader stock market movements, and any let downs in their fourth-quarter earnings report will surely have far reaching implications for investors.

The first of the FAANG stocks, Netflix, Inc. (NASDAQ:NFLX) has issued a disappointing guidance, leading to a drop in stock prices. But, not all was negative. The Internet television network continued to see encouraging trends in delivering global net paid ads, and has also been able to successfully increase subscription prices. These developments helped the company rebound nearly 30% following the Christmas Eve sell-off.

Let us, thus, focus on the fourth-quarter earnings report of the remaining FAANG stocks. If these companies come up with an earnings beat, the markets should be doing well. But, if they falter, traders should assume that the stock market momentum will fade.

Apple — A Boring Story This Time

Apple Inc.’s (NASDAQ:AAPL) fiscal first-quarter earnings report isn’t exciting investors. The iPhone maker will report after market close on Jan 29, and has already cautioned that its revenues will fall short of estimates. CEO Tim Cook has cited weaker-than-expected iPhone sales and economic deceleration in China as the primary factors affecting sales.

Cook recently wrote that “over 100% of our year-over-year world-wide revenue decline occurred in Greater China across iPhone, Mac and iPad.” Apple is now widely expected to report $84 billion in revenues for the December quarter, less than $88 billion in the year-earlier period.

The Zacks Rank #3 (Hold) company’s fourth-quarter revenues, by the way, are expected to come in at $16.4 billion, up from $12.97 billion in the year-earlier quarter. Revenues from advertisement are likely to contribute the maximum, as advertisers successfully lured holiday shoppers.

Facebook to Bounce Back

When Facebook, Inc. (NASDAQ:FB) reports results on Jan 30 after the closing bell, market pundits expect the company to post almost $6.4 billion in profits — more than $1 billion higher than the figure reported in the previous quarter.

Record profit is expected to come amid months of data scandal that plagued the company since the Cambridge Analytica data-privacy controversy erupted last year. Needless to say, its Chief Executive Mark Zuckerberg had to apologize and give explanation to the Congress after tens of millions of users’ data had been improperly accessed.

Nevertheless, such positive results will lead to a rally in the share price. Thus, the company’s expected earnings growth rate for the current year is 19.6%, way ahead of the Internet - Services industry’s estimated rise of 4.1%. In fact, the company has outperformed the broader industry so far this year (+13.6% vs +0.3%).

The Zacks Rank #3 (Hold) company’s fourth-quarter revenues, by the way, are expected to come in at $16.4 billion, up from $12.97 billion in the year-earlier quarter. Revenues from advertisement are likely to contribute the maximum, as advertisers successfully lured holiday shoppers.

Amazon to Defy a Patchy Track Record

Amazon.com, Inc. (NASDAQ:AMZN) is set to report fourth-quarter earnings on Jan 31 after the closing bell. Analysts from SunTrust have warned that the e-commerce giant historically had limited success in the fourth quarter. According to SunTrust, the last time Amazon surpassed analysts’ expectations was in the fourth quarter of 2009.

However, this time around, things are looking up for Amazon. Not only is its ad business on the rise, strong holiday online sales will surely boost its earnings results. Based on proprietary data, Stifel analysts have noted that “the record holiday season for U.S. e-commerce, strong Prime membership growth, and investments in free shipping bode well for Amazon’s retail business in 4Q.” Amazon, thus, is widely expected to post $5.48 a share in earnings, up from $2.16 reported a year ago.

The Zacks Rank #2 (Buy) company also has an Earnings ESP of +11.36%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upbeat earnings performance, no doubt, will lead to a rally in the share price. Thus, the company’s expected growth rate for the current year is a whopping 328.8%, in contrast to the Internet - Commerce industry’s expected decline of 5.4%. In fact, the company has outperformed the broader industry on a year-to-date basis (+11.2% vs +0.3%).

Will Alphabet be Able to Trounce Expectations Again?

Google’s parent company Alphabet Inc. (NASDAQ:GOOGL) is poised to report fourth-quarter results after the market closes on Feb 4. Alphabet’s earnings have exceeded Wall Street’s expectations in the first three quarters of 2018 and the good momentum is well expected to continue in the fourth quarter. After all, its revenue sources including Google Cloud, hardware and Google Play have been growing at a pretty fast pace in recent times.

The Zacks Rank #3 (Hold) company is widely expected to report $11.12 of earnings per share for the fourth quarter, higher than $9.70 reported a year ago.

Alphabet’s earnings growth for the current year is 31.4%, way more than the Internet - Services industry’s gain of 4.1%. The Zacks Rank #3 company has outperformed the broader industry so far this year (+5.4% vs +0.3%).

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