Tuesday , 21 September 2021

Why Invest In Any Of the FAANG Companies?

FAANG is an acronym that represents some of the most prominent and best performing tech companies in the world: Facebook, Amazon.com, Apple, Netflix and Google (now Alphabet). Given their considerable power, price movements among the FAANG companies have a knock-on effect for the stock market as a whole so even investors who don’t hold stakes in these five companies should definitely still keep an eye on them.

How FAANG came to be

It was Jim Cramer, host of CNBC’s Mad Money, who coined the acronym back in 2013. Back then in it was just “FANG”, but Apple was added in 2017 as it continued to gain prominence…

The five FAANG companies

Facebook – The social media heavyweight was founded by Mark Zuckerberg in 2004 and now has a $1.0 trillion market cap. Alongside its namesake platform, Facebook also owns messaging service WhatsApp, photo and video sharing platform Instagram, and virtual reality tech brand Oculus.

Amazon – A consumer behemoth was founded by controversial figure Jeff Bezos in 1994 and now has a $1.86 trillion market cap. Amazon’s e-commerce website, which initially only sold books, has ballooned over the years, and is now the largest marketplace ever created, selling seemingly everything under the sun. Amazon is also a major player in the worlds of digital streaming and cloud computing.

Apple – This now 45-year-old tech company is the creator of the iPhone and iPad with a current market cap of $2.41 trillion. Apple has the distinction of being the first publicly traded U.S. company to achieve an over $1 trillion valuation, and the first to have over $2 trillion a mere two years later. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne and has branched out in all kinds of directions, including Apple TV, Apple Pay, iCloud, and others.

Netflix – Founded as an online DVD rental firm in California in 1997, by duo Marc Randolph and Reed Hastings, Netflix is now the most popular subscription streaming service worldwide. Since then, it has branched out to creating its own massively popular shows like true crime documentary Tiger King. The firm’s paid memberships totalled almost 208 million in the first quarter of 2021 after a year many spent indoors watching television.

Google (Alphabet) – The multi-national conglomerate and search engine-owner was founded in 1998 and went by the Google name until 2015, when it changed its name to Alphabet. The company has a $1.73 trillion market cap and aside from its Google search engine, also owns video streaming platform YouTube, mobile operating system Android, and navigation and mapping platform Google Maps.

Advantages of FAANG stocks

Prominence

These are the movers and shakers of the tech world, with huge market influence, so there are definite advantages to investing.

Pandemic

All five performed exceptionally well during the pandemic, offering services like streaming and e-commerce that were in high demand while people were stuck at home…In 2020 alone, Facebook stock was up 31%; Amazon stock climbed 74%; Apple stock rose 78%; Netflix stock 66%; and Alphabet stock was up 29%. These stellar performances, at such a challenging time for many other companies, has further added to their appeal.

Products

All five are known innovators making a host of in-demand products which keep customers coming back allowing them to channel funds from their businesses towards innovation. Alphabet, for example, has its Waymo self-driving cars – already offering rides in Phoenix and Arizona.

Disadvantages of FAANG

Price

Given the size of the five companies, purchasing stock in any of them can be expensive…A single share in Amazon, for example, will set you back more than $3,700. Establishing a worthwhile stake requires a substantial investment.

Possible bubble

…While FAANG’s stellar financial performances cannot be denied, not everyone is convinced these trillion-dollar-plus valuations are really warranted and some fear a reckoning further down the road. [Indeed,] this much excitement and exuberance around a handful of stocks is a major warning sign that a bubble is there, and could well burst.

Potential Regulation

Regulation is a worry for all five companies. U.S. lawmakers have drafted a number of bills aimed at limiting the power of big tech companies, aiming to make it harder for them to acquire their competitors…to own businesses that create conflicts of interest, to give preferential treatment to their own products and in the U.K., for example, consideration is being given to introducing tougher regulation for streaming platforms like Netflix and Amazon Prime Video that would require them to follow the same rules as other British broadcasters like the BBC.

Where’s the Value?

  • Playing with the big boys – these companies represent some of the biggest players and best performing tech stocks around
  • They are a pricey option – These companies may generally perform very well, but they are very expensive to invest in
  • Constant innovation – The companies are synonymous with innovation, meaning they always have something new to showcase which is great for the company and the investor alike
Editor’s Note:  The above version of the original article by Michael Thorburn/Anna Farley, has been edited ([ ]) and abridged (…) for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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One comment

  1. The ethics of some FAANG companies trouble me. Facebook and Google, for example, are widely known for tracking and privacy issues. Working conditions at Amazon, snobbishness of Apple … troubling.

    I believe E.S.G. metrics are important as well as the profit potential. Lately I’ve been very thorough in checking out companies I own as well as those in popular ETFs.