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Lessons from Facebook’s tumble

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After Facebook’s spectacular fall, it’s time for investors to consider whether it really is like the other FAANG stocks, Lonsec researchers have said.

Facebook, Apple, Amazon, Netflix and Google are often grouped together, but investors shouldn’t be “misled by the market’s bucket mentality”, Lonsec researchers said in their latest insight.

Certain stocks might be grouped together for weak reasons, but Facebook’s recent performance highlights the dangers in this philosophy.

“While the FAANG shares have largely risen together in recent months, Facebook’s violent decoupling from the FAANG growth trajectory shows it is a mistake to think of these shares as behaving as a group. While Facebook met the market’s EPS target, it undershot the consensus revenue estimate and suffered the consequences,” the researchers explained.

“In contrast, Amazon reported strong EPS growth and slightly down-beat revenue versus consensus, leading to only a moderate fall in price. Netflix reported lower than expected revenue and subscriber growth and saw a small bump in its price.”

Lonsec argued that while these shares might have a lot in common they are, at their fundamental level, significantly different businesses.

As such, it’s “time to drop the FAANG label”.

“What they have most in common is that they are, with the exception of Netflix, among the highest value shares in the index,” the researchers said.

When they move in the same direction they can move the market with them, but when they diverge it can leave investors wondering how meaningful the FAANG label is.”

Lessons from Facebook’s tumble
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