The FAANG Sell-off

Facebook, Amazon, Apple, Netflix, and Google are together known as the FAANG stocks in the stock market. These stocks have been the darling of the market for the past decade or so. Almost every investor has some of these stocks in their portfolio. However, it seems like the bull run for these stocks is over.

In the latest crash which happened in Oct and Nov 2018, the FAANG stocks have been the worst hit. In fact, these stocks have a lost a combined net worth of over $1 trillion during this downfall.

Since the value of these shares has fallen more than 20% from their peak valuation, it would now be safe to say that these companies are in a bear phase. The panic has started seeping to the other sectors of the market, and it doesn’t seem like the suffering is about to end anytime soon. After the fallout of the tech sector, the energy sector has also taken a beating.

In this article, we will have a closer look at what led to this tragic reversal of fortunes. Why are investors suddenly bearish about the FAANG stocks and want to get rid of them as soon as possible?

Concerns Facing Each of the FAANG Companies:

• Facebook: Facebook has been embroiled in several sanctions throughout the entire year. It started with Cambridge Analytica scandal which suggested that Facebook might be responsible for possible meddling in American Presidential elections. Even before this scandal ended, Facebook found itself in another data breach scandal.

  Lastly, Facebook has now found itself in a scandal over how it handles other scandals! Some investors are demanding the resignation of Mark Zuckerberg on the charges that he has hired an external PR agency to dig up dirt on competitors.

  Instead of streamlining Facebook’s operations and getting to the root cause, Zuckerberg is wasting time and money finding faults with competitors. This has not gone down well with investors who started selling off the stock in large quantities.

• Apple: Investors are concerned that the innovation at Apple seems to have stopped. At first, Apple made a name for itself by launching revolutionary products like the iPod and the iPhone. However, since then the company hasn’t seen much being invented.

  For the past many years, Apple has been milking its iPhone model to increase its revenues. Investors are worried that consumers might soon get bored with the same old products.

  It is likely that Apple will not be able to maintain the same kind of revenue that it has been able to do in the past. This is making the investors jittery, and hence they are willing to sell off their Apple stocks instead of holding on to them.

• Amazon: Amazon has also been facing some ire from politicians as well as citizens over its decision to relocate its second headquarters near New York. People believe that Amazon is taking undue advantage of its position and trying to negotiate too many tax breaks.

  Also, Amazon’s sales are likely to take a huge hit in the European markets if a digital tax is introduced. Hence, it would be fair to say that the sentiment is negative for Amazon as well. This is the reason why its stock has been losing value.

• Netflix: Netflix also failed to impress investors. The rate at which the company was acquiring customers has slowed down. Also, Netflix is burning a lot of cash by creating new content. Since this content is what drives the majority of the users to Netflix’s site, they can’t really stop producing. However, producing content is expensive.

  Netflix needs more and more subscribers in order to stay competitive in the market. This is why any fall in the subscriber numbers has a direct effect on the stock price of Netflix.

• Google: Google is a company which generally stays away from controversy. However, there have been allegations of sexual misconduct which were brewing away at Google. The world was surprised to find out the manner in which these allegations were dealt with internally. Instead, of firing the employee in question, Google decided to pay $90 million in severance to the concerned person.

  Also, it has come to light that Google is building a separate search engine for the market in China. This search engine will work as per the censor norms decided by the Chinese government. As a result, it will not show the results of human rights violations and religious abuse in China. Events like these are spoiling the image of Google as well. The stock price of Google is very sensitive towards the perception of its brand image. This is the reason why the stock has been on a downward trajectory in the recent past.

The events mentioned above are catalysts which are causing the FAANG stocks to decline in value. However, these are not the events that are truly causing the fall. It seems like the market has suddenly realized that too much money is stuck in FAANG stocks. Most of these stocks have market value is which is 150x their current revenue. This obviously means that they are overpriced in the first place which is why the market is correcting the prices as and when it gets a chance.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.