As records tumble, is there any stopping the FAANG stocks?

We take a look at how the mega-tech stocks reported over earnings season, including the key themes that have sparked their success.

With another round of earnings behind us, the market has navigated through some short-term volatility brought about by the GameStop short squeeze, and is now beginning to reflect on the magnitude of the results handed down.

As at February 8, half way through earnings season, 80% of companies across the S&P 500 have beat earnings estimates. Once again leading the way as you might expect is big tech.

The pandemic has brought with it a host of changes as far as digitisation and working or staying ‘connected’ from home.

The latest results from the likes of the FAANG stocks, and Microsoft to boot, only serve to assure us in our view that many of these changes will be enduring.

What’s more, with subdued sentiment around the time these results were released, the numbers delivered have given us the confidence to add to our holdings in some of these stocks.

Social networking underpins Facebook

Starting with Facebook (FB), the social media giant delivered revenue of US$28.1 billion versus estimates of US$26.4 billion. The company’s advertising segment picked up dramatically, while the average revenue per user hit an all-time high of US$10.14, equivalent to 19% growth year-on-year and 30% growth quarter-on-quarter.

Online commerce has also been a boon for the tech firm, and while the company noted the risk these trends could reverse, in our view we have seen enough evidence to suggest this may well be one of the more prevalent themes into the mid-to-long term. Even the company’s small but rapidly growing consumer hardware division is adding weight, with virtual reality headsets and video-chatting services proving popular such that revenue grew 156% to US$885 million.

5G iPhones drive Apple’s bumper result

Perhaps the standout result from reporting season thus far, expectations were already high for Apple (AAPL), but the company didn’t just meet these expectations, it blew them away.

Apple notched up its largest revenue quarter in its history, raking in US$111.4 billion in sales across the first-quarter of FY21, nearly US$10 billion more than forecast by the market.

That revenue number represented year-on-year growth of 21%, a significant achievement at any time, let alone the midst of the pandemic where things spiralled out of control in the US during this period.

The highlight for us in Apple’s results was how evenly spread the strong performance was across each of the company’s product categories.

There was double-digit growth in each category. Although the new 5G iPhone proved a particular catalyst for the company, it was actually the category with the ‘slowest’ growth at 17% year over year, despite this being one of the best results for the division in some time.

Margins were also higher, and had it not been for extended store closures in some regions, overall earnings would have been even higher. In our view, these results cemented why Apple is the most valuable company in the world, and if consumers are caught in the midst of a ‘supercycle’ of upgrades following the 5G rollout, this could signal much more growth ahead.

Online shopping surge lifts Amazon

Also delivering its largest quarter of revenue ever, Amazon (AMZN) generated US$125.6 billion in sales during the final quarter of last year.

While we had great expectations for the ecommerce giant amid the shift to ecommerce and the postponed Prime Day event falling in this quarter, this result was still far better than we could have anticipated, with earnings per share at US$14.09 nearly double that forecast across the market.