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The FAANGs Reported Earnings Last Week: Valuation Implications And Recommendations

May 05, 2020 10:15 AM ETApple Inc. (AAPL), AMZN, META, GOOG, GOOGL, MSFT, NFLX87 Comments


  • Last week the mega cap tech names reported earnings.
  • With large rallies heading into the week, price reactions have been mixed.
  • We continue to like and recommend Amazon, Google and Facebook.
  • Read on for updated valuations and models, and recommended entry points.
  • Finally while we like Apple and Microsoft, we struggle with an entry point near current levels. Netflix is not for those of us that like cash flow.
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We seek companies with fortress balance sheets, at reasonable valuations with high returns on equity and free cash flow. While we monitor and data mine over 400 high quality names daily for new ideas, we recommend investors not ignore the power of the tech megacaps.

As the global economy migrates online, and lately at an accelerated pace, we continue to advocate investors own many of the FAANG equities. Below we examine Facebook, Apple, Amazon, Netflix, Google and Microsoft. (We do include Microsoft in this bucket too, but FAAMNG sounded as strange as MANGAF).

Networks externalities, huge moats, and virtual oligopoly business models, the FAANGs have carved out niches that even the most casual investor cannot ignore. Naturally entry point is critical, and we have notified our subscribers when to buy in the past.

Below we summarize our take on earnings, with forward projections and valuation implications.


Current Price: $2306

Target: $3000, Add price $2000

We initiated on Amazon last month here. It is up a bit over 20%, and we continue to like the name. Revenue growth accelerated as expected in the quarter, up 26%, from normally high teens levels.

On the negative side, margins will be dramatically lower in the second quarter, as Covid-19 spending will approach $4BB. Much of this is one time in nature. Face masks, extra cleaning, re-routing orders to enable social distancing, and extra overtime pay as demand has spiked. Impressively, revenue growth is expected to remain at markedly higher levels, with guidance between 18-28% next quarter.

Net net, 2020 looks better on a top line basis, but lower on an earnings and FCF basis.

The company's Amazon Web Services (AWS) business exceeded expectations, growing topline 33% year over year, with EBIT up 36%. It totals almost 70% of the company's EBIT today, and in conjunction with Microsoft, will own the cloud

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This article was written by

Thomas Lott profile picture
Buy the best stocks in the world: companies that can compound earnings

I am a former hedge fund portfolio manager who trades for my personal account. I espouse Graham and Dodd/Buffett style investing, always on the lookout for high-quality equities at attractive valuations. A graduate of Vanderbilt University with an MBA from Northwestern's Kellogg School of Management, I lived in NYC for a decade before relocating to the Charlotte, NC area with my family.

I am collaborating with NJ Value Investor on my Marketplace service Cash Flow Compounders.

Analyst’s Disclosure: I am/we are long AMZN, FB, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Fund we manage are long MSFT and AAPL

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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