FANG Stocks

"FANG" is an acronym for four U.S. technology stocks—Facebook, Amazon, Netflix and Google—that have been among the best performers in the stock market since the bull market began in 2009. James Cramer, host of CNBC's Mad Money program and the founder of TheStreet.com, is credited with coining the term to describe these tech stocks in 2013.^[1] Amid challenging financial environments such as the COVID-19 pandemic, FANG stocks have proved to be top equities market performers.

For some, the list also includes Apple, making it "FAANG." FAANG stocks are the basis for many tech-oriented trading strategies, ETFs and sectoral portfolio diversifications. Given their standing as globally prominent technology companies, many institutional and retail investors regularly buy and sell FAANG issues.

What Are The FAANG Stocks?

FAANG listings are among the most popular equities offerings in the world. With core businesses local to the tech sector, these products are primarily classified as growth stocks. Each of the FAANG companies features a lofty stock price, a robust valuation and a steady cash flow.

Given their standing in the market, FAANG stocks are constituents of the S&P 500 index. On occasion, software giant Microsoft is included in the group, which is then abbreviated as FAN MAG.^[8] MSFT carries a market capitalisation north of US$2.0 trillion. This exceedingly high valuation has made MSFT the second most valuable company in the world.^[9]

Here are the market capitalisations of the five FAANG stocks, including Apple, as of 14 August 2019, and their stock performance since 1 May 2009:

• Facebook (FB): US$513.9 billion, +462.5% (FB went public in May 2012)
• Amazon (AMZN): US$873.8 billion, +2,157%
• Apple (AAPL): US$916.7 billion, +946%
• Netflix (NFLX): US$130.7 billion, +5,239%
• Google (GOOG): US$807.2 billion, +460%

Over that same period, NASDAQ and the S&P 500, of which all five stocks are components, are both up about 293%. The Dow Jones Industrial Average, which includes Apple, is up 202%.

As one can see, these five stocks—both individually and as a group—have greatly outperformed the overall market. As a result, these five stocks now account for a highly disproportionate share of the U.S. stock market's capitalisation. The market cap of all stocks in the S&P 500 totals about US$24 trillion, while the combined market cap of the five FAANG stocks was US$3.2 trillion, or about 13.5% of the total.

FAANG Stocks Overview

Below is a look at each member of the FAANG community.

Facebook (FB)

Facebook (FB) is a social media megalith that features billions of users worldwide. People from all walks of life use Facebook to keep in touch with friends and family, not to mention conduct business. Since its inception, FB has made many acquisitions, such as Instagram, Whatsapp and Oculus VR.

The following are a few key facts surrounding FB^[10]:

• Facebook has approximately 2.9 billion monthly active users (MAU).
• 65.9% of MAUs log in everyday on the mobile or desktop platform.
• 60.42% of global internet users log in to Facebook platforms every month.
• 36% of the world's aggregate population use Facebook monthly.

In 2021, Facebook launched a rebranding campaign, shifting from Facebook to Meta platforms. By promoting the concept of the Metaverse, FB began evolving its presence into a futuristic, cloud computing albatross.

Amazon (AMZN)

As the world's largest retailer, Amazon.com Inc. (AMZN) is an e-commerce innovator and giant. Since its launch in the mid-1990s, AMZN has grown its market capitalisation north of US$1.5 trillion. As of February 2022, AMZN stock was priced above US$3,000 on a float of 508 million shares outstanding.^[11]

Behind Chairman of the Board Jeffrey Bezos, AMZN has become a leader in the provision of advertising, commercial and streaming services. The company operates in three primary segments: North America, International, and Amazon Web Services (AWS).^[11]

Apple (AAPL)

The oldest member of FAANG is Apple Inc (AAPL). Behind world-wide brand recognition and the sale of computers and smartphones, APPL grew its market cap above US$3 trillion in 2021.^[12] The company's high valuation made it the first company in history to exceed US$3 trillion in value.

The growth in APPL's value began in the early 1980s with the company's official IPO. On 12 December 1980, AAPL went public, offering 4.6 million shares to investors at US$22 per share.^[13] Apple's Wall Street debut was the largest tech IPO on record and made the firm a household name among investors.

Netflix (NFLX)

Netflix Inc (NFLX) is an all-in-one media company that is a global leader in the provision of streaming services. To accomplish this standing, NFLX offers customers a vast library of content, from Hollywood movies to Netflix originals. The NFLX business model is subscription based, offering memberships to users in over 190 countries worldwide.^[14]

As of February 2022, NFLX held a market capitalisation of US$173 billion on 443 million shares outstanding.^[14] However, early 2022 was mired in volatility for shares of NFLX. In fact, January 2022 proved to be devastating as share prices plunged 29.10%.^[15] The massive sell-off was brought on by multiple factors, the largest being underperformance in late-2021.

One of the biggest challenges facing NFLX is the future of streaming services. According to tech research analyst Michael Nathanson, the entire industry may be headed for a series of game-changing evolutions:

"We see this Netflix quarter [Q4 2021] as a worrying data point for the rest of the streaming industry on multiple fronts. The sell-off in Netflix's equity makes it much harder to use as a bullish comp in the media world."^[16]

If Nathanson is correct, other companies may be greatly influenced, including Amazon streaming services, Disney, AT&T and ViacomCBS. Also, if online streaming fundamentally evolves, even the fledgling Metaverse project could be impacted.

Google (GOOG)

When it comes to the internet, Google (GOOG) is a household name. Financially, GOOG is one segment of the Alphabet Inc holding company. Alphabet operates in three segments: Google Services, Google Cloud and Other Bets.^[17]

Shares of GOOG are listed for public trade on the NASDAQ as Alphabet Class C stock. As of February 2022, GOOG held a market capitalisation of US$1.77 trillion on just under 667 million shares outstanding.^[17]

GOOG's ascension to FAANG status began at Stanford University in 1995. Partners Larry Page and Sergey Brin built a search engine for the world wide web known as "Backrub."^[18] Although officially founded in 1998, GOOD launched its initial public offering six years later in August 2004.^[18]

Concerns Surrounding FANG Stocks

The shared market cap has led to some concern that much of the market's fortunes are riding on just these five stocks and that the overall market could decline if these five stocks were to start underperforming. This worry has been exacerbated by the fact that some regulators, lawmakers and politicians in the U.S. and Europe have called for some of these companies—particularly Google, Facebook and Amazon—to be broken up or to have their activities constrained.

Despite these concerns, technology stocks, of which the FAANG stocks make up an even larger share, have greatly outperformed the overall U.S. stock market. In the first seven months of 2019, for example, technology stocks were the best performing sector in the S&P 500, returning a combined 31.4%, well ahead of the 23.9% gain in NASDAQ and the 20.2% gain in the S&P 500.^[7]

European Union Fines Google

In June 2017, for example, the European Union fined Google a then-record US$2.7 billion (2.4 billion euros) for allegedly skewing search results to favour its own shopping services over that of competitors.^[2] A year later, in July 2018, the EU fined Google a record U$5.1 billion for allegedly abusing its power in the mobile phone market.^[3]

U.S. Government Issues

In the U.S., Sen. Elizabeth Warren (D-Mass.), among others, has called for breaking up Google, Facebook and Amazon.^[4] In April 2018, Facebook CEO Mark Zuckerberg spent two days testifying before the U.S. Congress about legislators' concerns about the company's privacy policies.^[5]

In July 2019, Facebook executives testified before a mostly skeptical Congress about the company's plans to launch its own cryptocurrency, called Libra, which has raised concerns from regulators and lawmakers both in the U.S. and abroad about the currency's possible use by criminals for money laundering and other illegal purposes.^[6]

Summary

FAANG is an acronym for stocks for four tech companies that have been among the best performing stocks over the past 10 years, including Facebook, Amazon, Netflix and Google. The acronym was originally coined by American television stock market analyst James Cramer. It has often been lengthened to FAANG so that it also includes Apple.

During the COVID-19 pandemic, FAANG stocks were among the top equities performers in the world. 2021 proved to be a banner year for four of the five tech giants, with each posting robust gains. For 2021, shares of AAPL gained 34%, FB saw a 23% rise, NFLX posted 11% gains and GOOG rallied an astounding 65%. Shares of AMZN underperformed its FAANG peers, ticking higher by a modest 2.4%.^[19]

As of this writing (February 2022), the future of FAANG stocks remains uncertain. The January 2022 selloff in Netflix, as well as a broader NASDAQ correction, posed new questions for the tech sector. Several of the most pressing issues addressed potential regulation, increased competition and the growth prospects of FAANG companies.

Past Performance is not an indicator of future results.