Over the course of the last few weeks we have gotten earnings reports from the internet stocks affectionately known as FANG- Facebook, Amazon, Netflix and Google (now listed as Alphabet). Amazon and Alphabet completed the reports with each company reporting earnings last night.
For the most part, the companies met or exceeded analyst expectations except Alphabet. Netflix kicked things off on January 23 by reporting earnings of $0.41 compared to earnings of $0.15 in the year earlier. The number was in line with analysts’ estimates and that was good enough for investors as they drove the stock up over $280 a share, an all-time high.
Facebook was the next company to report and they reported earnings of $$1.44 per share which was well short of the $1.95 consensus estimate, but the report included some one-time items. Investors were willing to look past these items and a report that showed Facebook users were spending less time on the site. Facebook revealed that was part of an ongoing strategy and that seemed to appease investors. FB also reached an all-time high following the earnings report.
Amazon and Alphabet both reported last night with AMZN blowing out estimates and GOOGL missing estimates. AMZN, like NFLX and FB, shot up to an all-time high after it reported earnings per share of $2.16 which was well above the consensus estimate of $1.85 per share.
That brings us to Alphabet which reported earnings of $9.70 per share and that fell short of the consensus estimate of $9.98. The company cited rising costs and falling margins for the earnings shortcoming. Investors were not as forgiving with GOOGL as they were with the other three FANG stocks. The stock fell sharply this morning and has yet to show much of an attempt at recovering.
While the pullback in GOOGL shares is the biggest drop since last June, the stock is still above its 50-day moving average and that could be a good sign for the stock. We see that the moving average acted as support for the stock at the beginning of December and it could do so again.
With the market rally that has occurred in the past year and the fact that it accelerated in the past few months, expectations are running high and companies don’t have a lot of room for error. The recent tax changes and any charge-offs that have been taken as a result are one-time events and are being excused. If the market momentum remains to the upside in the coming months, the next round of earnings reports will be more heavily scrutinized and investors will likely be less forgiving.
While we have seen some selling pressure in stocks this week, the fact that highflyers like Facebook, Amazon and Netflix have been able to hold up relatively well is a good sign. Yes the S&P is looking at its worst weekly loss in well over a year, the companies that are performing the best fundamentally are holding up. There isn’t a panic to sell any and all stocks and quite frankly we needed a little selling to take some of the pressure off the market.