In the last week, Facebook Inc. grabbed the headlines once more and once again for all the wrong reasons, with Facebook’s market cap tumbling by over $100bn to sit just above $500bn, as Facebook shares slumped 19%, the market cap collapse being the largest in U.S market history, outdoing Intel’s $90bn tumble in the bubble bursting end of the dotcom era.
Tech Stocks Contagion
FAANG has taken the headlines by storm ever since the U.S equity market rally began, largely in response to the U.S Presidential Election result back in late 2016 and members of the FAANG group have certainly been a major influence in the direction of the broader tech sector and the major U.S and global indexes.
Facebook, Amazon, Apple, Netflix, and Google make up the grouping and the 5-stocks, alongside a more seasoned Microsoft, have continued to ultimately direct the tech sector, not just in the U.S, but also in Asia, where listed companies have significant reliance as a result of partnerships or sales revenues from one of the FANG Members.
Tech stocks have felt the contagion effect that has also weighed on the broader sector and indexes heavily weighted towards the tech sector. The supplier to Apple for instance also has a supplier and in there lies the contagion.
Facebook has faced a tumultuous time of late and, while there was some heavy fallout following the Facebook – Cambridge data scandal that certainly raises many questions over the future of social media platforms as we know it today, it was Facebook’s bread and butter ad revenue and user forecasts attributed to the data scandal that did the damage.
Facebook’s slide and influence across the broader market should perhaps be of greater concern to the U.S government, regulators and governments worldwide than the cryptomarket and future of blockchain technology.
With regulators and government groups tasked with assessing the broader cryptomarket reporting it poses little to no threat to the global financial markets, FAANG members are quite the opposite, with a vast majority of household portfolios holding one, if not all 5 stocks.
No doubt there have been some solid gains enjoyed by many, but at some point, what goes up must come down and as the tides of time shift, sentiment towards a certain platform can also shift and Cambridge Analytics contributed, though whether it’s the end of Facebook remains to be soon.
At the end of the day, while Facebook saw the biggest market cap slide in market history, long-term investors wouldn’t be at fault for missing the 20% share price slide when simply viewing the stock’s 52-week range, with Facebook Inc. still up 17.4% from its 52-week low $149.02.
Whether that brings complacency near-term, investors possibly viewing the stock as being simply 20% cheaper remains to be seen, but it wasn’t long ago that Google faced the wrath of EU regulators, with a fine more akin to the size of fines that European banks coughed up to U.S regulators off the back of breaches to SEC rules and regulations.
While U.S regulators have earned their crust fining European banks by hefty sums since the Global Financial Crisis, European regulators have found a way to hit back and that’s never going to be a good thing for an already fragile sector.
Trade War – Can It Hurt Tech Stocks?
If there was a time when the markets would have preferred the U.S president to let things be, the added attention from Trump and the administration on the tech sector and China’s reported interest and access to U.S tech companies has been another issue faced by investors favouring a sector that has certainly seen a solid run over almost 2-years.
Trump’s trade war with China has left the tech sector heavily exposed and the decision by the U.S to refute China Mobile’s request for entry into the U.S, which comes in the wake of U.S hitting China’s ZTE with sanctions that almost buried one of China’s largest tech companies, has only added to the pressure faced by tech companies.
Tariffs on Chinese goods and expectations of a technology decoupling between U.S and China tech companies is a factor that will add to the pressure. Trump has cited national security as the main reason behind the shift in attitude towards China’s tech companies and to be fair, foreign ownership in anything tech related, particularly the telecoms, should be an issue for any nation and national security and even more so when considering the fact that the cost of cybercrime is estimated to hit $6bn by 2021, quite a jump from $3bn in 2016.
The U.S has plenty to be concerned when considering the fact that both China and Russia share 3rd position behind the U.S and Israel, on best offensive cyber capabilities, the irony being that it was at Russia’s hand that Trump managed to squeeze past Clinton on his way into the Oval Office. Ironically, tech stocks might be a crucial part for a solid national cyber warfare.
Will Twitter and Facebook recover?
With so much uncertainty and sky-high valuations amongst the FAANG stocks, Apple Inc. is in focus this week, with its earnings results due out after the market close on Tuesday 31st July, with Apple Inc. enjoying a consensus buy recommendation ahead of the earnings, based on revenue EPS forecasts.
Not too dissimilar to Facebook and even Twitter, which plunged 20.54% on Friday, in response to a reported slide in monthly users, with warnings of more declines to come in the coming months weighing on investor sentiment, Twitter user numbers have been key to valuing the company and not the platform itself.
Looking away from Social media and stocks that have a heavy reliance on FAANG earnings and growth potential certainly looks to be the way forward for now and, with the trade war showing few signs of coming to an end, tech stocks with a heavy reliance on China, either as a sales market or as a supplier may also need to be carefully considered with the bias towards the negative until there is some resolution to the ongoing trade war.
Social media platforms are beginning to lose popularity at the pace at which they rose in the early years and, while there may be some support from the sheer volume of users, the market’s choice of Facebook and other FAANG members as the tech sector’s barometer may well need to change sooner rather than later.