FAANG Stocks: A Look at their Performance in the Last Decade
The term "FAANG" in finance refers to the stocks of five well-known American technology companies, popularly known as Meta, formerly known as Facebook, Amazon, Apple, Netflix, and Google.
Despite having a narrow focus on the technology industry, these stocks are a significant contributor to economic expansion. Due to their size, any change in stock price, positive or negative, can disrupt the stock market. In 2012, Jim Cramer, the host of the CNBC program "Mad Money," coined the term "FAANG".
Furthermore, FAANG's market value currently exceeds $3 trillion. It contributes almost 10% of the $31 trillion market capitalization of the American stock market.
Even investors that do not own FAANG stocks are impacted by the price movement of these stocks, which affects the entire market. The NASDAQ Stock Market is where all of the companies are traded. The FAANG stocks are also included in the S&P 500 Index, which is made up of the 500 largest publicly traded businesses on the NYSE or NASDAQ, according to market capitalization.
Are Investments in FAANG Companies Wise & Advisable?
This is the query that appears to be posed yearly. Even though these stocks' sharp price movements impact the entire market, the question is still being raised. For instance, at the start of the Covid-19 pandemic in 2020, all the FAANG stocks performed well for various reasons.
Some time back, however, each of these stocks started to experience pressure, which led to a sell-off in the entire tech sector, followed by the broader market. Reasonably enough, a portion of this was profit-taking by institutional investors who questioned the ability of even well-managed companies like these to continue to produce continuous earnings growth.
This question is especially crucial for technology stocks, which are notorious for their volatility. The story is not solely about these companies' expansion, though. It is only natural that there will be concerns when businesses reach the size of these firms and operate in an industry that mines data about the personal information and habits of its clients.
But truth be told, FAANG stocks have performed better than the S&P 500 index in the past. Since its debut on the public market in May 2012, Meta has performed the least well of the group. Netflix has grown by about 16 times since that time, making it the best performer.
The five FAANG companies make up about 15% of the S&P 500 and 30% of the Nasdaq 100 Index. These percentages increase to 21% and 40%, respectively, when Microsoft is substituted for Netflix.
So, regarding investment in the FAANG stocks, these five stocks are frequently praised from an investment standpoint due to their outstanding track records and prominent leadership positions within their industries.
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FAANG Stocks: An Overview of Performance
Let us examine each of these five businesses individually, along with their histories, to comprehend their history and formula for success:
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FACEBOOK (now Meta)
- Organization - Meta Platforms Inc
- Employees - Over 87314
- CEO - Mr Mark Elliot Zuckerberg
Facebook and Instagram, two of the most popular and influential social media platforms in the world, and WhatsApp and Messenger, two of the largest messaging platforms, are all owned by Meta. It generates revenue by showing users ads as they peruse photo and video feeds. Oculus, a virtual reality headset from Meta, is the focus of the company's significant investment. Online advertisements are the company's primary source of revenue.
Based on current exchange rates, their guidance anticipates foreign currency to be a 7% headwind to total revenue growth year over year in the fourth quarter. To operate more effectively, they are attempting to make substantial changes across the board, which should give some context to the approach they are taking to setting their 2023 budget. They are maintaining some teams at their current headcount levels, reducing others, and only investing in headcount growth for their top priorities.
With their investments in data centres, servers, and network infrastructure, they anticipate 2023 capital expenditures to be in the $34–39 billion range. An increase in AI capacity is driving the majority of their capital expenditure growth in 2023.
They keep an eye on developments regarding the viability of transatlantic data transfers and their potential impact on their European operations, in addition to what has already been mentioned.
- Organization - Amazon.com Inc.
- Employees - Over 1544000
- CEO - Mr Andrew R. Jassy
The biggest business-to-consumer e-commerce company in the world is called Amazon. More than 200 million people worldwide subscribe to its Prime membership program, demonstrating their extreme loyalty to the business's online marketplace. Although e-commerce makes up most of Amazon's revenue, the company has also discovered revenue generators in cloud computing services and advertising. The business owns several subsidiaries, including the Whole Foods Market supermarket chain and Twitch (live streaming platform). Amazon has operations in many different nations. Over 100 million people worldwide had signed up for Amazon Prime's two-day delivery service as of 2018.
The company's main business activities include cloud computing services and e-commerce. Over 12 million products are available from the company via its e-commerce platform. With subscribers in as many as 22 countries, Amazon launched the over-the-top (OTT) platform Amazon Prime in 2005.
The company introduced Amazon Alexa, a virtual assistant technology, in 2014 as an integrated feature of its innovative home products, such as Amazon Echo and Amazon Dot. In addition, with the introduction of Amazon Fire TV, a connected HD television can access online digital audio, video, and video game content, further strengthening the company's position in the media and entertainment industry. The total sales of Amazon are made up of sales of its products, sales from its marketplace, seller fees for the market, advertising fees, and revenue from its software Amazon Web Services.
The 2022 Digital Commerce 360 Top 1000 database has Amazon at the top. Sales rank online retailers in North America in the Top 1000. In the database of the 100 most prominent international marketplaces, Digital Commerce 360 Online Marketplaces, Amazon is ranked third.
- Organization - Apple, Inc.
- Employees - Over 164000
- CEO - Mr Timothy D. Cook
One of the largest smartphone producers in the world is Apple. Apple's revenue is primarily derived from the sale of devices. Still, recently the company has also placed a strong emphasis on higher-margin subscription services like streaming music and video, gaming, news, and cloud storage.
The business is an American multinational that offers online services, software development, and computer electronics. It is one of the Big Five IT companies in America and has its headquarters in Cupertino, California. It is present in all major countries worldwide and employs more than 154,000 people.
Later, in 1998, the business unveiled the iMac PCs. Finally, the iPad revolutionized the tablet market in January 2010 and established Apple as a household name. The company's product line-up currently includes, among other peripherals and accessories, iMacs, MacBooks, iPhones, iPods, Apple Watch, and Apple TVs.
- Organization - Netflix, Inc.
- Employees - Over 11300
- CEO - Mr Wilmot Reed Hastings Jr.
One of the first media companies to emerge from the internet is Netflix. It started to transition from a DVD-by-mail service to on-demand streaming in 2012, it began to invest in its original content for the streaming service. With more than 200 million subscribers worldwide, Netflix is one of the largest buyers of movies and television shows.
On its platform, the company offers TV shows, motion pictures, and documentaries in various genres and languages. There are over 20 subsidiaries of the OTT platform, which has completely changed the entertainment industry worldwide. These include studios in several European and Asian countries. The Roald Dahl Story Company (RDSC) was added to the company's portfolio this year, its biggest acquisition to date.
The business also bought Night School Studio in 2021 to expand its gaming audience among gamers. In addition, Netflix Inc. has signed a multi-year agreement with Sony Pictures Entertainment for the sole US streaming rights to the latter's theatrical releases. Under the ticker NFLX, Netflix Inc. shares are listed on the NASDAQ in the US.
- Organization - Alphabet Inc. - Class C Shares
- Employees - Over 186779
- CEO - Mr Sundar Pichai
A tech conglomerate, Alphabet is primarily made up of its "other bets" division and Google. Google began as an internet search company but has since expanded to include other consumer-focused services and products. Nine of these services and products have a combined user base of over 1 billion.
Google also includes a developing cloud computing and modestly sized hardware division. In addition, alphabet's moonshot projects, like the automated vehicle company Waymo and the health research firm Verily are included in the "other bets" section.
On October 2nd, 2015, the business was established following Google's reconstruction and its focus's narrowing. California, in the US, is where its headquarters are. Two classes of Alphabet Inc. shares, including GOOGLE, are traded on the NASDAQ Stock Exchange.
GOOGLE shares grant stockholders ownership of the business but do not give shareholders voting privileges. One of the eight highest stock prices ever recorded was for GOOGLE in 2020. Several stock market indices, including the NASDAQ-100, S&P 100, and S&P 500, include GOOGLE stocks. Google is the largest subsidiary of Alphabet Inc., along with other companies. Calico, Verify, Nest, Makani, GV Capital, Fiber, X Development, DeepMind, Google Fiber, Loon, Jigsaw, Wing, Sidewalk Labs, and Waymo are some of these affiliates. Alphabet Inc. now includes many of Google's former divisions and businesses, but Google continues to serve as the parent organization for all of Alphabet's internet-related business activities.
Over the years, GOOGLE has expanded its operations globally by buying over 200 businesses. In a significant acquisition, Google purchased Android OS in 2005 for an estimated $500 million.
In its biggest acquisition to date, Alphabet Inc. bought Motorola Mobility, a manufacturer of mobile devices. The price tag on this deal was $12.5 billion. Alphabet Inc. appeared on Forbes' 2019 lists of the World's Most Innovative Companies and America's Largest Public Companies.
Additionally, in 2019 GOOGLE was ranked among the Top 100 Digital Companies and Top Regarded Companies. Alphabet Inc. was ranked 5th on Forbes' list of Just Companies 2021 as of 2020 and 13th on its list of Global 2000 companies. On the list of Fortune 500 companies, it came in at number 11.
Factors to Consider Before Investing in FAANG Stocks
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RBI Laws & Restrictions
People must strictly abide by the guidelines set forth by the Indian central bank when making investments in the US equity market. Indian investors are prohibited from sending more than $2.5 lakh in a fiscal year, per RBI regulations. Investors must also ensure that the paperwork for the Liberalized Remittance Scheme (LRS) is completed.
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Exchange & Transactions in USD
You must transact in dollars if you want to purchase shares of Apple, Google, and other well-known US corporations from India. Shares of these companies cannot be bought with Indian Rupees by Indian investors. You must purchase US dollars from authorized currency exchange locations in India if you are an Indian.
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Exchange Rates
The exchange rate must be considered when sending Indian rupees from a bank account in India to a trading account in the US. Numerous international brokerage firms have partnerships with leading nationalised banks to assist Indian investors in obtaining favourable foreign exchange rates.
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Partial or Fractional Shares
In addition to purchasing whole shares, Indian investors can buy fractional shares of US-based companies. In other words, you can purchase 1.5 shares of Amazon or a single claim.
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Dividend Taxes
US stocks pay dividends to shareholders, just like Indian stocks do. However, such income is subject to a 25% tax rate. Consequently, suppose a business declares a $200 dividend. You will receive $150 in net dividend income. However, the dividend you receive in cash or decide to reinvest is taxed in India at the applicable income tax slab rate. However, it should be noted that the tax retained in the US can be offset against the tax due in India.
Conclusion
In conclusion, these five businesses have experienced unprecedented growth. To sustain and produce returns for a very long time, it also needs a robust business model and ongoing innovation.
It is crucial to realize that a company's past performance does not necessarily predict its future success. Before choosing to invest in the stock market, an investor must consider all relevant factors (both technical and fundamental).