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Antitrust Review, Presidential Election Cloud FAANG Outlook

Zacks Equity Research

On Jul 23, the U.S. Department of Justice (DoJ) opened a broad antitrust review on big tech companies. Though, DoJ did not announce names of any company, shares of Amazon Inc. AMZN, Alphabet Inc. GOOGL and Facebook, Inc. FB fell nearly 1%.

DoJ will investigate online platforms that dominate Internet search, social media and retail services. Attorney General William Barr has moved strongly against big tech firms, pointing at their expanded market power and enormous consumer data that they control.

Notably, President Trump has regularly criticized Amazon and raised allegations against Facebook for producing biased opinions on Grand Old Party politicians. He also agreed with tech investor Peter Thiel’s assessment that “Google should be investigated for not working with the U.S. Government on a cloud project.”

Earnings Analysis

Shares of Facebook, Apple Inc AAPL, Amazon, Netflix Inc. NFLX and Google lost 1.3%, 0.6%, 1%, 0.3% and 1.1%, respectively, immediately after the DoJ’s announcement. However, most FAANG members posted encouraging second-quarter earnings numbers. Only Amazon and Netflix’s shares declined after they released results.

Alphabet posted second-quarter earnings of $14.21 surpassing the Zacks Consensus Estimate of $11.49. The growth in earnings resulted from high revenues and strong growth in advertising and cloud technology. Alphabet’s shares surged nearly 10% after the report. (Read More: Alphabet Surpasses Q2 Earnings & Revenue Estimates)

Apple reported third-quarter fiscal 2019 earnings of $2.18 per share that beat Zacks Consensus Estimates by 3.8%. The iPhone maker benefited from robust performance of the Services segment along with higher sales of Mac, iPad and Wearables. Apple shares were up by 4.2% after the earnings were declared. (Read More: Apple Surpasses Q3 Earnings and Revenue Estimates)

Facebook reported better-than-expected earnings as a result of a rise in new users in the Asia-Pacific region especially India, Indonesia and the Philippines. Earnings came in at $1.99 per share, surpassing the Zacks Consensus Estimate by 9 cents.

Notably, the social-media giant is set to pay $5 billion as fine and submit new products and services for FTC review. Facebook shares gained 1.1% after earnings results were announced. (Read More: Facebook Q2 Earnings Beat, Revenues Up on User Growth)

Netflix reported second-quarter earnings of 60 cents per share beating the Zacks Consensus Estimate by 4 cents. However, revenues lagged the consensus mark and management’s guidance of $4.93 billion, standing at $4.92 billion.

The company lost nearly 130,000 paid subscription against the expected growth of 0.3 million. Shares of Netflix plunged 10% after these results. (Read More: Netflix Q2 Earnings Beat, User Addition Disappoints)

The exception to the group, Amazon, reported second-quarter earnings of $5.22 per share, missing the Zacks Consensus Estimate by 7 cents. The impact of foreign exchange brought down sales. Amazon’s shares were down less than 2%. (Read More: Amazon Q2 Earnings Miss Estimates, Revenues Beat)

FAANG stocks that include Google’s parent Alphabet, Facebook, Amazon, Netflix and Apple have gained 12.5%, 41.2%, 19.4%, 13.7% and 26.2%, respectively, on a year-to-date basis. Alphabet’s stock has a Zacks Rank #2 (Buy), whereas Facebook, Amazon, Netflix and Apple stocks have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Presidential Elections Impact FAANG Stocks

Trump had earlier accused big tech for being biased and dominating. Now, with the presidential elections knocking on the door, the antitrust investigation plays a crucial role. Politicians are banking on antitrust probes to attract voters by calling for restraints on major tech firms.

Democratic presidential candidate U.S. Senator Elizabeth Warren and other politicians are voicing their opinion on breaking up big-tech firms like Amazon, Facebook and Google. Warren believes that smaller firms are not getting funds as Amazon, Facebook and Google compete in a “kill zone” eating up all new ventures. She disclosed her plan of breaking up the biggest tech companies if she is elected as the president.

On the other hand, if Trump is re-elected, the prevailing trade war with China will cloud the prospects for Apple. Shares of Apple have tumbled a little from the 10% hike in tariff plan on Aug 1.

Conclusion

The antitrust investigation may impact the stocks in the long run, but will not dampen performance in the near future. Facebook and Google provide free services to billions daily and until any big replacement comes in, users will unhesitatingly keep using them. However, the 2020 presidential election campaigning is putting pressure on the DoJ to review and present reports immediately. As both parties are banking on antitrust issues for election, a fear of major companies splitting is lurking over the FAANG stocks.

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