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Netflix Disappoints, What Lies Ahead for Other FANG Stocks?

Sweta Killa
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The FANG stocks — Facebook FB, Amazon AMZN, Netflix NFLX and Alphabet GOOGL — have been the hottest cluster this year. The craze has increased on earnings optimism, with FANGs hitting new highs lately.

Netflix, the first in the group to report Q2 earnings results, disappointed investors with weaker-than-expected subscriber growth after the closing bell on Monday, spreading concerns over long-term growth.

Quick Insights Into Netflix Results

The video streaming giant missed its own subscriber forecast for the first time in five years by more than a million, signaling the slowdown in the momentum of the streaming-video services. It also lagged the Zacks Consensus Estimate on the revenue front though it beat on earnings. Additionally, it guided lower subscribers and revenues for the third quarter.

For third-quarter 2018, the company expects to add 5 million subscribers, including 0.65 million in the United States and 4.35 million internationally. The numbers are well below 5.3 million subscribers added in the year-ago quarter.

Following the sluggish results, Netflix shares plunged as much as 15% in after-market trading, eroding more than $24 billion from its market capitalization. Investors should note that Netflix was the second-best performer on the S&P 500 index before its earnings result, having gained 109% versus 4.7% gain for the S&P 500 index. Currently, the stock carries a Zacks Rank #3 (Hold) and belongs to a top-ranked Zacks industry (top 30%). It nevertheless has an inflated P/E ratio of 137.03 compared with the industry average of 11.36 and has a disappointing VGM Score of F.

Will Other FANGs Feel the Pain?

Other FANG stocks also felt the pinch of the Netflix slide in after-market hours with Facebook, Amazon, and Alphabet all declining nearly 1% each. Will this trend continue heading into these companies’ Q2 earnings? Right before their earnings, one analyst John Blackledge from Cowen raised the price target on these three FANG stocks. Let’s dig into their earnings preview.
 
Facebook

Facebook has a Zacks Rank #2 (Buy) and an Earnings ESP of +0.85%. According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 or 3 when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The social media giant witnessed positive earnings estimate revision of a penny over the past month for the to-be-reported quarter and delivered positive earnings surprises in the last four quarters, with an average beat of 18.89%. Revenues are also expected to grow 43.78% for the quarter. The stock has a top Growth and Momentum Style Score of A each and belongs to the top-ranked Zacks industry in the top 38%. Facebook is expected to release its earnings report on Jul 25 after market close.

Facebook, Inc. Price, Consensus and EPS Surprise

Facebook, Inc. Price, Consensus and EPS Surprise | Facebook, Inc. Quote

Amazon

Amazon, slated to report on Aug 26 after the market close, carries a Zacks Rank #3 and an Earnings ESP of +7.36%. It has delivered a positive surprise of 1,303.34% in the last four quarters and flaunts a solid Growth Score of B. The Zacks Consensus Estimate for the yet-to-be reported quarter projects earnings growth of 522.5% and revenue growth of 40.85%.

However, the company witnessed negative earnings estimate revision by a penny over the past seven days for the to-be-reported quarter. Analysts trimming estimates right before earnings — with the most up-to-date information possible — does not bode well for the company. Additionally, the e-commerce giant falls under a bottom-ranked Zacks industry (bottom 24%).

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise | Amazon.com, Inc. Quote

Alphabet

Alphabet has a Zacks Rank #4 and an Earnings ESP of +0.11%. The stock saw negative earnings estimate revision of a penny over the past month for the to-be-reported quarter but the earnings surprise track over the past four quarters is good, with an average beat of 7.83%. Earnings and revenues are expected to grow 89.82% and 22.60%, respectively, for the quarter. The online advertisement giant has a top Growth Score of A and belongs to a top-ranked Zacks industry (top 38%). The company will report after the closing bell on Jul 23.

Alphabet Inc. Price, Consensus and EPS Surprise

Alphabet Inc. Price, Consensus and EPS Surprise | Alphabet Inc. Quote

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