The FAANGs have been the most popular stocks on Wall Street for some time now and for good reason. Facebook [FB], Apple [AAPL], Amazon [AMZN], Netflix [NFLX] and Google [GOOG] have a total market cap of approximately $3.5 trillion.
To put that into perspective—that’s more than the UK’s 100 biggest companies put together.
They’ve witnessed increases that range between 100-600% over the last three years. If you’re looking to check out how the indices have fared during this period, the numbers played out relatively low in comparison—the NASDAQ Composite generated 67%, while the S&P 500 [SPY] could returned around 40%.
Although the FAANG stocks account for almost half of the NASDAQ index, the massive rise in stock prices have worked in their favor—helping them substantially increase investor wealth and easily beat index returns.
Innovative products and business models
The FAANGs managed to completely disrupt several tech verticals by focusing on innovation and catering to specific needs.
Apple launched the iPhone in 2007 and is now one of the global leaders in smartphone manufacturing. It has managed to compete with other tech giants such as Samsung, comparatively new companies like Xiaomi and disrupt business models that were followed by former market leaders such as Nokia and BlackBerry.
In August 2018, Apple was the first US-based company to reach a market cap of $1 trillion.
The breakout success of Amazon Web Services propelled the firm to profitability and sent its market cap soaring. Amazon recently touched the $1 trillion market cap and is currently valued at a whopping $952B.
Facebook’s biggest bet was on building one of the world’s biggest social media network—and it paid off mighty well. The company’s net profits have risen from $53 million in 2012 to $16 billion in 2017.
Netflix isn’t lagging behind, either. It’s benefitted immensely from the cord cutting phenomenon and the shift towards streaming services. From a DVD rental firm in the 1990’s to the leading online streaming content company, Netflix has delivered significant returns to its shareholders.
Google realized the potential of the internet and created a revolutionary product nearly two decades ago. Google’s Larry Page and Sergei Brin were willing to sell Google to Altavista for a paltry $1M in 1998 which did not move forward. Yahoo joined the same bandwagon, and turned down an offer to acquire Google for $5B in 2002.
Google has wasted no time in diversifying into multiple revenue streams and briefly overtook Apple as the most valuable company in 2016.
Has the Downturn Started?
The upward spiral of FAANG stocks has been likened to that of the tech bubble during the dotcom crash of 2000. We saw a ton of e-commerce companies blow up and burn cash, eventually leading to a worldwide market crash.
Recently, data revealed that short bets for FAANGs increased 40% year-over-year to a whopping $37B at the end of August 2018, indicating a negative sentiment in the stock market.
Amazon prices slumped lower by 5% last week shortly after the company reached its $1 trillion valuation in intra-day trading.
The sluggish global market environment, trade war tariffs, and other macroeconomic factors have impacted FAANGs stocks this year after a spectacular run in 2018.
Despite these headwinds, Apple is up 32% in 2018, while Netflix, Amazon, and Google have risen 82%, 67%, and 11.3% respectively. However, Facebook’s shares have slipped by 7.6% this year.
Growth story far from over
While there might be a short-term correction in FAANG stocks it will also make them cheaper and more attractive.
Warren Buffett remains optimistic about Apple and has been increasing stake in the company for a few years now.
Apple and Google are targeting new business segments such as autonomous cars. Netflix, Amazon, and Facebook are already banking on the massive potential of emerging markets that open new regions to drive sales.
The FAANGs have massive cash balances that can be used for acquisitions as well as investments in research and development that will result in the product innovation and efficient services.
As long as the FAANGs continue to achieve substantial sales growth and successfully target new growth verticals, investors will remain bullish.
DATA: Are VC Investors Cutting Down On Checks?!
According to a recent survey, venture capitalists are worried there’s too much money moving around the private markets.
For Q3, the Silicon Valley Venture Capitalist Confidence Index—a quarterly University of San Francisco undertaking for the past 15 years—scored 3.58 on a 5 point scale (5 indicates high confidence, 1 low).
“But 3.58 is still high….ish…no?”
Well. Not really. You’ve gotta look at how it’s trending.
So how’s it trending?
This quarter’s index measurement dropped from Q2’s index reading of 3.76—and below the nearly 16-year average of 3.70.
That said, it’s better than Q4 of last year where investor confidence market the lowest index reading since Q1 of 2009, right around Recession time.
And with all the tech IPO activity this year—including BOTCHED ones like WeWork and not-so-good ones like Uber—investor confidence could be dipping even further. Especially with, what appears to be, IPO fatigue in the public markets.
And that may not play out well for valuations.
OK, so what’s the deal?
A couple of factors.
According to the researchers, investors are catching stank face over the—quote— “lofty valuations due to a continuing enormous supply of capital being made available to new ventures as more mega funds ($500M or more) are being established.”
ROUGHLY TRANSLATED: Mega investors—like WeWork sugar daddy SoftBank—are frustrated with poor returns.
So what are the VCs saying?
Well, the VCs chipped in with their two cents, in jargon, of course.
Menlo Ventures Partner Venky Ganesan says private markets have been fueled “by the availability of cheap capital and the surge of new entrants to private investing.”
AllegisCyber’s Bob Ackerman said something similarly jargon-y, adding there’s “too much capital chasing too much undifferentiated innovation with unrealistic return expectations.”
In other words: Too much money being thrown at ideas that aren’t new ideas but expect to be the next Facebook from standpoint of traction.
On one side of the spectrum, then you have guys like Kobe Bryant, whose $100M VC fund Bryant is straight CRUSHING IT, with 18 active deals and 10 exits.
Then there’s Trump…
Trading uncertainty is making people stay on the sidelines. Apparently, all the impeachment chatter isn’t helping either, according to the research.
USF’s Mark Cannice concluded his report—and brace yourself, there’s a whole heap of jargon coming—by saying this:
“With new sources and unprecedented amounts of capital being made available to new ventures” along with “evolving expectations of public markets for venture-backed firms in terms of paths to profitability, it could be argued that the venture industry is itself in the midst of a transformation.”
What the FUCK does that even mean?!
We’ll tell you what it means.
TRANSLATION: Venture capitalists are basically sick and tired of startups burning through cash without being profitable in the hope that a massive IPO will get said venture capitalists their 10x returns on the back of sucker public investors.
And said sucker public investors have caught on to the shiznit. In other, less pretentious words, the gig is up.
(See how we did that in three words vs. three lines? 🔥)
But that doesn’t mean there’s no money to be made…
There are entrepreneurs out there who raise capital scale, just like there are VCs who don’t just invest to cash out at IPO. Or you can always go catch an alley oop with Kobe and get straight back into the gains game. That’s always an option…
‘Till next time, #WealthGANG…
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Will Cloud Gaming Drive The Next Big Gaming Transition?
The global gaming industry has always been a disruptive one. Nuclear physicist Edward Condon developed the first computer game in 1941 called Nim, one which pretty much saw the computer win 90% of the time.
The disruption didn’t fizzle out. Soon afterwards, the first programming guidelines were written for a chess game developed by Claude Shannon, while a decade later the US Department of Defense created a war game — STAGE.
This really set the stage for what was to come later — video games. American investor Ralph Baer wasted no time and conceived the idea of playing video games on TV, and the world’s first gaming console was released. The rapid evolution of gaming consoles coupled with gaming design and the introduction of graphics cards have taken the global gaming industry by storm.
In the last decade, the evolution of smartphones opened up a totally new segment known as digital gaming. In 2016, Activision Blizzard paid close to $6B to acquire King Digital- a digital gaming behemoth. Not one to trail far behind, the eSports segment, despite its nascency, proved to be a long-term revenue driver for top gaming firms.
Will cloud gaming be the next key driver in global games?
Now companies such as Microsoft [MSFT], Google [GOOG] and Electronic Arts [EA] aim to create a market for cloud gaming. So what exactly is cloud gaming? It’s similar to online streaming services such as Netflix [NFLX] and Amazon Prime [AMZN], but with games.
Cloud gaming will allow users to play games on their computer or mobile devices. A remote server will send players video feed and receive controller inputs. This now means that players no longer need to purchase gaming consoled to play the latest games. All you need is a stable internet connection.
Google’s cloud gaming project is called Project Stream and the company launched a beta test last month. Players required a Google Chrome browser and an internet connection of 25 Mbps or higher.
Microsoft which also manufactures the Xbox consoles announced its cloud gaming platform known as Project xCloud. It has confirmed several Xbox games for beta testing such as Halo, Minecraft, and Gears of War.
The tech giant is hoping for growing interest in cloud gaming to offset any declining sales in gaming consoles.
Following Google and Microsoft, top gaming publisher Electronic Arts has forayed into this space, with a project known as Project Atlas.
Will this move garner global attention?
The shift to cloud gaming is going to be as disruptive as any in the gaming space. Players can now subscribe and stream games online instead of spending over $300 for the latest gaming console. The cloud gaming space is expected to grow at a compound annual growth rate of 26% between 2017 and 2023.
While Netflix and Amazon have changed the consumption of entertainment via cord cutting, it is very likely that cloud gaming will soon be a hit among players in a few years time. Is this the end of the gaming console?
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