Faang is an acronym that brings together the initial letters of the most powerful technology companies of recent years: Facebook, Apple, The Amazon, Netflix and Google.
The person responsible for its creation is Jim Cramer, presenter of the CNBC channel specialized in the financial market, who is considered an authority on the Stock Exchange.
I’m sure you know all these companies and realize that they are part of your daily life, right?
By scaling its products and services worldwide, FAANG has grown exponentially in recent years, leading the ranking of companies with the highest market value in the S&P 500.
But is it worth investing in these companies?
In this article we will detail the companies that make up FAANG and comment on their recent performance. At the end of the article, you will also understand how to invest in these companies.
What is FAANG
FAANG is the acronym of the group of companies formed by Facebook, Amazon, Apple, Netflix and Google, considered to be a reference in their markets and also symbols of consumer relations and behaviour in the digital economy in a globalised world.
Together, these companies have a market value that exceeds the GDP of some countries. To give you an idea, we have prepared a simple table with data from the beginning of October.
To make an unusual comparison, without wanting to compare stock with flow, in 2019 Britain’s GDP was 7.3 billion pounds, according to data from the Spanish Institute of Geography and Statistics (IBGE).
What is the origin of the acronym FAANG?
As mentioned above, the acronym FAANG was suggested by CNBC’s Jim Cramer. Since then, it has been adopted by the rest of the market to talk about the actions and influences of these giants in the market.
One of the discussions that FAANG always raises, for example, is the market monopoly and the alleged lack of competition. President Donald Trump repeatedly cites the FAANG companies as the “billion dollar group”.
However, the acronym did not include Apple in 2013, the year of its appearance, so it is called FANG.
Since then, following the inclusion of the company that had Steve Jobs as its chief executive officer, some changes in the acronym were proposed. They are them:
- June 2017: Goldman Sachs suggests the inclusion of Microsoft, forming the acronym FAAMG;
- October 2017: Bank of America proposed the entry of Broadcom (AVGO) and Adobe, changing the acronym to FAAANG ;
- July 2018: it’s the Financial Times’ turn, which proposes an alternative acronym, MAGA which means “Make America Great Again” and also “Microsoft, Apple, Google and Amazon”;
- August 2018: Jim Cramer himself proposes the spotlight for another group, now called WANG, which includes Walmart, Apple, Netflix and Google;
- May 2019: Two Wall Street analysts suggest Uber’s entry into FAANG shares, but no guidance as to where the letter “U” would fit in the acronym;
- October 2019: Jim Cramer now proposes to replace Netflix with Microsoft
- June 2020: Baird said he preferred the WASP stock group, which includes Wayfair, Amazon, Shopify and PayPal, over FAANG’s shares;
- All suggestions revolve around companies that dominate their markets and hold assets of £1 trillion (or close to it), yet FAANG’s traditional training remains the main reference for the actions of strong, technology-related companies in recent years.
For investors using fundamentalist analysis or stock picking, it is very important to know which companies are listed, their current performance and their growth prospects.
In the case of FAANG, it is not difficult to find statistics and news about them.
For the general public, Facebook is just a social network. For investors, it is an American social networking conglomerate listed on the US stock exchanges.
Among the networks that are part of the group, we highlight, in addition to Facebook itself, Instagram and WhatsApp.
The company’s IPO was in 2012, one of the largest in Nasdaq’s history. At that time, its shares were priced at GBP 38 and are currently trading at around GBP 265.
Their identification code is FB and their biggest and absolute source of income is the ads on their channels.
Already the Amazon, which quotes under the symbol AMZN has a business model of e-commerce type with varied sources of recipes as online sales, physical shops, parts sales services, subscription services, Amazon Web Services and others.
Amazon’s debut on the stock market is older, since 1997. However, it did not make its IPO as the mega e-commerce that it is today, but as “The world’s largest bookstore”.
On the day of its launch, it was priced at £18 and closed the day at £23.50. Jeff Bezos’ company has reinvented itself several times and is currently worth approximately £3,157.
Apple’s IPO was in December 1980, with its shares priced at £14 and sold at closing for £29.
Before that, the company already had independent investors who, in this first public offering of shares, became the first millionaires with the returns they received from Apple shares.
Apple’s revenue comes primarily from the sale of its products. In order of importance, we can list them:
- iPhone: 62.76%.
- Branded services: 14%.
- Mac: 9.60%.
- iPad: 7.08%
Currently, Apple shares are trading, on average, for £115, after recently going through the fifth splitting process.
Netflix is a company that currently offers streaming services. Its IPO took place in May 2002. With the NFLX code, the initial offer was USD 15.
At that time, the company’s core revenue was still home delivery of DVDs in the US. It only migrated to the on-demand model years later.
The company currently has over 160 million subscribers and is present in over 190 countries. The rapid growth of shares – and the company’s profits – in recent years is the explanation for why it is part of the acronym.
Synonymous with the Internet, Google is responsible for 77% of all global desktop search traffic and over 94% of mobile traffic. There are at least 2 billion searches per year on the search engine.
Google is also a business model that generates most of its revenue from the ads on its channels, but as we know, in 2015 the company changed its management name to Alphabet to expand its business portfolio.
Over 85% of Google’s revenue comes from its ads. Google’s IPO took place in August 2004, with a price of £85 and at the end of the day it was already worth £100.34. With the acronyms GOOG and GOOGL, its shares are currently worth around £1,480.
As we have seen, the companies belonging to FAANG have a strong technological attraction, but, essentially, they are not competitors in their markets, on the contrary.
Now, let’s understand why FAANG gained even more attention in 2020.