The FAANG stocks, comprising Facebook, Amazon, Apple, Netflix, and Google, have long been the market darlings, captivating investors' attention for the past decade. However, it appears that the prolonged bull run for these stocks has come to an end, as they have faced significant challenges and experienced a decline in value.
The latest crash in October and November 2018 dealt a severe blow to the FAANG stocks, resulting in a combined net worth loss of over $1 trillion. With their share prices plummeting by more than 20% from their peak valuation, it is now evident that these companies have entered a bear phase. The repercussions of this downturn have started spreading to other sectors of the market, intensifying the prevailing sense of unease. Notably, the energy sector has also endured substantial losses.
Each of the FAANG companies faces unique concerns that have contributed to their decline:
Facebook: Facebook has been embroiled in a series of controversies throughout the year. It all began with the Cambridge Analytica scandal, which raised concerns about possible interference in the American Presidential elections. Before recovering from that scandal, Facebook found itself entangled in yet another data breach controversy. More recently, the company has been criticized for its mishandling of various scandals, with allegations that CEO Mark Zuckerberg hired an external PR agency to dig up dirt on competitors. This perceived lack of focus on addressing core issues has shaken investor confidence, leading to significant sell-offs of Facebook stock.
Apple: Investors have expressed concerns over a perceived lack of innovation at Apple. While the company gained renown for its ground-breaking products like the iPod and iPhone, it appears to have stagnated in terms of revolutionary advancements. Over the past several years, Apple has relied heavily on the iPhone for revenue growth, raising worries that consumers may tire of incremental updates. Investors fear that Apple may struggle to maintain its past revenue levels, prompting them to sell off their Apple stocks rather than holding onto them.
Amazon: Amazon has faced criticism from politicians and citizens alike for its decision to establish its second headquarters near New York. Some believe the company is exploiting its position by seeking excessive tax breaks. Furthermore, Amazon's sales in European markets may suffer a significant blow if digital taxes are introduced. Consequently, negative sentiment surrounds the company, resulting in a decline in its stock value.
Netflix: Netflix has failed to impress investors as its customer acquisition rate has slowed down. Moreover, the company incurs substantial expenses by producing new content, which drives user engagement on its platform. To remain competitive, Netflix must continue producing content, despite the high costs involved. Any decrease in subscriber numbers directly impacts the stock price, leading to investor scepticism.
Google: Although Google tends to steer clear of controversy, allegations of sexual misconduct within the company have surfaced, drawing significant attention. The handling of these allegations internally, including the decision to pay $90 million in severance rather than terminating the employee, has raised eyebrows. Additionally, Google's development of a censored search engine for the Chinese market, omitting results related to human rights violations and religious abuse, has tarnished the company's image. The perception of Google's brand image significantly impacts its stock price, leading to a recent downward trajectory.
While the aforementioned events have acted as catalysts for the decline of the FAANG stocks, they are not the sole causes. The market has realized that an excessive amount of capital is invested in these stocks, resulting in their overvaluation. Many of these stocks have market values that exceed 150 times their current revenue, indicating an initial overpricing. Consequently, the market is correcting these prices whenever an opportunity arises, leading to the decline in value observed.