With Ray Wang, Principal Analyst and the Founder of Constellation Research, upgrading FAANG to MATANA, the obvious question is which tech stocks basket is a better play? A simple price performance comparison shows that MATANA had the upper hand in one year. Further, on average, analysts see a higher upside in MATANA stocks. However, investing is not about buying fancy acronyms. According to TipRanks’ data-driven Smart Score, only Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) in the MATANA list have a higher potential to outperform the market.
But before we dig deeper, let’s examine why FAANG needed an upgrade.
Why the Rebranding?For years, FAANG stocks - Meta (previously Facebook) (NASDAQ:META), Apple, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Alphabet (earlier Google) (NASDAQ:GOOGL) (NASDAQ:GOOG) – symbolized big tech companies.
However, Wang, in a video interview with Yahoo Finance Live, suggested dropping Meta and Netflix from the big tech list and advised adding Microsoft, Tesla (NASDAQ:TSLA), and Nvidia (NASDAQ:NVDA) to the group. Together, these stocks are now known as MATANA.
The move follows the underperformance of FAANG stocks in 2022. Blame the base effect for the slowdown in their growth or investors losing appetite for risk amid fears of an economic slowdown, FAANG stocks have lost their sheen.
Specifically, Meta Platforms and Netflix are struggling to stay relevant to their consumers amid their changing preferences in the post-pandemic world and heightened competition.
FAANG or MATANA: Which Is the Better Tech Play?Built with TipRanks’ Stock Comparison tool, here is a summary of how FAANG stocks performed in the past year and what analysts recommend.
The graph below shows that FAANG stocks, on average, are down over 34% in the past one year. Meanwhile, analysts’ average price target reflects an upside potential of over 25% in one year.
The Stock Comparison tool shows that a portfolio of MATANA stocks have performed better than FAANG stocks in the past one year. For context, MATANA stocks, on average, are down about 2.2% during the comparable period, significantly outperforming FAANG stocks.
Further, analysts’ average price target shows an upside of over 28% in the next 12 months.
Bottom LineMATANA is slightly more diversified than FAANG. However, this shouldn’t matter much as the broader industry classification is the same, with these stocks being prone to similar risks.
Furthermore, the above graph shows that only Microsoft and Apple stock sport an Outperform Smart Score on TipRanks in the MATANA list. Meanwhile, hedge funds are also bullish on only these two stocks.
All in all, investors should focus on diversifying their portfolio with Top Smart Score Stocks across multiple sectors to lower risk and maximize gains.
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E-commerce giants Amazon (NASDAQ: AMZN) and Alibaba (NYSE: BABA) both experienced massive growth during the pandemic, but that has now come to an end. Following the reopening, consumers hit the high road again, and the economic downturn has also impacted growth. In a sense, the slowdown was to be expected; the number of new people turning to e-commerce driven by the stay-at-home mandates was bound to recede with the resumption of normality.
However, both companies have also faced other headwinds. The pair have invested heavily for the future, and that has taken its toll on their profitability. Both are also facing increasing scrutiny from regulators, although this is an issue currently more serious for Alibaba, being watched over by the Chinese authorities. Not to mention, inflation has also played its part in consumers scaling back spending.
All of the above have also impacted the stock performance, with both down over 20% on a year-to-date basis. This brings us to the main question: which of these giants represents a better investment choice right now? Let’s check in with the TipRanks database to see what the analysts make of their prospects.
AmazonAmazon famously started out as an online bookseller in the mid-90s, when the internet was still in its nascent stage. With the canny idea of founder Jeff Bezos, the company quickly outgrew the bookseller tag to turn into an e-commerce force. However, that was only the beginning; since then, Amazon has branched out in every direction – from cloud services with AWS to entertainment with Prime Video to smart home devices to groceries and logistics. We could go on - you name it, Amazon has probably got its fingers in it.
Online retail might be considered Amazon’s forte, but as the segment’s growth has taken a breather, its higher-margin cloud business has been growing at a fast pace.
In Q2, Amazon generated revenue of $121 billion, amounting to a 7% year-over-year increase (10% ex-FX) whilst coming in ahead of the Street's $119 billion forecast. AWS revenue increased by 33% y/y to reach $19.7 billion. Boosted by AWS's strength, operating income came in at $3.3 billion, higher than the Street's prediction of $1.75 billion, while an EBIT margin of 2.7% also beat the 1.5% consensus.
With EPS of -$0.20, Amazon sprung a negative surprise on Wall Street, as analysts expected that figure at $0.14. However, the company's outlook was solid, as it guided for revenue between $125 and $130 billion in Q3, a touch above consensus expectations (at the midpoint) for $126.5 billion.
The AWS growth supports Morgan Stanley’s (NYSE: MS) Brian Nowak’s thesis; he thinks the segment’s success will have a positive impact on other parts of the business.
“Demand remains strong as AWS’s booking backlog accelerated to ~13% Q/Q growth. AMZN is also stepping up investment in AWS (capex/D&A coming through, sales people and product engineers) as AMZN intends to lean in to drive share even through a cooling macro backdrop," Nowak noted.
"This is bullish long-term AWS growth and, in our opinion, should also be a signal about AMZN's confidence in retail profitability to come... given 1) we know AMZN's share price matters to employees, 2) shares have lagged and 3) we don't think AMZN would choose to lean into investing its AWS profit pool (that arguably has been supporting the stock through retail's struggles) unless it has confidence the retail business is likely to deliver,” the analyst added.
These comments underpin Nowak’s Overweight (i.e., Buy) rating on AMZN, while his $175 price target implies shares will climb 31.3% higher over the next year. (To view Nowak’s track record, click here)
What is AMZN Stock's Price Target?Overall, Wall Street remains firmly in Amazon’s corner; barring one skeptic, all 37 other recent analyst reviews are positive, naturally culminating in a Strong Buy consensus rating. The average Amazon price target is just a smidgen above Nowak’s; at $177.05, the figure represents potential one-year gains of 32.85%.)
AlibabaOften saddled with the tag “the Amazon of China," the cliché is not without reason. Alibaba remains the dominant force in the Chinese e-commerce industry, driven by its domestic Taobao and Tmall platforms, while its retail marketplace, AliExpress, is used by consumers across the globe. It is also the leader of China’s cloud infrastructure services industry, with Alibaba Cloud taking the bulk of the market share.
That said, in contrast to Amazon, whose profitability profile is driven by the success of its cloud business, Alibaba still heavily relies on e-commerce sales to offset cloud losses. The problem is that the Chinese economy’s growth has hit a brick wall, and that has taken its toll on the company.
After nearly two decades of continued expansion, in its latest quarterly report, for Fiscal Q1 2023, the company’s revenue growth went into negative territory for the first time.
Revenue dropped 0.1% compared to the same quarter last year to reach $30.69 billion, although it should be noted that Wall Street had expected that figure to be worse, having called for sales of $30.16 billion. Despite its ongoing investments, the company also posted a surprise on the bottom line; Non-GAAP EPADS of $1.75 bettered analysts’ forecast of $1.56 a share.
Alibaba has had other issues to contend with; it has regularly tussled with domestic regulators while the prospect of Chinese stocks getting booted off U.S. exchanges has also hung over its head.
Nevertheless, it is the improving fundamentals that have elicited praise from Truist’s top analyst Youssef Squali, who believes the company is moving in the right direction.
“We remain constructive on BABA, which despite posting its first negative Y/Y revenue quarter as a public company in F1Q23, it reported results which exceeded expectations on the top and bottom lines, as fears of a Chinese macro slowdown have weighed materially on sentiment,” the five-star analyst said. “We are encouraged by the company's commentary on July trends improving from May/June, and we believe that BABA's more disciplined attitude towards organic investments should lead to a return to more profitable growth in F2H23.”
Along with a Buy rating, Squali has a $135 price target for Alibaba shares, providing room for ~53% growth in the year ahead. (To see Squali’s track record, click here)
What is BABA Stock's Price Target?Alibaba's ratings are almost unanimously positive. One Sell rating is countered by 17 Buys, all coalescing to a Strong Buy consensus rating. The average Alibaba price forecast of $156.12 implies 69.4% upside potential from current levels.
Conclusion: BABA Stock May Have More Upside PotentialSo, which stock ultimately represents a better opportunity at present? It looks like the Street’s experts think you can’t really go wrong with either, but purely from a returns perspective, with the potential upside standing at 69.4% for BABA compared to 32.85% with AMZN, the Chinese behemoth is the one to go for right now.
Powell has acknowledged the dilemma that multidecade highs in inflation have caused, thus committing to an aggressively hawkish monetary policy. Given the vast implications of rising borrowing costs, e-commerce stocks — Amazon (NASDAQ:AMZN), Shopify (NASDAQ:SHOP), PayPal (NASDAQ:PYPL), and MercadoLibre (NASDAQ:MELI) — will likely be significantly impacted. Some will be winners while others will be losers.
According to TipRanks Team, “Fed funds futures are pricing in an 85% probability that rates could be 125 to 150 basis points higher by the end of the year.” The framework presents an intriguing ecosystem for e-commerce stocks, with certain companies likely to flounder while others may enjoy relative benefits.
Broadly, the consumer market hasn’t faced pressure like this for decades. According to data from the U.S. Bureau of Labor Statistics, the dollar’s purchasing power declined by 6% in 2021. However, just in the first half of this year, the currency eroded by 5.3% in value. This dynamic translates to a reduced ability for the average household to acquire goods and services. In turn, more important acquisitions are prioritized over discretionary purchases.
Imposing more headwinds to e-commerce stocks, online marketplaces tend to charge a premium over their brick-and-mortar counterparts. Further, with fuel costs having escalated dramatically this year, companies are less willing to eat overhead costs, electing to pass them on to consumers whenever possible. Since the nature of e-commerce involves shipping goods directly to customers, rising inflation creates severe challenges.
Of course, with the Fed attempting to tackle ascending prices, the central bank can potentially help e-commerce stocks, at least on paper. However, the difficulty stems from the Fed engineering a so-called soft landing. Don’t rise rates high enough and inflation might not decelerate. Raise them too far, though, and the economy could spiral into a recession.
Amid this unenviable backdrop, two of the e-commerce stocks mentioned could flourish while the other two might struggle to keep the ship upright.
E-Commerce Winner: AmazonLike many technology-centric public companies, Amazon hasn’t enjoyed the best year in 2022 thus far. Since the January opener, AMZN has slipped about 24%. Nevertheless, the powerhouse among e-commerce stocks continues to deliver the goods.
According to a TipRanks article, Amazon posted robust results for the second quarter of 2022. “Sales came in at an impressive $121.2 billion for the quarter, beating analyst expectations by about $2 billion. Moreover, management guided revenues to fall between the $116 billion and $121 billion mark. Given the tough macroeconomic conditions at this time, the revenue beat is a testament to the strength of its businesses.”
Fundamentally, the scale of Amazon’s business is simply too big for its smaller rivals to effectively defend against. As several news outlets have noted, Amazon simply batters small businesses into submission. Essentially, the company can easily play a game of attrition.
Finally, the above catalysts don’t factor in other diverse initiatives, such as AWS, Amazon’s cloud-computing platform. With so many angles to deploy, AMZN is one of the winners among e-commerce stocks.
Analysts appear to have a similar view, as AMZN stock has a Strong Buy consensus rating based on 37 Buys and one Hold assigned in the past three months. The average AMZN stock price target of $177.05 implies 32.85% upside potential.
E-Commerce Loser: ShopifyOn the other end of the scale for e-commerce stocks, Shopify may end up getting the raw end of the deal from the Fed’s potentially aggressive monetary policy. For one thing, the company has suffered far greater losses than many of its peers. On a year-to-date basis, SHOP stock is down a staggering 77%. As well, Shopify has basically given up all of its pandemic-fueled gains.
The main vulnerability for the e-commerce firm is that it mostly remains focused on its core business: facilitating an online marketplace and providing retail point-of-sale systems. Unlike Amazon, it doesn’t have the diversity of business units. For instance, Shopify doesn’t have a cloud-computing platform to pitch to enterprise-level clients.
Moreover, as rates rise, the labor market could cool off. Indeed, tech layoffs represent a stark contrast to the broader rise in national employment. Therefore, with discretionary spending possibly set to decline, SHOP may be one of the e-commerce stocks that might not fare well in the new monetary environment.
Wall Street has less conviction on SHOP stock compared to AMZN. With a Moderate Buy consensus rating, more analysts have a Hold rating than a Buy rating. The average SHOP stock price projection of $42.79 equates to 22.9% upside potential.
E-Commerce Winner: PayPalOn paper, digital payment processing specialist PayPal doesn’t seem like much of a winner among e-commerce stocks. On a year-to-date basis, PYPL lost more than 50% of its market value. While it’s not as bad as Shopify’s losses above, PayPal is technically more than halfway into losing everything. Frankly, it makes for an extremely speculative case for prospective buyers.
Still, the one factor that may help lift PYPL stock from its present malaise is the brewing relevance of the gig economy. Back when the COVID-19 outbreak initially capsized the U.S. economy, businesses responded by allowing their employees to work from home. However, rising evidence indicates that management teams want their workers back in the office.
That might not go over too well with employees who suddenly found an ideal work-life balance. Should push come to shove, more people will likely voluntarily join the gig economy. Per data from Statista.com, this sector could reach a gross volume of $455.2 billion.
Turning to Wall Street, PYPL stock has a Strong Buy consensus rating based on 24 Buys and seven Holds assigned in the past three months. The average PYPL stock price target of $119.85 implies 24.4% upside potential.
E-Commerce Loser: MercadoLibreAt first glance, MercadoLibre features the opposite framework of PayPal. MELI appears to be one of the e-commerce stocks that can rise in the current environment. After all, the underlying firm operates online marketplaces dedicated to e-commerce and online auctions in the lucrative Latin American market.
Unlike developed nations, Latin American countries generally feature favorable population growth trends. In other words, younger workers are available to replace their aging and retiring counterparts.
However, a China Daily report laid out the fundamental headwind for MELI stock. “The rapid rise of interest rates in the United States is having significant spillover effects on Latin American economies that either rely on the dollar or have seen their currencies devalued in the face of a stronger greenback, according to analysts.”
"The rise in interest rates affects the emerging world because the emerging world is indebted in dollars," said Miguel Boggiano, CEO and chief investment officer at Carta Financiera, a specialized web portal focused on the economy and finance in Argentina.
As relevant as Mercado Libre is, its underlying markets face severe challenges. Thus, MELI may be one of the e-commerce stocks to avoid until further notice.
Wall Street appears to have a very positive view of MELI stock, as analysts have assigned a Strong Buy Consensus rating based on 11 Buys and one Hold assigned in the past three months. The average MELI stock price forecast is $1,278.75, implying upside potential of 31.7%.