Macro pressures have significantly hurt stocks in the technology sector, including the mighty FAANG stocks – Meta Platforms (META), previously called Facebook, Amazon (AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Google’s parent company Alphabet (NASDAQ: GOOGL). Despite the year-to-date pullback, Wall Street analysts remain bullish on some of the FAANG stocks due to their long-term growth prospects and ability to navigate the ongoing challenges. Using the TipRanks Stock Comparison Tool, we placed Apple, Alphabet, and Netflix against each other to pick the best FAANG stock.
AppleApple’s earnings per share (EPS) fell nearly 8% to $1.20 for the third quarter of Fiscal 2022 (ended June 25, 2022) amid supply chain pressures, inflation, and currency headwinds. That said, the company surpassed analysts’ earnings and revenue expectations, driven by strong execution.
Apple’s revenue grew 1.9% to $82.96 billion, as higher iPhone sales and increased Services revenue more than offset lower sales of Mac computers, iPads, and wearables. Despite a tough operating environment, iPhone sales grew 2.8%, reflecting strong demand trends.
Looking ahead, Apple expects revenue growth to accelerate in Q4 FY22 despite forex headwinds. It anticipates supply constraints to persist in Q4 but expects the impact to be lower than in Q3. Also, Apple expects Services revenue to increase in Q4, but decelerate compared to the June quarter due to macro challenges and currency fluctuations.
Following the print, Raymond James analyst Melissa Fairbanks lowered her price target for Apple stock to $185 from $190 but maintained a Buy rating. Fairbanks highlighted Apple’s strong June quarter despite multiple headwinds, like currency movements, China lockdowns, macroeconomic challenges, and component shortages.
The analyst noted that while Apple didn’t issue a specific Q4 FY22 guidance, management’s outlook commentary seems better than what consumer trends suggest. Fairbanks remains optimistic that Apple would weather the storm better than other consumer device makers.
Overall, the Street is cautiously optimistic on Apple stock, with a Moderate Buy consensus rating based on 22 Buys, six Holds, and one Sell. At $180.11, the average price target implies 9.24% upside potential from current levels.
AlphabetAlphabet’s second-quarter results lagged analysts’ expectations, but investors were still relieved as the company displayed resilience compared to its peers who are also dependent on online ad spending, like Snap (SNAP).
Alphabet’s Q2 revenue grew 13% to $69.7 billion, fueled by Google Search and Cloud businesses. However, EPS came in at $1.21, down 11% as increased costs and losses on certain investments weighed on the bottom line.
Alphabet is facing tough year-over-year comparisons. Also, competition from players like TikTok is impacting its YouTube revenues. However, the company’s Google Search business continues to display strength despite near-term pressures. Google Search and other advertising revenues grew 13.5% to $40.7 billion in Q2, thanks to travel and retail.
Recently, Tigress Financial analyst Ivan Feinseth raised his price target for Alphabet stock to $186 from $183, and maintained a Buy rating. The analyst noted that management’s Q2 earnings commentary emphasized the strength in ad spending as Alphabet’s “search model is not subject to privacy restrictions that limit app-embedded advertising.”
Feinseth believes that the company’s artificial intelligence investments are driving “increasingly focused and helpful experiences for users and businesses across all key product lines.”
Overall, Alphabet earns a Strong Buy consensus rating backed by 30 Buys and two Holds. The average price target of $142.63 implies 21.59% upside potential from current levels.
NetflixStreaming giant Netflix delivered revenue of $7.97 billion in Q2, reflecting an increase of 8.6%. While the company’s revenue missed Wall Street’s expectations, EPS grew 7.7% to $3.20 and surpassed estimates.
Despite mixed results, investors reacted positively as Netflix lost fewer subscribers than it had earlier predicted. The company lost nearly 970,000 subscribers in the second quarter, lower than its guidance of a loss of 2 million subscribers. Netflix cited better content, mainly Stranger Things, and other efforts, as the reasons for the better-than-feared subscriber numbers.
For Q3, Netflix anticipates revenue to grow by 5% and the addition of one million net new subscribers. However, analysts were expecting 1.8 million new subscribers.
From working on better content to implementing a crackdown on password sharing, Netflix is taking several measures to ensure better performance. The company expects to launch its lower-cost, ad-supported tier in early 2023. Under a recently announced deal, Microsoft (MSFT) will be Netflix’s technology and sales partner for the launch of the ad-supported tier.
Oppenheimer analyst Jed Kelly believes that any near-term upside in Netflix stock could be quickly moderated by increased churn concerns due to streaming competition and inflationary pressures. However, the analyst views the ad-supported tier and the password-sharing crackdown as two catalysts to re-accelerate top-line growth. Kelly opines that these catalysts along with easing comparisons present an attractive set-up heading into next year. For now, Kelly reiterated a Hold rating on Netflix stock.
Overall, analysts are sidelined on Netflix stock, with a Hold consensus rating based on seven Buys, 19 Holds, and six Sells. The average price target of $229.30 implies a 1.79% possible downside from current levels. Netflix stock is down over 60% year-to-date.
ConclusionFAANG stocks could continue to face macro pressures and currency headwinds over the near term. Despite near-term challenges, Wall Street analysts are highly bullish on Alphabet based on the dominant position of Google Search, tremendous growth opportunities in the Cloud, and strong cash flows that can support the company’s Other Bets division. Furthermore, Wall Street analysts estimate that Alphabet stock has higher upside potential than Apple and Netflix combined.
As per TipRanks Smart Score System, Alphabet scores a nine out of 10, indicating that the stock might outperform the broader market.
The latest earnings figures for streaming giant Netflix (NFLX) didn't look great. Released back in mid-July, the company offered a second consecutive quarter of subscriber losses. However, it also projected a net gain for the third quarter. New reports suggest a potential path forward for Netflix. Creative Media founder and chairman Peter Csathy suggested that Netflix was simply overlooking a great deal of franchise potential from producing horror films.
He pointed to several other recent successes, including the revitalized "Scream" franchise, as well as the more recent success of "Insidious" and the further revival of "Halloween," as demonstrated on NBC's Peacock platform.
Csathy's assertions come at the right time, but is it as simple as that? Netflix may have a great opportunity afoot by taking advantage of the horror market. It's certainly the right time; horror's prime time is coming up with North America's autumn.
Back in April, I was bullish on Netflix. However, I've since shifted to neutral. Two straight quarters of subscriber losses scream for a solution. That solution may just be screams after all.
The last 12 months for Netflix shares featured a slow climb that ran from August into November. This was promptly followed by a slow decline, then two sharp declines about three months separate from each other. Now, the company has plateaued, holding mainly in the $175 - $225 range for the last three months. That's down substantially from its 52-week high of $700.99, however.
What Do Analysts Say About NFLX Stock?Turning to Wall Street, Netflix has a Hold consensus rating. That's based on seven Buys, 19 Holds, and six Sells assigned in the past three months. The average Netflix price target of $229.30 implies 1.8% downside potential.
Analyst price targets range from a low of $157 per share to a high of $365 per share.
Netflix's Smart Score Suggests Decent Performance AheadRight now, investor sentiment is clearly desperate for a big new draw. NFLX has a Smart Score of 7 out of 10 on TipRanks. That's the highest level of "neutral," suggesting a slight likelihood that Netflix will ultimately outperform the broader market.
However, retail investors seem to be losing faith. The number of TipRanks portfolios that held Netflix stock dropped 0.4% in the last seven days. Nonetheless, this figure is up 0.5% over the last 30 days, which suggests the sea change taking place has really only just begun.
Is It Really as Simple as Adding Horror Films?So, what about horror? Is Peter Csathy right that horror will solve Netflix's ills? Well, he might have the right idea, but it may not be quite that simple. Csathy has an excellent point about horror's impact in general. Netflix's "Stranger Things" is actually its most-watched show. It also recently garnered the title of the most-viewed streaming series ever over a single week.
Meanwhile, back in July of last year, Netflix also had a hit in "Fear Street," a series of three releases covering different time periods. The mini-series proved to be one of Netflix's most popular releases, reports noted at the time.
Those two points together lend Csathy's viewpoint a lot of extra credence. Better still, there's a wide body of evidence from before the pandemic that said horror was an excellent investment. Horror movies tend to draw a diverse following among younger demographics.
In 2017, the horror movie market grossed over $1 billion at the box office all by itself. Spurred on by titles like "The Nun" and, yes, the first installment of the second "Halloween" revival, horror proved its chops in the late pre-pandemic era.
A 2017 study from Movio revealed that 44% of paranormal horror fans would go to the movies at least once a month. Similar numbers were found from 56% of science-fiction buffs.
Yet, for the biggest indicator of success in horror films, one needs to look no farther than Blumhouse Productions. For years, Blumhouse struggled to get films into theaters.
However, a string of hits—starting with Paranormal Activity and recently emerging with The Purge and Get Out, among others—changed people's minds. Get Out required just $4.5 million to produce but grossed $255.5 million worldwide, offering another reason to get in the field.
Horror films tend to have a loyal following. The Movio study supports this notion and includes more anecdotal information from individual horror enthusiasts. However, it may not be as cut-and-dried as past studies indicate.
After all, a lot of that data comes from a time when video stores were still in wide operation. Family Video's permanent closure in early 2021, thanks mainly to COVID-19 lockdowns and a sputtering release pipeline, changed the field forever. There's certainly a market for streaming horror.
The biggest proof of that is the existence of Shudder, a streaming service that recently crossed the one-million subscriber mark. However, the market is not what it once was. The comparatively recent nature of the changes, meanwhile, prevents large-scale studies from being produced.
Conclusion: Would Horror Films Make NFLX Stock a Buy?Can Netflix recover its lost audience with horror? It's certainly possible. Netflix has already done quite well with horror releases. Shudder's push suggests there's a market out there. Netflix's deep pockets could bankroll quite a few horror scripts, allowing it to best find which ones could become whole new franchises in the making. The evidence suggests it might be a good plan. Still, for now, I remain neutral. No matter what Netflix ultimately pulls out of its hat, it needs to pull something quickly.
Economically, horror movies have often meant big business for their studios. Their comparatively low cost and the generally interested market certainly help. Whether a big repertoire of scares will turn the market for Netflix remains to be seen.