Strongest month of this year
- The FAANGM gained 13.4% in July, modestly better than the Nasdaq’s gain of 12.6%. The S&P 500 also gained 9.1% for the month. July saw its largest monthly gains for the year. FAANGM and Nasdaq remain down 20.7% YTD, while the S&P 500 is down 13.3%.
- META and GOOGL were the laggards – down 2.0% and up 5.7% respectively, hurt by the
- We remain OVERWEIGHT on FAANGM as we continue to believe that they will be long-term winners. Secular tailwinds remain intact for streaming, cloud, and digital advertising.
Review
Meta Platforms Inc (META US, BUY, TP US$221)
- Increasing prices of VR headsets. Quest 2, the company’s VR headset product, is set for a US$100 increase from US$399 to US$499 for its 256GB model starting on 1 August. Meta said that these price increases were a result of increasing production and shipping costs.
- FTC files suit to block the acquisition of Within. The Federal Trade Commission has filed a suit to prevent Meta from acquiring Within – creators of VR fitness app Supernatural, in a US$400mn deal. The FTC is claiming that the deal significantly lessens competition and accuses Meta of buying its way into the market – Meta already has its own VR fitness app, Oculus Move.
Comment: 2Q22 results were a mixed bag, with revenue in line with expectations, while earnings missed slightly. The increasing popularity of Reels continues to drive positive user growth for Meta, with ad impressions also increasing by 15% YoY. Guidance for 3Q22 was soft, citing continued weakness in advertising, and FX headwinds as the main reasons.
Apple Inc (AAPL US, BUY, TP US$194)
- Apple Pay antitrust lawsuit. Apple faced another class-action complaint proposed by Affinity Credit Union that targeted Apple Pay, after European regulators found on a preliminary basis that Apple abused its dominant position with Apple Pay in the mobile wallets market. The complaint mainly circled around the fees Apple charges to credit and debit card issuers, which are absent in Google Pay and Samsung Pay. The union claimed those fees would not have been sustainable if Apple faced competition.
- Scaling back hiring and spending. Apple is giving selected teams a lower-than-expected budget. The company will also not be increasing headcount in some groups in FY23. Despite the more cautious stance, Apple is still planning an aggressive product launch schedule in FY23 and a boost to the companywide compensation budget to cope with a tighter labor market
Comment: Apple announced a revenue beat during its 3Q22 earnings call, with iPhone and Services achieving record sales for the quarter, although Mac and iPad saw negative revenue growth. The iPhone active installed base reached a new all-time high, driven by strong growth in the number of switchers attracted during 3Q22 and sustained customer loyalty, with Services also benefiting from the growing installed base of the hardware segment. The decline in Mac and iPad was attributed to supply constraints as well as unfavorable FX. Apple expects revenue growth to accelerate in 4Q22, even with continued FX headwind and reduced supply chain constraints.
Amazon Inc (AMZN US, BUY, TP US$133)
- Prime Day 2022 was the biggest Prime Day event in Amazon’s history. More than 300 million items were sold during the two-day event, up from approximately 250 million in FY21. This performance came as a pleasant surprise given the current high inflationary environment where consumers were expected to cut back on their spending.
- Deploying Rivian electric delivery vans. Amazon began rolling out the electric delivery vans that it developed in collaboration with Rivian Automotive. The company said it will use the electric vehicles to make deliveries in a handful of cities, including Chicago, Dallas, Phoenix, San Diego, Seattle and St. Louis. The move marks a significant step in Amazon’s push to achieve net-zero carbon emissions across its operation by 2040.
- Acquisition of 1Life Healthcare. Amazon acquired 1Life Healthcare, One Medical’s parent company, in an all-cash deal of roughly US$3.9 billion. The acquisition, which followed the purchase of the online pharmacy company Pillpack in 2018, is part of the company’s effort to deepen its presence in the healthcare sector.
Comment: Amazon announced mixed performance in its 2Q22 results call. Revenue beat top-end guidance and analyst consensus, resulting in positive operating income that was solely attributed to AWS. However, the company recorded a net loss for the quarter, mainly due to the writeoff on equity investment in Rivian Automotive. The success of the One Meddical acquisition is yet to be seen as it will require beating experienced entrenched rivals and competing for physicians for Amazon to disrupt the healthcare sector. Amazon also provided positive revenue guidance mainly as Prime Day happened in 3Q22, despite the expected persisting FX headwind.
