Summary
This quarter was another impressive quarter for the FANGMA giants. The AI trend megatrend is becoming more powerful with Alphabet and Microsoft beginning to capitalize on investments and monetize their efforts. Apple, who looked like they were falling behind in the AI race, announced they have several efforts in the pipeline to be announced shortly. Meta announced their plans to accelerate their capital expenditure in AI, establishing it as a global powerhouse. Cloud computing is another area which drove growth for some FANGMA companies this quarter. Alphabet, Microsoft, and Amazon all saw a double-digit revenue increase in their cloud divisions. Returning capital to shareholders was also a common thread amongst the earnings releases as Alphabet announced their first ever dividend, and Apple a $110 billion share repurchase plan, the largest stock buyback plan in US history.
Portfolio Top Holdings
Alphabet Inc (NASD: GOOGL)
*Portfolio weight: 17.77%
EPS Estimate: 1.51
Reported EPS: 1.89
“Our results in the first quarter reflect strong performance from Search, YouTube and Cloud. We are well under way with our Gemini era and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.” – Sundar Pichai, CEO
Alphabet Inc. reported a strong first quarter in 2024, with a 15% increase in consolidated revenues to $80.5 billion, driven by the search and cloud segments. YouTube and Cloud are projected to reach a combined annual run rate of over $100 billion by the end of 2024, highlighting significant growth. The company emphasized its AI leadership, consolidating AI model development under Google DeepMind and launching Gemini 1.5 Pro. The Google Cloud segment saw a 28% revenue increase to $9.6 billion, with a notable operating margin of 9%. Alphabet’s advertising business also showed strong performance, with search advertising revenues growing by 14% and YouTube advertising revenues by 21% year-on-year.
Another highlight was the announcement of the company’s first ever dividend and new share repurchase plan. Alphabet will pay out a $0.20 per share dividend and intends to pay quarterly cash dividends going forward.
Apple Inc (NASD: AAPL)
*Portfolio weight: 17.36%
EPS Estimate: 1.50
Reported EPS: 1.53
“During the quarter, we were thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks. We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month. As always, we are focused on providing the very best products and services for our customers, and doing so while living up to the core values that drive us.” – Tim Cook, CEO.
Apple reported a record revenue of $90.8 billion for the March quarter, with significant growth in services revenue, marking an all-time high and indicating a successful diversification beyond hardware sales. However, iPhone revenue declined by 10% year-over-year, and both iPad revenue and wearables, home, and accessories category saw decreases. The launch of the new MacBook Air models contributed to a 4% increase in Mac revenue, showcasing strong consumer demand for Apple’s latest innovations. The company also highlighted significant interest in the Apple Vision Pro from the enterprise market and is making substantial investments in generative AI, aiming to lead in the rapidly evolving AI market. The Apple Vision Pro has seen over half of the Fortune 100 companies purchasing units for innovative uses. This early adoption by major corporations suggests a promising market for Apple’s spatial computing device, potentially opening new revenue streams and applications in the business sector. A highlight from Apple was their announcement of their $110 billion share repurchase plan, making it the biggest US buyback ever, topping their previous record. Apple now is responsible for the top 6 of the 10 largest share repurchase announcements ever. Apple projects low single-digit revenue growth for the June quarter, despite foreign exchange headwinds. This outlook, coupled with expectations of double-digit growth in the services business and a doubling of iPad revenue, suggests cautious optimism about the company’s performance in the near term.
Amazon.com, Inc. (NASD: AMZN)
*Portfolio weight: 16.83%
EPS Estimate: 0.82
Reported EPS: 1.17
“It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results. The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate); our Stores business continues to expand selection, provide everyday low prices, and accelerate delivery speed (setting another record on speed for Prime customers in Q1) while lowering our cost to serve; and, our Advertising efforts continue to benefit from the growth of our Stores and Prime Video businesses. It’s very early days in all of our businesses and we remain excited by how much more we can make customers’ lives better and easier moving forward.” – Andy Jassy, President, and CEO
Amazon reported a significant year-over-year revenue growth of 13% to $143.3 billion in Q1 2024, with operating income soaring 221% to $15.3 billion, indicating strong profitability. Free cash flow improved to $50 billion for the trailing twelve months, compared to an outflow of $3.3 billion over the same time frame last year. Key innovations include the launch of a generative AI tool for sellers, achieving the fastest delivery speeds ever for Prime members, and a 24% growth in advertising sales. AWS’s revenue growth accelerated to 17.2%, highlighting robust demand for cloud services. Amazon anticipates a 7% to 11% growth in Q2 2024 net sales, reflecting confidence in continued growth.
Amazon continues to aim to improve the customer experience, evident in its efforts to improve delivery speeds and expand the product selection. Amazon is also furthering its diversification efforts through the grocery business as well as health care offerings. AI will also serve as a significant tailwind for Amazon, particularly for its cloud business.
Netflix Inc (NASD: NFLX)
*Portfolio weight: 16.68%
EPS Estimate: 4.52
Reported EPS: 5.28
“I would say the thing we’re doing is we’re thrilling our members. I look at this last quarter, 8 of the first 11 weeks of the year, we’ve had the #1 film on streaming. 9 of the first 11 weeks, we’ve had the #1 original series” – Theodore A. Sarandos, Co-CEO & Director of Netflix
Netflix started the year off well, beating estimates across the board, reporting a 15% year-on-year growth to $9.4 billion with net income of $2.3 billion. Operating income grew by 54% and operating income margin grew to 28%. In Q1, Netflix added 9.3 million subscribers, largely attributed to their ongoing password sharing crackdown. In order to continue to sustain long-term growth, Netflix aims to enhance the diversity and quality of its entertainment offerings, including novel products like games, and live programming.
Notably, what caught investors attention is that Netflix will no longer update the public with their key metrics: average revenue per membership (ARM), and quarterly membership. Investors read this move as a weakness that shows lack of confidence. ARM was a key profitability metric that investors looked to. However, Netflix notes that it is being discontinued simply because different regions have different membership tiers at various price points.
Microsoft Corporation (NASD: MSFT)
*Portfolio weight: 16.38%
EPS Estimate: 2.83
Reported EPS: 2.94
“Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” – Satya Nadella, chairman and CEO of Microsoft.
Microsoft highlighted significant growth and strategic investments, particularly in cloud and AI technologies. Quarterly revenues increased 17% year-over-year to $61.9 billion with net income at $21.9 billion, an increase of 20% compared to the same period last year. Microsoft Cloud revenue surpassed $35 billion, a 23% increase, driven by strong demand for cloud services. Azure’s cloud market share and AI customer base continue to expand, with over 80% year-over-year increase in $100 million-plus Azure deals. GitHub Copilot and Copilot for Microsoft 365 saw rapid adoption, indicating Microsoft’s leadership in AI innovation. Despite the mixed financial impact of the Activision acquisition, Microsoft expects full-year FY24 operating margins to increase, reflecting efficient cost management and strategic investment in growth areas.
Overall, Microsoft expects continuing tailwinds from the cloud segment, and massive tailwinds from the AI realm.
Meta Platforms, Inc. (NASD: META)
*Portfolio weight: 14.98%
EPS Estimate: 4.30
Reported EPS: 4.71
“It’s been a good start to the year, the new version of Meta AI with Llama 3 is another step towards building the world’s leading AI. We’re seeing healthy growth across our apps, and we continue making steady progress building the metaverse as well.” – Mark Zuckerberg, Meta founder and CEO.
Meta Platforms reported a strong Q1 with a total revenue of $36.5 billion, up 27% year-over-year, and a net income of $12.4 billion, a 117% increase from the year prior. The company is experiencing healthy growth in WhatsApp’s daily active users in the U.S. and has launched Meta AI, receiving positive feedback. However, Reality Labs reported an operating loss of $3.8 billion, and the company faces regulatory challenges that could impact its business. Meta expects Q2 2024 total revenue to be in the range of $36.5 to $39 billion, reflecting cautious optimism amidst a complex global economic environment.
One big takeaway was Meta’s significant capital investments planned in AI, aiming to lead in services quality and usage, despite a multi-year investment cycle before monetization. The company anticipates increased capital expenditure to around $35 billion, up from the current $7 billion. This increased investment will accelerate the company’s AI infrastructure and align them with their AI roadmap.
Investing in FANGMA: The TECH ETF
For investors, it would be difficult to talk about today’s stock market without dealing in some way with one or more of the FANGMA tech giants. Odds are you use one (or more) of the advanced technologies or popular consumer services these six companies are responsible for—as do billions of other people each day. But high share prices may deter investors from adding all of these companies individually to a portfolio.
With the Evolve FANGMA Index ETF (TECH ETF), investors gain exposure to all six companies – Facebook (Meta), Amazon, Netflix, Google, Microsoft and Apple – for a reasonable unit price.
For more information about the Evolve FANGMA Index ETF (TECH ETF) or any of Evolve ETF’s lineup of exchange-traded funds, please visit our website or contact us.
*Portfolio weight as at April 30, 2024
Header Image Source: Getty Images Credit: BlackJack3D
