Summary
In Q3 earnings, FANGMA companies generally delivered strong financial performance, with most surpassing analyst expectations for both earnings and revenue. A major unifying theme across these companies is the accelerating role of artificial intelligence (AI) as a driver of growth, with each firm integrating AI across product lines to enhance user experience and expand business operations.
Revenue growth was robust across the board, ranging from double-digit gains for Amazon, Microsoft, Meta, and Alphabet to more moderate increases for Apple and Netflix. Many firms cited strong engagement and uptake in cloud services, productivity software, and advertising, which were particularly fueled by AI. For instance, Microsoft’s cloud segment and Alphabet’s Google Cloud posted substantial revenue gains, with AI-driven solutions attracting both new customers and higher adoption rates among existing clients. Similarly, Meta highlighted advancements in AI that improved user engagement and monetization on its platforms, while Netflix emphasized AI’s role in driving higher ad-supported membership growth.
Profit margins showed a healthy trend, with companies reporting improved operational efficiency and greater cash flow flexibility. Alphabet, Amazon, and Meta each highlighted gains in operating income, supported by ongoing efforts to manage costs despite significant investments in AI and infrastructure. However, not all investments are without cost; Meta, for example, continued to incur substantial operating losses in its Reality Labs segment.
Portfolio Holdings
Alphabet Inc (GOOGL)
Portfolio weight in Evolve FANGMA Index ETF: 17.60% (as at October 31, 2024)
- EPS: $2.120 reported vs Bloomberg estimate of $1.836
- Revenue: $74.549B reported vs Bloomberg estimate of $72.877B
“The momentum across the company is extraordinary. Our commitment to innovation, as well as our long-term focus and investment in AI, are paying off with consumers and partners benefiting from our AI tools. In Search, our new AI features are expanding what people can search for and how they search for it. In Cloud, our AI solutions are helping drive deeper product adoption with existing customers, attract new customers and win larger deals. And YouTube’s total ads and subscription revenues surpassed $50 billion over the past four quarters for the first time. We generated strong revenue growth in the quarter, and our ongoing efforts to improve efficiency helped deliver improved margins. I’m looking forward to driving more advances for consumers, customers and creators globally.” – Sundar Pichai, CEO.
Alphabet Inc. showcased a strong quarter driven by AI innovation, with significant momentum in AI-driven business, including a more than 90% reduction in machine costs for queries and the adoption of Gemini models across its major products. The company’s clean energy investments and the operational efficiency improvements highlight its commitment to sustainability and cost management. YouTube’s revenue surpassing $50 billion and Google Cloud’s 35% revenue increase underscore the company’s diverse and growing revenue streams. Waymo is positioned as a leader in the autonomous vehicle industry, indicating potential for mainstream adoption. Alphabet’s financial health is further evidenced by a 34% increase in operating income and substantial returns to shareholders through share repurchases and dividend payments.
Netflix Inc (NFLX)
Portfolio weight in Evolve FANGMA Index ETF: 16.66% (as at October 31, 2024)
- EPS: $5.400 reported vs Bloomberg estimate of $5.116
- Revenue: $9.825B reported vs Bloomberg estimate of $9.776B
In Q3, the company achieved 15% year-over-year revenue growth, with its operating margin rising to 30% from 22% last year. For 2024, it projects revenue growth at the upper end of its 14-15% range and an improved operating margin of 27%, up from an earlier forecast of 26%. This quarter saw the successful launch of new series, alongside returning hits. Engagement, a key measure of member satisfaction, remained strong, with view hours per member up year-over-year in households with paid sharing. The company’s ad business also expanded, with ad-supported membership increasing 35% this quarter, and it plans to roll out its ad tech platform in Canada by Q4, with further expansion in 2025. Executives remain committed to growth, preparing a strong Q4 lineup featuring Squid Game S2, the Jake Paul/Mike Tyson fight, and two NFL games on Christmas Day. For 2025, the company aims to enhance service quality while maintaining solid revenue and profit growth.
Amazon.com Inc (AMZN)
Portfolio weight in Evolve FANGMA Index ETF: 16.60% (as at October 31, 2024)
- EPS: $1.430 reported vs Bloomberg estimate of $1.142
- Revenue: $158.877B reported vs Bloomberg estimate of $157.289B
“As we get into the holiday season, we’re excited about what we have in store for customers. We kicked off the holiday season with our biggest-ever Prime Big Deal Days and the launch of an all-new Kindle lineup that is significantly outperforming our expectations; and there’s so much more coming, from tens of millions of deals, to our NFL Black Friday game and Election Day coverage with Brian Williams on Prime Video, to over 100 new cloud infrastructure and AI capabilities that we’ll share at AWS re:Invent the week after Thanksgiving.” – Andy Jassy, CEO.
Amazon reported a significant revenue increase to $158.9 billion in Q3 2024, with an 11% year-over-year growth, and operating income surged by 56% to $17.4 billion. The company’s free cash flow saw a dramatic increase, up 128% year-over-year, indicating strong financial health and flexibility. Prime Day sales reached record levels, demonstrating effective customer engagement and sales strategies. AWS’s growth accelerated to a $110 billion annualized run rate, highlighting its strong market position and demand for cloud services. Amazon also plans to expand its pharmacy operations to 20 new cities, aiming to significantly impact the healthcare market.
Meta Platforms (META)
Portfolio weight in Evolve FANGMA Index ETF: 16.60% (as at October 31, 2024)
- EPS: $6.030 reported vs Bloomberg estimate of $5.251
- Revenue: $40.589B reported vs Bloomberg estimate of $40.255B
“We had a good quarter driven by AI progress across our apps and business. We also have strong momentum with Meta AI, Llama adoption, and AI-powered glasses.” – Mark Zuckerberg, CEO.
Meta Platforms, Inc. reported a 19% increase in Q3 revenue compared to the same period last year, reaching $40.5 billion, alongside the launch of its new mixed reality headset, Quest 3 S, which has been met with positive reviews and high expectations for the holiday season. However, the company also faced a significant operating loss of $4.4 billion in its Reality Labs segment and an overall increase in Q3 expenses by 14% year over year, primarily due to higher infrastructure costs and R&D expenses. Despite these challenges, Meta highlighted its efforts in improving monetization efficiency, with a 2-4% increase in conversions, and its investment in generative AI and Meta AI expansion, which continues to scale with new features. The company also provided a Q4 revenue forecast in the range of $45-$48 billion and updated its full year 2024 expense outlook to be between $96-98 billion, indicating ongoing investments in infrastructure and development initiatives.
Microsoft Corporation (MSFT)
Portfolio weight in Evolve FANGMA Index ETF: 16.40% (as at October 31, 2024)
- EPS: $3.300 reported vs Bloomberg estimate of $3.107
- Revenue: $65.585B reported vs Bloomberg estimate of $64.507B
“AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process. We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage.” – Satya Nadella, CEO.
Microsoft reported strong financial results for Q3, with revenue up 16% year-over-year to $65.6 billion and operating income rising 14% to $30.6 billion. Net income reached $24.7 billion, an 11% increase, while diluted earnings per share rose by 10% to $3.30. The Microsoft Cloud segment saw a 22% increase, contributing $38.9 billion to revenue. In specific business areas, Productivity and Business Processes revenue grew 12% to $28.3 billion, led by Microsoft 365 and Dynamics growth. Intelligent Cloud revenue was up 20% to $24.1 billion, with Azure and other cloud services posting a 33% increase. More Personal Computing revenue grew 17% to $13.2 billion, boosted by a 61% rise in Xbox content and services, largely from the Activision acquisition. Microsoft returned $9 billion to shareholders through dividends and share repurchases, marking a strong start to fiscal 2025.
Apple Inc (AAPL)
Portfolio weight in Evolve FANGMA Index ETF: 16.19% (as at October 31, 2024)
- EPS: $1.640 reported vs Bloomberg estimate of $1.598
- Revenue: $94.930B reported vs Bloomberg estimate of $94.357B
“Today Apple is reporting a new September quarter revenue record of $94.9 billion, up 6 percent from a year ago. During the quarter, we were excited to announce our best products yet, with the all-new iPhone 16 lineup, Apple Watch Series 10, AirPods 4, and remarkable features for hearing health and sleep apnea detection. And this week, we released our first set of features for Apple Intelligence, which sets a new standard for privacy in AI and supercharges our lineup heading into the holiday season.” – Tim Cook, CEO.
Apple reported a September quarter record revenue of $94.9 billion, a 6% increase year-over-year, driven by strong iPhone sales and a record $25 billion in services revenue. The launch of Apple Vision Pro and Apple Intelligence marks a significant technological advancement. Despite these successes, the wearables segment saw a 3% decline. Apple also highlighted its expansion into new markets, and its plans to open new stores in India. The company expects December quarter revenue to grow in the low to mid-single digits year-over-year, with services revenue expected to grow double digits.
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 October 31, 2024. EPS and Revenue data via Bloomberg in USD.
Header Image Source: Getty Images Credit: BlackJack3D
