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Half of FANG Has Reported with Two More to Come This Week. What to Look For.

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Netflix (NFLX - Free Report) was the first of the FANG stocks to post quarterly results this earnings season, and it was a bit of a shock to the markets.

Shares sank over 13% to $345 in after-market trading last Monday after the company reported earnings of $0.85/share, beating analyst expectations of $0.79/share by 7% Revenues came in at $3.91B for the second quarter. The Zacks Consensus estimate had been $3.94B.

The big issue was that new subscriber growth was disappointing. Investors were expecting Netflix to add 6.2 million new users, but managed only 5.1 million.

Though the stock bounced a bit off its lows after the disappointing report, it’s currently trading about 12% below the all time closing high of $415 just two weeks ago. Even including that decline, NFLX is still the best performing big cap stock of 2018, up 89% for the year.

It was a different story when Alphabet - parent company of Google - reported on Monday after the bell, and beating analyst estimates on both the top and bottom lines. Revenues were $26.1 billion, slightly higher than the expectation of $25.58 billion, and net earnings (exclusive of the recent EU anti-trust fines) were $11.75/share, beating the consensus of $9.64/share by more than two dollars.

Even beyond the strong earnings, Alphabet’s other financial metrics delighted investors as the company simultaneously reported increased ad revenues and lower-than-expected traffic acquisition costs – or the amount they pay to other sites for ad traffic. Paid clicks were up 58% year-over-year.

Alphabet shares rallied almost 5% to a new all-time high on Tuesday, adding over $40 billion in market capitalization to what was already the world’s third largest corporation.

Two Down, Two to Go

Facebook (FB - Free Report) is set to report quarterly results on Wednesday after the markets close. In Q1 -even while they were embroiled in a huge scandal involving user privacy and their use of customer data, they still blew away estimates, reporting an excellent quarter in which they topped analyst earnings estimates by 24% - their 11th quarterly beat in a row. Revenues increased 49% over Q1 2017, while total expenses grew only 39%, boosting operating margin from 41% to 46%.

Importantly, Facebook also reported year-over-year increases in daily and monthly active users of 13% each, indicating that fears of a user exodus were overblown. Facebook shares have rallied more than 40% since hitting a 52-week low of $149/share in March during the Cambridge Analytica scandal.

Expectations for Q2 are revenues of $13.43 billion and net earnings of $1.75/share, increases of 44% and 33%, respectively over the same quarter in 2017. Once again, all eyes will be on growth in average daily and monthly users of the site and Facebook’s market share of global digital ad revenue.

Options markets currently represent an expectation of a move in Facebook shares of between $11 and $12 as a result of the earnings announcement.

After more than a decade of absorbing criticism about heavy spending and disappointing net numbers, Amazon (AMZN - Free Report) has become an absolute earnings juggernaut, both as the biggest retailer the world has ever seen, and also as owner of Amazon Web Services – which has been growing at near 50% year.

The second quarter also includes Amazon’s “Prime day” – a single 36-hour sales frenzy that can make a meaningful impact on top-line results. It remains to be seen whether a brief service outage during Prime day will negatively affect those results.

Though Amazon has a history of big earnings beats, investors should remember that their valuation – with a current 12 month forward P/E ratio of 142X – is still fairly high and represents an expectation for huge growth to continue. A stumble in any given quarter would likely see the shares swiftly punished by the markets. Prices for options that expire this Friday – the day after quarterly results are announced -imply an expected move of $90 or 5%.

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