Markets had soared back in 2019, with S&P 500 and Dow riding high. Then, the U.S. and Chinese trade war, which some on Wall Street had already priced in as a done deal, took a turn for the worse. Clearly, a resolution to the ongoing trade dispute between the world’s two largest economies could be made soon. But what’s the harm in buying a few tech giants that have almost no exposure to the U.S./China trade war?
Facebook (FB - Free Report)
Facebook has essentially no presence in China due to government censorship laws. It also makes nearly 99% of its money from digital advertising and will hardly be impacted by the continuation of the trade war. Plus, the social media powerhouse was still able to grow both its daily and monthly active user bases by 8% last quarter despite not operating in the world’s most populated country. Facebook executives now estimate that over 2.7 monthly billion people use at least one of its “family” of services—which includes Facebook, Instagram, WhatsApp, and Messenger—every month on average, or roughly 35% of the global population.
Along with its ability to rake in ad dollars on a mass scale, even as Amazon grows its digital ad unit, CEO Mark Zuckerberg has tried to diversify. This expansion includes e-commerce, private encrypted messaging, peer-to-peer payments, and more. Peeking ahead, our Zacks Consensus Estimates call for FB’s full-year 2019 revenues to surge 24% to reach $69.22 billion. FB’s adjusted fiscal year EPS is projected to slip 6.3% as it spends heavily to improve security and diversify. Luckily, FB’s adjusted 2020 earnings are projected to soar over 31% above our current-year estimate and the company’s longer-term earnings estimate revision activity helps FB land a Zacks Rank #2 (Buy) at the moment.
Meanwhile, Facebook stock still rests below its 52-week high at $182 per share despite a 40% jump in 2019. Plus, FB is trading at 21.3X forward 12-month Zacks Consensus EPS estimates at the moment, which marks a discount compared to its industry’s 26.1X average and its own five-year high of 61.4X and 31.5X median. This means investors can say with some confidence that Facebook stock is relatively inexpensive at the moment.
Alphabet (GOOGL - Free Report)
Like its digital ad juggernaut peer, Google parent Alphabet’s main offerings such as its search engine, Gmail, and YouTube have been banned in China for years. The Chinese government’s censorship legs, sometimes referred to as the Great Firewall, have the power to control what companies have access to the massive Chinese consumer base. And despite some reports last year that Google planned to re-enter the country, the tech firm is still not there and likely won’t be anytime soon. Still, Google’s search engine is nearly ubiquitous throughout much of the rest of the world today and it captured more than 37% of total U.S. digital ad spending in 2018.
Google’s ad business looks poised to pull in more money as non-ad supported platforms such as Amazon (AMZN - Free Report) Prime proliferate. Along with its web browser and search engine, Alphabet sells hardware such as its Pixel smartphones, Home smart speaker, and more. Looking ahead, Alphabet’s adjusted full-year earnings are projected to jump 4.3% on the back of 18.2% revenue growth. On top of that, GOOGL’s EPS figure is projected to climb 19.3% above our current year estimate on the back of 17% further top-line expansion next year.
Alphabet is currently a Zacks Rank #3 (Hold) based, in large part, on its mixed earnings estimate revision activity. Shares of Google also rest roughly 12.5% below their 52-week high at the moment. And the search engine giant’s stock is trading below its industry’s 26.1X average at 22.4X 12-month Zacks Consensus EPS estimates. This also represents a discount against its own 12-month high of 28.6X and one-year median of 24.3. Investors should also note that the company is well-positioned for future growth as it expands its cloud computing business and prepares for the self-driving car revolution with Waymo.
Netflix (NFLX - Free Report)
The Los Gatos, California-based firm has extended its streaming platform to nearly every country in the world expect China. Netflix has said that it “continues to explore options for providing the service” in China, but it will likely find it hard to penetrate the market given the country’s censorship concerns. Still, Netflix ended the first quarter with nearly 149 million paying memberships around the world, up 25% from the year-ago period’s 119 million. The streaming TV firm’s consumer base is larger than Amazon and Hulu, and it is spending billions on content to prepare for a more crowded streaming market that will soon include Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and AT&T (T - Free Report) .
With that said, much of the company’s growth will be somewhat determined by its ability to continue to roll out compelling TV and movie offerings in local markets to help facilitate its overall international expansion. Looking ahead, the firm’s fiscal 2019 revenues are projected to jump nearly 28%, to help lift its adjusted earnings by 25%. Better yet, NFLX’s fiscal 2020 EPS figure is expected to skyrocket 77% above our current year estimate on over 24% revenue growth. Netflix is currently a Zacks Rank #3 (Hold).
Netflix saw its stock price roar back to start 2019, but shares of NFLX have cooled off recently. Overall, the company’s stock is up 30% this year and hovered at around $348 per share through morning trading Tuesday. This marked a roughly 18% downturn compared to its 52-week highs and could give the stock some more room to run as the broader streaming TV market continues to gain steam. Netflix’s valuation metrics remain sky high, but investors interested in NFLX should see it as a tech growth play in a booming industry, and not much more at the moment.
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