What Stands for FAANG?
FAANG is an acronym referring to stocks of five top-performing American technology companies. These companies are Facebook, Amazon, Apple, Netflix, and Alphabet. Each of these FAANG stocks is in the S&P 500 Index and is traded on the Nasdaq exchange. FAANGs contribute to almost 15% of the S&P 500. This is quite a staggering figure when we consider the S&P 500 as a proxy for the US economy. FAANG stocks have a large influence over the index. It also means immense volatility in their stock price, the effects of which are seen on the S&P 500.
Why Are These Companies Different?
Facebook, Apple, Amazon, Netflix, and Google (FAANG) are the top tech companies in recent times. The joint capitalization of these companies is more than $3 trillion. Success does not come easy and these companies are no different. Success is the product of extraordinary decision-making, smart processes, great teams, strong work culture, uncanny ability to anticipate the future, and the ability to adjust as per requirements. FAANG companies have some unique operating procedures – they operate and implement their business practices, keeping their future goals in mind.
Here are some examples of their innovative products, aggressive strategies, smart decision making, their struggles, and their crisis management skills.
Facebook – The ‘network effect’ – This is the new innovative way to build a community. This is the primary reason behind the huge success of Facebook. Facebook offers an excellent product and a user-friendly interface. Users find it convenient to upload photos and be in touch with one another. The interface is highly personalized; two people can see different updates, different Newsfeeds, and a totally new view. The focus of the company is to personalize the user experience. They did not have ads at the beginning which is one decision that helped the platform be mature. Today, there are more than 2 billion Facebook users and their revenue has grown tremendously.
Apple – Contrary to the belief that Apple is a marketing-focused organization, it is an engineering-focused company. There are several practices that make Apple a model for other tech companies. Their immense focus on designing, their attention to detail, and their immense consistency is what makes them different. It is easy to recognize their products with their uniform and sleek design. Their product designs are extremely refined and consistent. Products are not available with many features as well. Apple is different from its huge focus on product detailing and designing.
Amazon – Known for its ‘leadership principles’ – this is something that defines the culture of Amazon. This is a fast-growing company, where business decisions are not taken through the leadership chain always. Thus, employees feel a lot of ownership. They can come up with newer ideas and experiments. The company also believes that decisions are reversible and do not have a big impact. Thus, employees love to experiment, they love to try out options and implement. Such an organic and fast-moving process is the reason behind the success of the company.
Netflix – The company believes in observing trends earlier and responding to them fast. They invested a lot in video streaming when they realized that it is the future. They had an immensely compelling product and they marketed it well. Today, Netflix produces its own high-quality original content, reducing its dependence on studios which were charging a huge piece of their revenue. Netflix is proud of its communication skills and business decisions.
Google – The company began its journey with employees who were Ph.D. students and eager to solve tough problems. Their culture is like a university and not much of a traditional corporation. Their employees came together, researched, and found solutions to several technical problems. Their products are based on such solutions. For Google, it is a lot about scale. They desire to know if their products work for millions or billions of users. Their focus is to think big. They aim to solve problems on a large scale.
All FAANG companies have a bright and strong culture, each suitable for the specific product and service. They spent a lot of time and effort in retaining the culture. The leaders have a clear vision and know-how to motivate the employees for the implementation of their vision.
Why Invest in FAANG?
- Amazon: The first shares of Amazon were publicly listed for the first time on May 15th, 1997, with their IPO priced at $18/share. Since then, there have been three stock splits which occurred between 1998 and 1998.
Thus, if an investor went ahead and invested $1000 dollars at the Initial Public Offering price at that time, he/she would have acquired a total of 54 shares. After the stock splits, the investor would now own 648 shares. At the current price of $2,758.82 per share, the shares the investor is holding is worth $1787715.36.
- Facebook: Facebook was already a thriving social platform when its IPO first rolled out in May 2012. The company already achieved an annual revenue run rate of $4 billion, with 526 million active daily users in its platform. Each share of the IPO costs $38.
So, if an investor had invested $1026 in the IPO, he/she would have purchased 27 shares.
As Facebook appreciated in value and slowly transformed into a global juggernaut, Facebook shares are now worth $227.07 each. The current value of those shares would have been worth $6130.89.
- Apple: The first shares of Apple were publicly traded starting on Dec12, 1980. Each share went for $22 each. Since then the stock has split 4 times, with one split being 7:1 while three of them were at 2:1. If one invested $1012 at the IPO price, he/she would have got 46 shares. After the stock splits, however, the same investor owns 2576 shares. This is because one share at IPO price is now worth 56 shares after the split.
At the current Apple share price of $364.80, those shares would be worth a total of $939724.8.
- Netflix: The first time Netflix shares were publicly traded was on May 23rd, 2002. Its IPO share price was at $15 each. From 2010 to 2019, Netflix performed brilliantly and was the S&P 500 ‘s best performing stock. At that time, if an investor put $1005, he/she would have received 67 shares. Netflix’s stock underwent two separate stock splits in 2004 and 2015. The initial 67 shares would double to become 134 shares after the first split and finally amount to 938 shares after the 2015 split.
Thus, at the current price of $455.04 per share, the initial $1005 investment will be worth $426827.52 presently.
- Google: Google did not have a favorable IPO, pricing its IPO shares at $85 each. If one invested $1020, he/she would have got 12 shares. However, after the stock splits, the current value of shares (bought at IPO price) is $30460.
The Bottom Line
The FAANG companies, Facebook, Apple, Amazon, Netflix, and Google have all emerged as giant tech powerhouses in our present time. These companies have introduced, innovative, path-breaking technologies that have certainly impacted our lifestyle and the way we communicate throughout the world. Investing $1000 in each such company, IPOs would have fetched astronomical profits in the present day. However, the main issue is to recognize the next Alpha, which can grow that big.