NEW YORK, Nov 14 — Everyone knows how dominant Facebook, Apple, Amazon, Microsoft and Google are in the stock market. They top the list of the world’s largest companies, the first time all five have belonged to the same industry.
They’re up an average of 46 per cent in 2017, three times the S&P 500’s. Were they a market by themselves, their US$3.3 trillion (RM13.8 trillion) combined worth would make it the sixth-biggest among countries, between the UK and France.
As impressive as their shares are, the discussion isn’t complete without mention of their profit prospects. For bears who see a parallel to the dot-com bubble, an often-missing piece in the debate is their arguably more impressive recent record of earnings.
Here are some key data points compiled by Goldman Sachs that put into perspective just how dominant tech profitability is:
The FAAMG group saw collective sales expanding 21 per cent in the third quarter, the fastest pace in more than five years and three times the growth rate in S&P 500 revenue.
Tech strength is not limited to just FAAMG. Overall industry profit grew 22 per cent, beating all other sectors except for energy.
More than 80 per cent of tech firms beat earnings estimates by more than one standard deviation, the best performance in at least 19 years; Apple, Microsoft, Facebook and Google accounted for half of the S&P 500’s index-level surprise.
Tech profit margins expanded by 72 basis points, countering a decline expected by analysts. FAAMG growth supremacy will continue in 2018, with sales seen increasing 20 per cent, versus 11 per cent for S&P 500.
Thanks to solid earnings, FAAMG valuations aren’t particularly out of whack with history, even with their outsize returns. The group’s enterprise value sits at 4.9 times sales, versus 2.3 for the S&P 500, in line with the 10-year average, data from Goldman showed. — Bloomberg