Technology Sector Breakdown
Equities are off to a strong start in Q4 with Big Tech leading the way. The NYSE FANG+ index outpaced the Nasdaq 100, Tech Select index, and the S&P 500 handily by 4.1% to almost 7%. Apple has been on a great run which has benefited all four indices allocated to it: NYSE FANG (10% allocation), NDX (11% allocation), Tech Select (19% allocation), and SPX (4% allocation). US equities are on hot streak lately amid signals of progress in the trade war with China along with rebounding growth expectations and solid earnings as markets approach year-end.
Is Amazon's growth sustainable?
Amazon (AMZN): A disappointing Q3 earning’s report with mediocre guidance for the holiday shopping season caused the stock to briefly sell off. Growth questions were raised as billions of dollars are being invested in the expansion of their one-day delivery program combined with the slowing growth in the Amazon Web Services business, which is the core driver of operating income for Amazon.
Amazon has positioned itself as a prominent retail search engine. In 2018 alone, revenue from merchant fees and commissions ballooned to $42.7 billion, nearly 40% of U.S. ecommerce market share. With the introduction of Amazon Advertising, the platform has become a vital place for merchants to advertise. This increase in merchant fee revenue is attributed to the successful launch of Amazon Advertising in late 2018. Online advertising has been an uphill battle for Amazon as competition is stiff against Google, the most popular search engine in the world.
The business of trust
Facebook (FB): In an effort to reverse a seemingly never ending negative news cycle, Facebook has officially rebranded to FACEBOOK. The rebrand definitively separates Facebook the company from the social networking app which will not change its brand image. The distinct separation is part of Facebook's effort to regain the public’s trust and appease regulators who have opened an anticompetitive investigation into the tech giant.
Growing public distrust, including another user data leak, and a looming antitrust investigation did not seem to affect Facebook’s bottom line or user growth as daily active users saw an increase of 9% year-over-year to 1.6 billion.
Apple (AAPL): Silicon Valley executives like Tim Cook have a new obsession: Wearable tech. According to Apple’s Q3 earnings report, iPhone have slowed, even after the company reduced the price of its older iPhone models. This slowdown was muted by increases in other revenue streams like combined wearables, home, and accessories, which are up 54% year-over-year. While AirPods were a key driver of wearable revenue, Tim Cook has noted that Apple’s mission is to be a lasting contributor to health technology through Apple Watch and an array medical devices.
Alphabet (GOOGL): Alphabet has officially stepped into the health tech spotlight. The search giant entered into an agreement to purchase Fitbit outright rather than building wearable tech from scratch. With the increase in concern over consumer data privacy, Alphabet has made it clear that Fitbit health and wellness data will not be used to augment Google ads. They will give Fitbit users the choice to review, move, or delete their data.
Fitbit has 28 million active users, but these users are not integrated into the Android ecosystem (yet). In this regard, Apple has a slight advantage as Apple Watch is already integrated into the Apple ecosystem.
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