Why Mega-Cap FANG Tech Leaders May Be Offering Investors Incredible Value
You can always tell when the election cycle starts to heat up. With the presidential election coming next year, the rhetoric from the candidates has ratcheted up over the past six months. The calls from Washington, D.C., especially from some of the announced Democratic presidential candidates, to “break up” big technology firms are very typical. They are populist attempts to get angry voters to nod and agree and back their efforts.
As we have noted before here at 24/7 Wall St., big corporate breakups have happened before, most notably with Ma Bell in the 1980s. As a refresher course: The breakup of the Bell System was mandated on January 8, 1982, by an agreed consent decree providing that AT&T Corporation would relinquish control of the Bell Operating Companies that had provided local telephone service in the United States and Canada up until that point.
While some of the fury directed at mega-cap technology companies may be legitimate, especially when talking about the many privacy issues that have been uncovered, these companies also have provided hundreds of thousands of high-paying jobs, paid billions in taxes and made our lives easier, more enjoyable and, in many cases, simpler.
Merrill Lynch still likes the big tech FANG namesake companies, so we decided to look at the FANG stocks they cover. All remain Buy rated, and they are still solid ideas for aggressive growth accounts.
The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
Back in the fall, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail). Smart shopping campaigns leverage machine learning to make sense of touch points along the consumer purchase path, including better offline attribution capabilities (locally oriented searches up 200% over past two years) and improved purchase conversion rates (20% on average).
The Merrill Lynch price target for the stock is $1,350, and the Wall Street consensus target is $1,343.80 The stock closed Thursday at $1172.27 a share.
This is the absolute leader in online retail, and recently it opened its first brick-and-mortar store in New York City. Amazon.com Inc. (NASDAQ: AMZN) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
Consistent with data from 2018, digital marketing users overwhelmingly cited Amazon as the fastest-growing channel for advertising budgets. Many retailers also are leveraging their Amazon advertising data to retarget users on other channels (namely Facebook) to drive traffic and sales to their own websites (bypassing Amazon marketplace or FBA fees).
Merrill Lynch has a $2,100 price target, while the consensus target is $2,080.05 The stock closed at $1,773.42 on Thursday.