Displaying items by tag: faangs

(New York)

If there were ever a small cap sector overwhelmed by their larger cousins, it would be in technology. Small cap tech stocks are so overshadowed by FAANGs and the like that one would be forgiven for not even realizing they exist. However, they do, and they may very well be a good buy at the moment. The S&P 600 Small-Cap Technology currently trades at half the valuation of the S&P 500 Technology index, way down from its historical spread. What’s more, profit estimates are healthier too. Calling small cap stocks “mini-fangs”, Leuthold Group argues that “the mini-Fangs offer a significantly higher growth profile at a substantially lower valuation”.

FINSUM: A couple notes here. Firstly, the FAANGs aren’t even really “tech” stocks anymore after the sector realignment, so the valuation comparisons are not perfect. Secondly, what is the catalyst? Leuthold argues that if the economy does a little better than expected then higher inflation will boost tech stocks. That sounds flimsy.

(San Francisco)

A few weeks ago there was a great deal of press, and some investor anxiety, about simultaneous anti-trust probes being launched from the FTC and DOJ into America’s biggest tech companies. Before those efforts seem to have even gotten off the ground, the investigation seems to be backtracking. The head of the FTC said this week that the integration of Facebook and Instagram and WhatsApp will likely stymie any effort to break up the social media giant. The TFC chief also acknowledged it would be hard to get the courts to reverse a merger that the FTC itself had already approved, which is the case with Facebook and its acquisitions of Instagram and WhatsApp.

FINSUM: This seems like a pretty notable surrender after only a few weeks of work. We wonder why the FTC is changing its tone so strongly?

(San Francisco)

The whole market is worried about tech, and with good reason. Current government investigations into antitrust practices could harm Silicon Valley’s biggest tech companies. However, all the anxiety has created a potentially great way to profit from them—sell puts. Puts on tech companies are currently trading at a steep premium because of anxieties, but selling puts—a practice which profits when the share prices rise—can be a quite profitable at the moment.

FINSUM: We think this could be a good strategy for the next year. The likelihood of heavy tech regulation seems less under Republicans, so for the next year we think there is potentially smoother sailing for Silicon Valley. That said, regulating the industry is one of the few things both Trump and the Democrats agree on.

(San Francisco)

One of the surprises in the Big tech space has been that top names have not moved as much on news of various antitrust and other probes as one might have expected. Here is why: investors just don’t think any current actions will have a material impact on business models. For instance, Facebook agreed to pay a $5 bn fine last week, but that sum is small enough that it does not change Facebook’s incentives in any way, it can just keep on doing what it has been.

FINSUM: We think this is a woefully optimistic view. Regulating Big Tech is one of the few areas of strong bipartisan agreement between Trump and the Democrats. The likelihood of it having a material impact on the sector’s business model seems high to us.

(San Francisco)

Big tech companies have had an incredible decade, but that may be about to go the way of Wall Street, and not the post-Glass Steagall Wall Street, more like post Dodd-Frank Wall Street. Regulatory inquiries and fines against Big Tech are starting to pile up, and while the actual fines are tolerable given the companies’ massive profitability, the real change that could hurt them is structural. All the regulatory inquiries have forced tech companies to load up on compliance and related staff—Facebook’s employee count has surged from 6,000 six years ago to 35,000 today. Margins at Google have fallen considerably too. All of that is happening at the same time as top line growth is inevitably slowing because of the size of the businesses.

FINSUM: We think Big Tech might be at the very beginning of the end of its golden age.