For investors looking to start 2017 with a bang, Netflix and Facebook might be the stocks to buy out of the so-called FANGs.
The FANG stocks are Facebook, Amazon, Netflix and Google. But Jim Cramer, who originally coined the term, changed the acronym to FAAA after he booted Netflix from the list, added Alibaba and acknowledged Google’s change to Alphabet.
For the purpose of the article, using data analytics platform Kensho, CNBC looked at the performance of Facebook, Amazon, Netflix, Alphabet and Alibaba if you bought them on the last trading day of December and sold the stock on the last trading day in January. The data focused on this particular trading period over the past five years to see what trends appeared.
The average return, if you did hold these stocks over this period, is listed below.
There was significant stock appreciation in four out of the last five years for this New Year period, according to the Kensho data. This helped Netflix to be the best-performing FANG stock for this timeframe.
Typically, the fourth quarter of the year is one of the strongest for Netflix, with earnings in that period beating market consensus in 2011 to 2015. This often helps the stock rally and if history is anything to go by, this could help the stock, according to analysts, particularly as the company is continuing to push aggressively into new markets and ramping up content spend.
In January, Netflix announced it was available in 190 countries, and recently announced its intention to spend $6 billion on content next year. It also became the top grossing app on Apple’s iPhone this month and introduced an offline mode to boost the attractiveness of its mobile offering.
There has been some concern that Netflix will struggle to grow its domestic subscriber base, but the video streaming service topped analyst estimates in its latest third-quarter earnings to help absolve some of those fears.
Still, the factors that could help Netflix find more growth are also areas which could hold Netflix back.
“I think the competitive environment is getting very stiff, Amazon is investing heavily in original content … Netlfix has been lucky to have the string of hits but you have players with deep pockets and the potential to outbid Netflix for some content. That is the concern we have on Netflix,” Neil Doshi, senior analyst at Mizuho Securities, told CNBC by phone.
“They haven’t really shown much in the way of some of the new countries like Japan and India, these are very big markets and our concern if you can’t get these right, it could limit the total addressable market.”
Facebook has only traded four times in the period rather than five because it only went public in May 2012. So it’s worth bearing this in mind when considering that over the New Year period, the stock is up over 8.5 percent.
The social network has consistently beaten Wall Street estimates and shown strong growth, particularly as it has pivoted to mobile and video formats. This has helped its ad revenue drive higher and investors are happy.
But the company warned in November that ad revenue growth will slow “meaningfully” in 2017 as it reaches maximum “ad load”. This means it will be difficult for Facebook to cram more ads into the News Feed.
“Facebook’s biggest quarter of the year tends to be Q4 and on a quarterly basis we are expecting over 20 percent revenue growth for the quarter. Facebook will be a solid performer in the period,” Neil Campling, head of global technology, media, telecom research at Northern Trust Capital Markets, told CNBC by phone.
Campling said that Facebook is starting to monetize the photo sharing service Instagram which it owns and this should help it continue growing. But not all analysts are convinced. Trip Chowdhry, managing director of equity research at Global Equities Research, said that he doesn’t “see any bang in FANG” stocks generally and “this is as good as it gets” for Facebook which will struggle to gain more user engagement.
Amazon has a tepid January on average with shares up around 1 percent. It might be surprising that given the Black Friday and Cyber Monday sales in November as well as the Christmas shopping period, investors might be bullish.
But usually, the impact hasn’t been priced in by the end of January. Investors are cautious on Amazon because they are investing heavily in new territories such as India as well as new sectors like grocery shopping.
“We don’t have good insight to what’s happening there if you think about areas where they are investing … I think if they are able to show good leverage on their margin side then I think the stock will show good appreciation in 2017,” Doshi told CNBC, adding that its cloud division Amazon Web Services (AWS) is a “bright spot”.
AWS has shown very strong growth and is seen as a key part of Amazon’s future.
Google carried out a stock split in 2014, and has both Class A and Class C shares trading publicly. Class C shares have only been trading for the past two years, however, both sets of shares are roughly flat over the period defined.
It seems investors are cautious in January over Alphabet.
“Alphabet is more tied to the ad cycles and there is nothing to suspect that Q4 will be strong, but early in the year, expectations are to set conservatively,” Campling said.
At the same time, Alphabet is investing heavily in areas from artificial intelligence to driverless cars and this is something that investors will be watching closely.
Alibaba was the worst-performing stock of the New Year period and much of this is cyclical.
“Perhaps the reason why there is less attraction in January is simply because it is not effected by the western holiday season, but more focused around the Chinese new year in February,” Campling said.
Alibaba’s biggest shopping period happens in November during an event known as Singles Day. And the effect of this is priced in, Campling added.
Like Amazon, Alibaba is making big strides in the cloud. Last month, the Chinese e-commerce giant announced plans to increase the number of data centers it has. In its latest fiscal quarter ended September 30, Alibaba reported revenue from its cloud computing division that increased 130 percent year-on-year to $224 million. This outpaced the growth seen by Microsoft, Google, and Amazon’s cloud units, and is seen as a bright spot for the company.