The Faangs (Facebook, Amazon, Apple, Netflix, and Google-owner Alphabet) have been the darlings of the stock market for years. These tech giants have helped to change how we shop, communicate, work – even how we watch movies. But as they have grown in size, fears have also grown, especially about what they may do with so much of our personal data.
And the season seems to have changed in 2018 – alongside a series of scandals and setbacks, the Faangs bore the brunt of the stock market selloff this year. In fact, their combined market capitalisation (the total value of all their shares) has fallen by more than $1 trillion since their peak in the summer.
This was the year that the Faangs were defanged.
The social media giant arguably had the toughest year of the tech giants. The Cambridge Analytica scandal erupted in March when it emerged that the UK-based political consultancy had harvested millions of personal data from Facebook users.
The revelations sparked calls for tighter regulation of social media. Chief executive Mark Zuckerberg was forced to face a marathon five-hour hearing in front of a US Senate committee in April to defend his company’s data and privacy policies, then in May he had to do the same with the European parliament.
Facebook also spent much of the year battling against accusations that its site enabled the spread of propaganda and “Russian meddling” in US and European elections. Ahead of the US midterm elections, Facebook revealed that it had blocked more than 100 accounts engaging in “coordinated inauthentic behaviour”. It is likely that Facebook will continue to be dogged by the issue, especially in the build-up to the 2020 US presidential election (yes, we’re already thinking about it).
These events have placed Facebook’s misuse of personal data under the microscope, according to David Richards, founder and chief executive of software company WANdisco.
“Having known the first data scientists it worked with, I was aware of Facebook’s data handling for a while, and it’s vital that this is now out in the open,” he says.
“I don’t believe that users of their applications have even a basic understanding of how their data is being used, and that is very dangerous. I don’t see Facebook’s public image recovering anytime soon.”
This year has seen Google’s already-fraught relations with the world’s governments continue to unravel.
Just this month, Google boss Sundar Pichai had to give testimony to the US Congress after Republicans complained about the search engine’s perceived liberal bias. During the hearing, politicians asked pressing questions, such as why pictures of President Donald Trump appeared in image searches for the keyword “idiot”.
Earlier in 2018, Google received a record $5bn fine from EU antitrust regulators because of its dominance in the smartphone market. The company may yet face more fines, as European rivals continue to complain that it is not complying with competition rules.
Google, Facebook, Apple, and Amazon are also the target of a new digital tax levied by the French government, which will kick in from the start of January and is expected to raise €500m a year. France announced the new tax this month, after plans for an EU-wide tax of three per cent on Google’s online revenue were blocked by Ireland and some Nordic countries.
Looking ahead, Google and Apple’s control of the app market is likely to break, according to the “Tech Predictions Report” from GP Bullhound, as the two face a backlash for charging a 30 per cent commission on apps in their stores.
“Increasing numbers of developers – such as Netflix and Spotify – are bypassing Google Play and the App Store in favour of their own platforms,” says Alec Dafferner, partner at GP Bullhound. “If disruptors are able to gain traction and develop large, consistent user bases, Apple and Google will be forced to react to avoid losing their grip on the market.”
Since we’re talking about Apple, how has it fared? In short, unpredictably. The smartphone maker became the world’s first trillion dollar company in August this year, but since its peak the share price has fallen by more than a quarter.
Slowing revenue growth, reports of slashed iPhone production, and the announcement in November that it would stop reporting unit sales of its products were the main causes for Apple’s woes, but it is also stuck in the middle of the US-China trade war.
Asia is a critical market for the tech company, but tariffs would knock that. Also, an ongoing patent dispute with Qualcomm is causing headaches – a Chinese court ruled in Qualcomm’s favour this month, issuing a sales ban on most iPhone models.
There is still plenty of downside risk to Apple’s stock price in the year ahead, warns Chris Beauchamp, chief market analyst at IG Group.
“Apple remains exposed on the production front, thanks to its factories in China, and also on the consumer side, given worries about a potential slowdown in overall smartphone – but especially iPhone – demand,” he says. “With the iPad well past its peak, and the move into services still ongoing, the decision to stop reporting iPhone sale numbers was not taken well by the market, confirming suspicions that this great growth engine is slowing.”
Amazon seems to have had the best 2018 of all the Faangs. The company’s founder, Jeff Bezos, became the richest man in modern history in July, with a net worth of more than $150bn. The online retailer claimed that Cyber Monday in November was its biggest ever shopping day, and it is predicted that Amazon’s fast-growing advertising business could soon challenge Facebook and Google’s hold on the ad market.
But Amazon has still faced problems. Thousands of European warehouse workers went on strike during Black Friday, and a German trade union has called for more strikes this week.
Meanwhile, Amazon faces political complaints from the left and right – far-left former presidential candidate Bernie Sanders has repeatedly criticised the company for its treatment of workers, while Trump has accused it of taking advantage of the US Postal Service. It’s likely that Amazon’s political pressures will continue to next year.
The streaming service’s market cap exceeded $100bn for the first time this year. It was briefly more valuable than Disney and telecoms giant Comcast, but a miss in its second quarter results has driven down the stock price.
Netflix faces several struggles ahead – it’s reaching a point of market saturation, at least in the US where it is present in 50 per cent of households, meaning that it will struggle to attract new subscribers. Meanwhile, it is spending more and more on original content in order to hold its lead in the streaming market.
The biggest danger is likely to come from Disney. The House of Mouse is planning to launch its own streaming service called Disney+, and it is slowly pulling its content (which includes
Marvel superhero movies and the Star Wars films) from other services to put them on its own. Losing such popular content will be difficult for Netflix, as it exacerbates the need to create new, original – and expensive – content.
Despite this, analysts at Macquarie believe that Netflix will prove resilient, but do warn that it faces greater competition and increasing customer churn.
“Competition will be stiff in all international markets,” analyst Tim Nollen says in a research note.
“Disney, WarnerMedia, and Amazon Prime are all looking to expand abroad, and there are numerous incumbent players with more existing library content and lower prices.
Capitalism in action
Overall, Netflix and Amazon seem to have come out best among the Faangs in an otherwise rocky 2018. Political pressures, especially over the treatment of workers and the handling of private personal data, will continue to impact all five of the tech giants.
Perhaps the biggest issue is that the five have simply dominated their respective markets for too long. It’s a fundamental principle of capitalism that, as a company grows larger, so does the risk that smaller, more nimble players will be able to compete and disrupt its business practices. Hopefully we’ll see more such disruption in 2019.