The FANGs bite back
The tech giants’ best days aren’t behind them. Far from it, says Matthew Lynn. A new wave of innovation is just beginning.
The tech giants' best days aren't behind them. Far from it. A new wave of innovation is just beginning.
Over the past few weeks, the so-called FANGs, the group of tech stocks made up of Facebook, Apple, Amazon, Netflix and Google, have been under pressure. Rocked by scandals, or unnerved as regulators and the taxman eye their practices and profits, their stock prices which powered much of the bull market of the past few years suddenly cratered.
Some people saw the bursting of a bubble. But less than a month after the wobble, the FANGs are back. Amazon has just gone past 100 million Prime subscribers, locking more than the entire population of Germany into its system. Netflix announced blockbuster first-quarter results, adding another seven million subscribers, taking the total to 125 million worldwide. It has also managed to raise prices and keep growing, something many analysts worried was impossible. Alphabet, as the parent of Google is now known, this week beat all analysts' expectations, with a 20% rise in first-quarter revenues and profits to match.
There's more growth to come
There may be more growth to come, too. First, there are huge new industries to conquer. Amazon is planning a bank account. Both Apple and Google have started dabbling with financial services, creating ever more sophisticated payment methods that will take them into direct competition with the banks. From money transfer to insurance to investment, finance is an industry ripe for disruption, and the tech giants are the companies with the resources and customer base to do that.
Likewise, both Amazon and Apple are looking at healthcare, another vast industry, accounting for around 10% of GDP in most advanced economies. Indeed, one reason Apple launched the not-terribly-successful Watch may well have been to start gathering data on its customers' health. And then, of course, there are cars and drones. Apple has been working on a car for years the auto industry accounts for another 3.5% of GDP and Amazon is experimenting with delivery drones. These are all vast opportunities for future growth.
Second, there is voice-recognition technology. Alexa, Google Home and Siri are massive products, and within a few years it would be no surprise if most homes had them. The evidence suggests that people buy more once they are connected by voice, and that they buy differently as well. The ease and simplicity of ordering products with a command, and getting it delivered quickly, will allow the tech firms to take even more market share from traditional retailers.
Amazon, for example, already has its own-label range of basic household goods (putting huge conglomerates such as Unilever and Nestl in their sights). Voice could be as big a change as the switch from desktop computers to mobiles.
Who'd bet on the regulators?
Finally, regulation will be harder than it looks. Sure, politicians have started talking about taxing the tech giants more and imposing stricter rules on the way they operate, how much competition they allow, and how they are allowed to use their customers' data. But who says they will be successful?
After all, none of the tech giants owe their strength to regulatory loopholes or special rules from the government they have reached their current size through innovation and hard work. And for all the criticism that comes their way, consumers love them. No one wants to give up Google or Amazon, and only a few people will disconnect from Facebook. They may well escape unscathed.
True, the FANGs have taken a beating. But there are still huge new industries to conquer, and all the threats of regulation may amount to very little in the end. The correction of the past month may simply be a buying opportunity for savvy investors not the end of the story.