• The FAANGM declined 7.9% in June, modestly better than the Nasdaq’s drop of 9.0%. The S&P 500 also dropped 8.4% for the month. META was the laggard, down 16.7%, with GOOGL the best performer, losing only 4.2%.
• High inflation, weakening consumer sentiment, tightening fiscal policy, and the increased fear of a recession continues to place downward pressure on the overall market as investors remain cautious. However, we remain optimistic on FAANGM. Long-term secular tailwinds from digital advertising, increasing cloud adoption, and increasing global digitalisation remain intact.
• We remain OVERWEIGHT on FAANGM as they continue to remain at attractive valuations, trading at the lower quartile of their historical valuations at 27x forward PE (Figure 1). We lowered our target prices as we raised WACC assumptions (Figure 2).

Review

Meta Platforms Inc (META US, BUY, TP US$231)

• COO stepping down. Sheryl Sandberg, Chief Operating Officer of Meta, announced that she was stepping down from her position this coming fall, after almost 15 years of service to the company, mentioning that her plan moving forward was to focus more on her foundation, as well as more philanthropic work. Chief Growth Officer, Javier Olivan, is to take over the role when Sandberg departs.

Comment: The departure of Meta’s COO and several other key employees, a tougher 2H22 outlook due to weak consumer sentiment, and continued scrutiny by government antitrust regulators caused Meta’s stock to perform poorly in June.

Apple Inc (AAPL US, BUY, TP US$194)

• Launched new M2 Chip at Worldwide Developers Conference (WWDC). Apple launched the new models of the Macbook Air (starting from US$1,199) and Macbook Pro (US$1,299) laptops, powered by the new M2 processor chip at this year’s WWDC. The new M2 chip is said to be twice as efficient as other comparable PC chips. The new MacBook Air is roughly 20% more expensive than its predecessor, with the price increase supposedly more than covering the additional increases in component pricing.
• Landmark 10-Yr deal with Major League Soccer (MLS). Apple secured a 10-year media rights deal with the MLS worth a minimum of US$250mn per year. This marks the first major US sports league to align itself with a digital media company, and could pave the way for other leagues to follow suit.

Comment: Apple’s M2 chips should be a gamechanger for the company due to their increased efficiency compared with an already efficient set of M1 chips. MacBook sales numbers would be worth watching to see if the company can pass down the increased costs of these chips to its consumer, especially amidst weakening consumer demand.

Amazon Inc (AMZN US, BUY, TP US$156)

• Start of Prime Air drone deliveries. Amazon recently announced that it would start using drones for its Prime Air deliveries later this year. The service will be initially available only in Lockeford, California as its pilot location, before using feedback and data to improve and expand its operations into other locations.
• Amazon Prime Day 2022. Amazon’s annual Prime Day slated for mid-July is a test of US consumer demand, especially amidst the current macroeconomic climate. Prime Day is also considered to be a core driver of Prime Membership adoption for Amazon, which leads to increasing revenues as Prime members generally spend 2-3x on average more than non-members.

Comment: Amazon continues to work through its over-capacity and over-staffing issues which were a result of a surge in demand for its services during the pandemic – that has since tapered off. Sales numbers from its Prime Day event in July should be a good indication of which direction consumer demand is heading.

Netflix Inc (NFLX US, BUY, TP US$399)

• 2^nd round of job cutting. Netflix laid off another 300 employees (~3% of total workforce) during the second round of job cuts, a month after its first round of cuts where it laid off 150 employees in May 2022. Most of these jobs were in the US, and come amidst waning consumer demand and recession fears.
• Streaming is gaining share in TV usage. According to a May 2022 report by Nielsen, streaming platforms as a share of total TV usage in the US increased about 1.6% MoM to 31.9%, taking share from all other traditional segments like cable and broadcast TV. Of the 31.9% share, Netflix leads all platforms at 6.8%, a MoM increase of about 0.2%.
• In talks with partners for ad-supported service. As mentioned in the company’s 1Q22 earnings call, Netflix has begun exploring the possibility of easing its way into the advertising business, working with a host of different partners to come up with a solution that would best fit the company’s plans as it attempts to create a service tier supported by advertising. 

Comment: Netflix continues to streamline its workforce, laying off another 300 employees as it attempts to better manage its expenses. Tailwinds from increasing popularity in streaming services compared to traditional TV should continue to help the company’s long-term growth plans.

Alphabet Inc (GOOGL US, BUY, TP US$2,879)

• Allowing rival ad placements on YouTube. To settle an EU antitrust investigation without a hefty fine, Alphabet is easing some its user data restrictions by offering to let its advertising rivals place ads on YouTube. Even though an agreement has yet to be reached with regulators, both parties have indicated that they are on a path toward an agreement that would help Alphabet avoid a potential US$15bn fine.

Comment: Potential fines and more antitrust investigations are forcing Alphabet to make adjustments to parts of its business model, and is a trend that we can expect to continue moving forward. Investors can also look forward to the company’s 20-for-1 stock split coming up on the 18^th of July, which should make the stock more affordable to retail investors.

 

Microsoft Corp. (MSFT US, BUY, TP US$338)

• Microsoft announced a quarterly dividend payout. On Jun. 14, Microsoft declared a quarterly dividend of US$0.62 per share. It’s set to be paid on Sept. 8 to shareholders of record as of Aug. 18. The ex-dividend date is Aug. 17.

Comment: Microsoft is gaining momentum with Azure, as the COVID-19 pandemic has accelerated migration to the cloud. Amid rising cybersecurity attacks and the ongoing Russia-Ukraine conflict, companies will continue to upgrade to higher-end licenses for enhanced security. Reopening of offices should also drive demand for Microsoft’s productivity software from small and medium sized businesses.

Disclaimer
Important Information: This report is prepared and/or distributed by Phillip Securities Research Pte Ltd (“Phillip Securities Research”), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgement. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSES Where the report contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.

If Distribution is to Australian Investors This report is produced by Phillip Securities Pte Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services License No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Past performance is not a reliable indicator of future performance. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.