Although US President claims the huge trade deficit to be the basis of the trade war against China, most believe that the underlying issue is the threat of Chinese technology displacing the US. Although trade talks have restarted, sticky points remain to be ironed out, including the issue with Huawei. Have US tech stocks lost their shine?
According to Phillip Securities Research, investors should continue to be encouraged by US tech giants’ commitment to aggressively invest in new technologies to drive innovation. The tech giants continue to show great strength in their engagement, introducing innovative cloud offerings that have the potential to disrupt industries.
However, investors should also note the recent limelight of tech giants in the anti-trust investigations. That being said, valuations for Amazon, Facebook and Alphabet are still reasonable given their strong revenue growth and earnings power.
Investors Takeaway: Why You Should Invest In Facebook, Amazon And Google (Alphabet) By Phillip Securities Research
Turning Its Focus On Core Markets
In the last quarter, Facebook saw its revenue growth decelerate despite core markets like North America and Europe surprising to the upside. While Facebook has a fast growing user base in Asia, PSR notes that the average revenue per user (ARPU) is about 10 percent of users in North America. Thus, PSR believes that Facebook could refocus its efforts on core markets instead of expanding into new markets.
Bullish On Monetisation Of Instagram
Instagram remains a platform that continues to show good growth potential for Facebook. With Instagram Stories commanding lower ad prices, PSR is bullish on the high growth opportunity for Instagram ads. Also, Facebook’s announcement that it will add an Instagram Checkout function will allow users to make direct purchases on the app. This will allow Facebook to monetise the Instagram platform for small and medium businesses.
New Ad Platforms With Machine Learning Capabilities
Alphabet’s subsidiary, Google, recently announced two new forms of ads in its Marketing Live 2019 conference: Discovery and Gallery. The two new forms of ads will come with Google’s machine learning capabilities.
The intent-based Discovery Ads offers content in the form of clickable images and text ads under the search box in Google’s mobile app, in Gmail under Social and Promotions, and the YouTube home feed. Google will then leverage on its machine learning to segment consumers based on past site visits, Google Apps downloads and map searches. The Gallery ads will be similar to Facebook’s Carousel ads that will appear on search results.
Cloud Still The Best Bet For Growth
Moving forward, PSR thinks that cloud will continue to be the best bet of growth for Alphabet out of all its new products (Stadia, Waymo and Wing). The announcement of the new Anthos which allows customers to deploy and run their apps on any Cloud platform will allow its customers to adopt a hybrid/multi-cloud strategy, just like other cloud players (AWS Outpost, Azure Stack and IBM’s Cloud Integration Platform). Google could become the third hyperscale powerhouse given its aggressive expansion in headcount and infrastructure. This will allow Google to tap into the hybrid cloud market that will grow at compound annual growth rate of 23 percent till 2021.
Slowdown In Retail Growth But Big Market Opportunities Aplenty
Investors have been showing concern over the slowdown of Amazon’s retail growth. According to PSR, there has been a 300 basis points slowdown in Amazon’s online store revenue growth due to slower Prime subscriber growth, high penetration rate for existing product categories and lacklustre growth of international businesses.
However, PSR believes that Amazon is still showing great growth potential, especially with its potential entry into groceries and pharmacy.
Ad Revenue Growth The Biggest Growth Story For Amazon
An area that investors have neglected is Amazon’s ad revenue, which has been the largest growth story for Amazon. Revenue growth from ad has doubled in 2018 and PSR thinks that Amazon is well-positioned to leverage on its scale and data from the in-market customers. Unlike Facebook or Google, Amazon has data of customers’ actual purchase and their entire customer journey. This will allow Amazon to make correlations between online and offline shopping behaviours to create innovative ad campaigns to drive omnichannel sales for advertisers.