It’s been several generations since investors faced such a challenging year on Wall Street. Halfway to 2022, the benchmark S&P 500which is considered the most comprehensive stock market barometer, had delivered its worst first-half performance in 52 years!
Despite this turmoil, Wall Street’s brightest and most successful money managers have stayed grounded. According to Form 13F filings with the Securities and Exchange Commission, most billionaire money managers were active buyers when the stock market plunged into a bear market during the second quarter.
However, sentiment was clearly mixed when it came to FAANG shares. By “FAANG”, I mean:
- Metaplatforms (GOAL -4.15%)which was previously known as Facebook
- Apple (AAPL -3.77%)
- Amazon (AMZN -4.76%)
- Netflix (NFLX -4.57%)
- Alphabet (GOOGLE -5.41%) (GOOG -5.44%)which was previously known as Google
Among these industry leaders are two FAANG stocks that billionaires have been buying up hand over fist, as well as one FAANG that they have been avoiding like the plague.
The #1 FAANG Stock Billionaires Are Buying Hands-Free: Alphabet
The first component of FAANG that billionaire fund managers can’t seem to get enough of is Alphabet, the parent company of streaming platform YouTube, self-driving car company Waymo and widely used internet search engine Google.
According to recent 13F filings, several prominent billionaires increased their holdings in Alphabet. This includes Lone Pine Capital’s Stephen Mandel, who initiated a position of nearly 3.44 million shares during the second quarter, along with Tiger Global’s Chase Coleman, Fisher Asset Management’s Ken Fisher, and Two Sigma’s John Overdeck and David Siegel. Investments. Tiger Global, Fisher Asset Management and Two Sigma respectively purchased approximately 2.21 million shares, 1.36 million shares and 1.05 million shares.
Easily one of the best reasons to buy with confidence from Alphabet is the company’s leading internet search segment. In the last two years, Google has commanded up to 93% of the Internet search market share worldwide. With its closest competitor 88 percentage points behind, Google can control top-tier pricing power by placing ads on search pages. This is a competitive advantage that will not go away anytime soon and should allow parent company Alphabet to benefit from disproportionately long periods of economic expansion.
Nevertheless. It is Alphabet’s ancillary operations that many investors find even more intriguing. YouTube has become the second most visited social networking site in the world, while Waymo seems light years behind the leader in electric vehicles. Tesla in terms of bringing autonomous vehicles into our daily lives.
But it is cloud service provider Google Cloud that could be Alphabet’s biggest long-term asset. Cloud spending is still in its early stages, and Google Cloud has already absorbed 8% of global spending on cloud infrastructure, according to a report from Canalys. Although Alphabet’s cloud segment is a money loser at the moment, the margins associated with cloud services are often considerably higher than the margins generated by advertising. In other words, Google Cloud may be Alphabet’s key to multiplying its operating cash flow.
FAANG Stock Billionaires #2 Are Buying Hands-Free: Amazon
The second FAANG that billionaire fund managers have been buying up hand over fist is e-commerce giant Amazon.
During the second quarter, half a dozen of the brightest billionaires gobbled up Amazon stock: Susquehanna International’s Jeff Yass, Two Sigma’s Overdeck and Siegel, Fisher Asset Management’s Fisher, Citadel Advisors’ Ken Griffin and Coatue Management’s Philippe Laffont. . In order, these billionaires oversaw the respective addition of nearly 6.59 million shares, 1.83 million shares, 1.38 million shares, 1.26 million shares, and 1.09 million shares to their fund.
For many investors, Amazon’s appeal has always been its superior online marketplace. In terms of US online retail sales, Amazon has more than five times the share of the next closest competitor and generates more revenue from online sales than its next 14 closest competitors combined.
But the reality is that online retail sales are a low-margin revenue stream for Amazon. What is much more important to the company are its ancillary sales channels, which are generating juicier operating margins. For example, Amazon has steadily become an advertising giant. Even during the second quarter in question, ad sales were up 18% from the prior year period. Advertising margins are substantially higher than online retail sales.
Amazon has also used the popularity of its online platform to sign up more than 200 million people for its Prime service. Based on the company’s second-quarter operating results, it is generating nearly $35 billion in annual run-rate sales from transparent, high-margin subscription revenue.
And don’t forget about Amazon Web Services (AWS), the world’s leading provider of cloud infrastructure services. Although AWS represented only 16% of the company’s net sales during the first six months of 2022, it generated more than 100% of its operating income during the same period. AWS is Amazon’s golden ticket to potentially triple its cash flow by the middle of the decade.
The FAANG Stocks Billionaires Are Avoiding: Netflix
On the other hand, a FAANG action has sent billionaires running for the exit. Since its share price fell off a cliff earlier this year, billionaires have largely avoided streaming provider Netflix.
Documents filed with the Securities and Exchange Commission show that four billionaires reduced or abandoned their positions in Netflix altogether during the second quarter. This included Bill Ackman, whose Pershing Square Capital Management is winding down, Steven Cohen’s Point72 Asset Management, Laffont’s Coatue Management and Griffin’s Citadel Advisors. In total, these four billionaires respectively removed around 3.11 million shares, 231,000 shares, 201,000 shares and 141,000 shares from their fund.
For years, Netflix was the king of streaming content. Its combination of proprietary shows, domestic broadcast dominance, and potential to expand internationally into untapped markets made it a popular buy. But times have changed, as has Wall Street’s opinion of Netflix.
Competition in the streaming space has rapidly intensified as traditional cord cutting has enticed legacy content providers to offer bundles and streaming bundles in front of users. The “House of the Mouse”, walt-disney (DIS -2.89%), serves as a perfect example of a streaming provider capitalizing on its own proprietary content and brand. In less than three years since the launch of Disney+, the company has gained more than 152 million subscribers. It took Netflix more than a decade to reach those numbers after shifting its focus from DVD rentals to streaming. It’s particularly noteworthy that Disney is gaining a significant number of subscribers as Netflix suffers from a subscriber decline.
The other big problem for Netflix is the company’s cash generation. Even though Netflix has been profitable on an adjusted basis, the company had long been burning through cash while spending aggressively on new content and international expansion. Although it appears to have turned the page on staggering cash burns, the net cash provided to its operations has been negative or negligible in four of the last five quarters.
While Netflix is as cheap as ever on adjusted earnings, the company’s minimal cash flow and increased competition serve as red flags for investors.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Sean Williams has positions in Alphabet (A-share), Amazon, and Meta Platforms, Inc. The Motley Fool has positions in and recommends Alphabet (A-share), Alphabet (C-share), Amazon, Apple, Meta Platforms, Inc., Netflix, Tesla and Walt Disney. The Motley Fool recommends the following options: $145 long calls in January 2024 at Walt Disney, $120 long calls in March 2023 at Apple, $155 short calls in January 2024 at Walt Disney, and $130 short calls in March 2024. 2023 at Apple. The Motley Fool has a disclosure policy.