Why are FAANG Stocks So Profitable?
The biggest stock winners in the market environment created by the COVID-19 pandemic are the FAANG stocks. The FAANG acronym stands for Facebook, Apple, Amazon, Netflix, and Google, and they represent the five biggest juggernauts in the business world. Simon Kronenfeld has thoroughly analysed the reasons why these companies saw such a huge surge in their already mighty profiles, and the most prominent reasons are outlined below.
What Were the Gains?
To understand the profitability of the FAANG stocks, you need to understand the sharp increases each of the companies saw. While growth for these successful businesses is often expected, 2020 saw more gains relative to the rest of the market than expected. Facebook saw a 12% increase in users, Apple saw a 49% increase in revenue, Amazon picked up a 70% increase in revenue, Netflix added 10 million users, and Google's parent company Alphabet saw a 10% increase in revenue. Simon Kronenfeld's native market of real estate also saw gains, proving that while many businesses struggled during the pandemic, not everybody had difficulty in turning a profit.
How Did this Happen?
The FAANG stocks saw growth partly because they were in a position to survive a sudden global shock to the economy. With a lockdown that affected most countries throughout the world, people stopped leaving their homes as much in 2020. This meant that movies needed to come through streaming services rather than theatres, home devices became more common, and mail order delivery was a must for most luxury items. In the meantime, people turned to remote access to stay in touch with loved ones, meaning a huge rise in platforms that allowed videoconferencing, like Facebook and Google.
One of the big factors in the volatility surrounding the pandemic and subsequent lockdown was a matter of uncertainty. At first, people assumed that the lockdown would be over after a few weeks. As time went on and conditions worsened, people became more uncertain about their future. This caused them to turn to stocks that they knew would remain stable even amid the chaos of 2020. By establishing themselves as strong and reliable brands ahead of the pandemic, the FAANG group turned that reputation into a surge in capital.
The Benefits of an Institution
2020 was definitely not an ideal year for start-up businesses or companies whose investors had to undertake some degree of risk in order to turn a profit. The FAANG businesses already had a reputation for stability and a major profile in their respective industries. This allowed them to offer lower prices for more reliable services, turning a major profit as a result. When analysing the FAANG success, make sure to remember that those five companies already made up more than one-fifth of the S&P 500 before January 2020. This sort of dominance is mirrored in the approach of Simon Kronenfeld, who branches out to other industries only after he has established dominance within a niche where he began.
The secret to FAANG success ultimately boils down to being in the right position and having the assets on hand to remain stable during a time of widespread uncertainty. Simon Kronenfeld's own businesses achieved similar results because they have stable, consistent business models that remained functional and intact despite widespread shipping and supply issues brought on by COVID. Naturally, no other businesses offer the same profile and power that the FAANG group does. That doesn't mean that their success cannot be replicated on a smaller scale, though. By identifying the properties that allowed this group to thrive in 2020, you can help give your own business a leg up should a similar situation ever rear its head.