The Fab Five has started to pull back after a fantastic first half start. Down nearly $750 billion in the last two weeks, many analysts and network pundits are beginning to unnecessarily panic about the high-flying group. Perhaps it’s a case of mid-year profit taking (the worst Fab Five stock, Microsoft, is only up 16%) or concerns about inorganic growth regulatory approvals, but the shift from Fab Five “mega caps” into smaller stocks appears to be underway.
We have seen this movie before and believe that it will be short-lived. Given the large cash balances (earning 5%+ rates) with each of the Fab Five as well as their own growth capabilities, we would be very surprised if each Fab Five stock (with the exception of Apple) did not significantly beat earnings. Each Fab Five company is making capital investments (Meta, Amazon, Microsoft, and Google in data center and global network infrastructure) from their operating cash flows (see the net debt tab in the attached file – that trend is unlikely to change), and their ability to raise prices is greater than their smaller peers (see changes in Amazon Prime as well as the pending YouTube TV price increases).
While last week’s Brief focused on earnings expectations for the Telco Top Five, we hope that Google provides an update on their Google Fiber unit. We anticipate a large Private Equity investor to come to the rescue (but we also expected that to occur with Crown Castle, and that has not occurred, at least yet).
Meanwhile, Bloomberg teased the idea that Verizon was going to sell an additional 5,000-6,000 towers for $3 billion (or more). Whether that announcement was made to assuage a mediocre earnings release (due tomorrow morning) or to complement stronger than expected operating cash flows is anyone’s guess. But, if this article from Light Reading is to be believed, they are likely going to fetch far more than the $3 billion sum if that many towers are on the block.
File is below, and updated earnings schedule is nearby.
