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What’s Next For FANG Stocks After Brexit?

In the wee early hours Friday morning, the news hit the British are exiting the European Union. The so-called Brexit vote not only caused havoc in the political arena, but also crippled stocks globally and high-profile tech and Internet giants such as Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google parent Alphabet (NASDAQ:GOOGL) were not protected behind any kind of firewall.

Amid the carnage, some analysts see opportunities when the dust settles as the U.K. exit may benefit some companies given that the European Union has somewhat been a barrier into their trade activities.

BrexitBut to Silicon Valley, it is a nightmare shining light on the risk and uncertainty for the biggest Internet gurus. Regulation and revenue are at the heart of concerns, two “r’s” that investors don’t like to worry about. The four majors that comprise the acronym “FANG” rely upon overseas activity to grow sales to different degrees, so recession threats can cast a dark cloud on that matter.

According to Laura Martin CEO of Capital Knowledge Needham & Company, the decision spells challenges to Facebook, who gets 80 percent of its daily users outside the United States. Amazon has already disclosed its plans to expand in the United Kingdom, pledging to open two new fulfillment centers. The Brexit can cause Amazon a headache with regards to higher costs, issues with finding the proper labor force and economic sluggishness deflating sales. Further, Amazon may have been looking to England as a gateway to greater penetration in the E.U., a doorway that has now been closed.

Netflix has saturated the U.S. market and its growth story and capital investment is overseas. A strong U.S. dollar doesn’t help Netflix and demand could be stunted with economic uncertainty rolling throughout Europe. Martin sees any damage related to either demand or currency can have a negative impact on Netflix as it’s multiple is already pricing in expansion.

When it comes to revenue, Google is in the best shape of the lot. The search giant is without question the dominant player in Europe, but still only derives about 10 percent of its revenue from the region, so it is relatively insulated.

Questions regarding regulation are purely speculative. Great Britain spearheaded efforts within the European Union to adopt lenient tech regulatory policy. Now that Britain’s gone, analysts wonder if the E.U. will tighten policy on handling personal data and what will happen with cross-border data transfer. U.K. Information Commissioner Christopher Graham has already said that his nation’s Data Protection Act will remain intact. However, there is confusion as to cohesiveness between the E.U.’s more rigid General Data Protection Regulation, how much policy will have to be re-written and what it will look like when all is said and done.

Since the close on Thursday ahead of the Brexit news, shares of Facebook and Alphabet are down about 5 percent. Amazon has suffered the least from a stock price perspective, shedding around 4 percent, while Netflix has been hit the hardest, falling about 6.5 percent.

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