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After the closing bell on Wednesday, Facebook reported robust first-quarter 2017 results smashing our top and bottom line estimates buoyed by its fast-growing mobile advertising business. However, the social media giant continued to caution on slowdown in advertising revenues growth this year. This alarmed investors, sending FB shares down as much as 4.2% in aftermarket hours.
Facebook Solid Q1 Results
Adjusted earnings per share (accounting for stock-based compensation) came in at $1.04, crushing the Zacks Consensus Estimate by 16 cents. Revenues soared 49% year over year to $8.03 billion and edged past our estimate of $7.85 billion. Growing advertising revenue is the major reason for the robust performance.
Advertising revenues grew 51% year over year to $7.86 billion. Notably, mobile advertising revenues accounted for 85% of total advertising revenue, up from 82% in the year-ago quarter. The upward trend will likely continue as Facebook is expected to garner about $31.9 billion in global ad revenue this year, up 42.1% from a year earlier according to eMarketer. The company will continue to reap the benefits of a big push into video both on Facebook itself and on Instagram. It is the world's No. 2 digital ad publisher behind Alphabet (GOOGL - Free Report) (read: ETFs in Focus After Alphabet's Impressive Q1 Show).
Facebook no longer breaks down its user numbers into mobile and non-mobile. Altogether, daily active users grew 18% year over year to 1.28 billion while monthly active users grew 17% year over year to 1.94 billion.
Any Reason to Worry?
The company reaffirmed that its ad load (the ratio of ads to personal posts), one of the three key contributors to advertising revenue growth, will taper in the second half of 2017, resulting in slower ad revenue. In addition, CEO Mark Zuckerberg and CFO David Wehner both cautioned that 2017 would be a year of aggressive investment with a substantial increase in expenses as Facebook ramps up hiring.
However, the world's biggest online social network is planning to launch new types of advertising features, such as ads that play in the middle of videos or appear on Facebook's Messenger app, that could fuel growth and offset the expected slowdown in its main revenue stream.
Currently, Facebook has a Zacks Rank #3 (Hold) with a VGM Style Score of B and a solid Zacks Industry Rank in the top 30%. Additionally, the company’s revenue and earnings are expected to grow 38.02% and 21.21%, respectively, this year, much better than the industry average growth. All these suggest the current dip could be an attractive buying opportunity (read: Technology ETFs Set to Rally on Q1 Earnings).
ETFs in Focus
Given this, many investors may want to cash in the beaten down prices in the basket form with lower risk. For them, we have presented five tech ETFs that have a larger allocation to this networking giant and will be in focus in the days ahead (see: all the Technology ETFs here).
This is the pure play ETF in the global social media space and has amassed $100.8 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 77,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 34 securities in the basket. Of these firms, Facebook takes the second spot, making up roughly 9.9% of assets. In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China (27%), Russia (7%) and Japan (6%). The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Twitter Soars on Q1 Results: Sign in to Social Media ETF).
First Trust Dow Jones Internet Index Fund (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad technology space with AUM of $4.3 billion and average daily volume of around 419,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.54%. Facebook occupies the second position in the basket with 8.5% of assets. While information technology makes up for a bigger chunk of 70.2% share, consumer discretionary accounts for 20% of assets. The product has a Zacks ETF Rank of 3 with a High risk outlook.
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. It holds about 90 stocks in its basket with AUM of $363.6 million while charging 60 bps in fees per year. The product trades in a light volume of around 23,000 shares a day. Facebook takes the top spot with an 8.2% allocation. In terms of industrial exposure, Internet software and services makes up for 42.9% share in the basket, followed by Internet retail (32.6%). PNQI has a Zacks ETF Rank of 3 with a High risk outlook (read: What Made Internet ETFs Outperform in the Bull Market).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 136 technology stocks. The fund has AUM of $3.5 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 257,000 shares in hand a day. Facebook occupies the third position in the basket with 8.2% of assets. More than half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 27.8% share. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
This most popular technology ETF follows the Technology Select Sector Index and has $17.4 billion in AUM. The fund charges 14 bps in fees per year from investors and trades in heavy volume of around 9 million shares a day on average. It holds about 75 securities in its basket with Facebook occupying the third position at 7%. In terms of industrial exposure, the fund is widely spread across Internet software & services, software, hardware storage & peripherals, IT services, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
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Tech ETFs to Buy on Solid Facebook Q1 Results
After the closing bell on Wednesday, Facebook reported robust first-quarter 2017 results smashing our top and bottom line estimates buoyed by its fast-growing mobile advertising business. However, the social media giant continued to caution on slowdown in advertising revenues growth this year. This alarmed investors, sending FB shares down as much as 4.2% in aftermarket hours.
Facebook Solid Q1 Results
Adjusted earnings per share (accounting for stock-based compensation) came in at $1.04, crushing the Zacks Consensus Estimate by 16 cents. Revenues soared 49% year over year to $8.03 billion and edged past our estimate of $7.85 billion. Growing advertising revenue is the major reason for the robust performance.
Advertising revenues grew 51% year over year to $7.86 billion. Notably, mobile advertising revenues accounted for 85% of total advertising revenue, up from 82% in the year-ago quarter. The upward trend will likely continue as Facebook is expected to garner about $31.9 billion in global ad revenue this year, up 42.1% from a year earlier according to eMarketer. The company will continue to reap the benefits of a big push into video both on Facebook itself and on Instagram. It is the world's No. 2 digital ad publisher behind Alphabet (GOOGL - Free Report) (read: ETFs in Focus After Alphabet's Impressive Q1 Show).
Facebook no longer breaks down its user numbers into mobile and non-mobile. Altogether, daily active users grew 18% year over year to 1.28 billion while monthly active users grew 17% year over year to 1.94 billion.
Any Reason to Worry?
The company reaffirmed that its ad load (the ratio of ads to personal posts), one of the three key contributors to advertising revenue growth, will taper in the second half of 2017, resulting in slower ad revenue. In addition, CEO Mark Zuckerberg and CFO David Wehner both cautioned that 2017 would be a year of aggressive investment with a substantial increase in expenses as Facebook ramps up hiring.
However, the world's biggest online social network is planning to launch new types of advertising features, such as ads that play in the middle of videos or appear on Facebook's Messenger app, that could fuel growth and offset the expected slowdown in its main revenue stream.
Currently, Facebook has a Zacks Rank #3 (Hold) with a VGM Style Score of B and a solid Zacks Industry Rank in the top 30%. Additionally, the company’s revenue and earnings are expected to grow 38.02% and 21.21%, respectively, this year, much better than the industry average growth. All these suggest the current dip could be an attractive buying opportunity (read: Technology ETFs Set to Rally on Q1 Earnings).
ETFs in Focus
Given this, many investors may want to cash in the beaten down prices in the basket form with lower risk. For them, we have presented five tech ETFs that have a larger allocation to this networking giant and will be in focus in the days ahead (see: all the Technology ETFs here).
Global X Social Media Index ETF (SOCL - Free Report)
This is the pure play ETF in the global social media space and has amassed $100.8 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 77,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 34 securities in the basket. Of these firms, Facebook takes the second spot, making up roughly 9.9% of assets. In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China (27%), Russia (7%) and Japan (6%). The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Twitter Soars on Q1 Results: Sign in to Social Media ETF).
First Trust Dow Jones Internet Index Fund (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad technology space with AUM of $4.3 billion and average daily volume of around 419,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.54%. Facebook occupies the second position in the basket with 8.5% of assets. While information technology makes up for a bigger chunk of 70.2% share, consumer discretionary accounts for 20% of assets. The product has a Zacks ETF Rank of 3 with a High risk outlook.
PowerShares Nasdaq Internet Portfolio (PNQI - Free Report)
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. It holds about 90 stocks in its basket with AUM of $363.6 million while charging 60 bps in fees per year. The product trades in a light volume of around 23,000 shares a day. Facebook takes the top spot with an 8.2% allocation. In terms of industrial exposure, Internet software and services makes up for 42.9% share in the basket, followed by Internet retail (32.6%). PNQI has a Zacks ETF Rank of 3 with a High risk outlook (read: What Made Internet ETFs Outperform in the Bull Market).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 136 technology stocks. The fund has AUM of $3.5 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 257,000 shares in hand a day. Facebook occupies the third position in the basket with 8.2% of assets. More than half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 27.8% share. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
Technology Select Sector SPDR Fund (XLK - Free Report)
This most popular technology ETF follows the Technology Select Sector Index and has $17.4 billion in AUM. The fund charges 14 bps in fees per year from investors and trades in heavy volume of around 9 million shares a day on average. It holds about 75 securities in its basket with Facebook occupying the third position at 7%. In terms of industrial exposure, the fund is widely spread across Internet software & services, software, hardware storage & peripherals, IT services, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>