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Top-Ranked Tech ETFs to Buy on Facebook's Robust Q3
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After the closing bell on Wednesday, Facebook reported robust third-quarter 2017 results smashing our top and bottom-line estimates on its booming mobile advertising business. Facebook shares popped up more than 2% to new all-time highs in aftermarket hours after the earnings release but fell into the negative territory on a higher spending outlook.
Facebook Solid Q3 Results
Adjusted earnings per share came in at $1.59, crushing the Zacks Consensus Estimate by 31 cents and increasing 77% from the year-ago earnings. Revenues soared 47% year over year to $10.3 billion and edged past our estimate of $9.88 billion. Growing advertising revenues are mainly behind the robust performance.
Advertising revenues grew 49% year over year to $10.1 billion buoyed by strong news feed and Instagram ad sales that continued to drive up mobile advertising. Notably, mobile advertising revenues accounted for 88% of total advertising revenues, up from 84% in the year-ago quarter. Both daily and monthly active users grew 16% year over year to 1.37 billion and 2.07 billion, respectively (read: 5 Red Hot Tech Stocks That Sent S&P 500 ETF Higher).
The social media giant warned of higher spending next year resulting from increased investments in security and preventing abuse, video content, and long-term initiatives, which center on augmented and virtual reality, artificial intelligence and connectivity. As such, the company now expects operating expenses to increase 45-60% next year, higher than this year’s expected rate of 35-40%. This would have a significant impact on the company's profitability. Capital spending is also expected to double from this year's level.
Currently, Facebook has a Zacks Rank #1 (Strong Buy) and a VGM Style Score of B. It boasts a solid Zacks Industry Rank in the top 36% and its revenues and earnings are expected to grow 42.3% and 26.5%, respectively, this year, much better than the industry’s average growth. All these suggest that Facebook is primed for more growth in the coming months (see: all the Technology ETFs here).
ETFs in Focus
Given this, ETF investors are seeking to bet on this networking giant. For them, we have presented six tech ETFs that have a larger allocation to Facebook and could see a surge in the days ahead.
This is the pure play ETF in the global social media space and has amassed $163.4 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 65,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 33 securities in the basket. Of these firms, Facebook takes the top spot, making up roughly 10.4% of assets. In terms of country exposure, U.S. firms take 46% of the portfolio, closely followed by China (31%), Russia (7%) and Germany (6%). The fund has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Buy 5 Top-Ranked ETFs on High P/E for Further Gains).
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 142 technology stocks. The fund has AUM of $3.9 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 188,000 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 26.1% share. The fund has a Zacks ETF Rank #1 with a Medium risk outlook (read: Technology ETF Hits New 52-Week High).
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 $5.1 billion and average daily volume of around 330,000 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 8.4% of assets. While information technology makes up for a bigger chunk of 69.9% share, consumer discretionary accounts for 19.3% of assets. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. It holds about 85 stocks in its basket with AUM of $507.1 million while charging 60 bps in fees per year. The product trades in a light volume of around 40,000 shares a day. Facebook takes the fourth spot with an 8% allocation. In terms of industrial exposure, Internet software and services makes up for 55.4% share in the basket, followed by Internet retail (37.8%). PNQI has a Zacks ETF Rank #1 with a High risk outlook.
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $19.2 billion in AUM. The fund charges 14 bps in fees per year from investors and trades in heavy volume of around 10.1 million shares a day on average. It holds about 73 securities in its basket with Facebook occupying the third position at 7.3%. In terms of industrial exposure, the fund is widely spread across software, Internet software & services, hardware storage & peripherals, IT services, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook.
AdvisorShares New Tech and Media ETF
This is an actively managed ETF designed to invest in companies that are driving economic growth in the modern era, and can adapt to changing leadership by maintaining the ability to invest in the next generation of technology and media companies leading the equity markets. It seeks to provide a similar return stream to the performance of technology and media equity leaders as characterized by the FANG stocks acronym. This approach results in a basket of 26 stocks wherein Facebook takes the third spot with 7.6% allocation. FNG debuted in July and has amassed $30.1 million in its asset base. It trades in average daily volume of 59,000 shares and comes with a high expense ratio of 0.85% (read: Invest in FANG Stocks With These ETFs).
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Top-Ranked Tech ETFs to Buy on Facebook's Robust Q3
After the closing bell on Wednesday, Facebook reported robust third-quarter 2017 results smashing our top and bottom-line estimates on its booming mobile advertising business. Facebook shares popped up more than 2% to new all-time highs in aftermarket hours after the earnings release but fell into the negative territory on a higher spending outlook.
Facebook Solid Q3 Results
Adjusted earnings per share came in at $1.59, crushing the Zacks Consensus Estimate by 31 cents and increasing 77% from the year-ago earnings. Revenues soared 47% year over year to $10.3 billion and edged past our estimate of $9.88 billion. Growing advertising revenues are mainly behind the robust performance.
Advertising revenues grew 49% year over year to $10.1 billion buoyed by strong news feed and Instagram ad sales that continued to drive up mobile advertising. Notably, mobile advertising revenues accounted for 88% of total advertising revenues, up from 84% in the year-ago quarter.
Both daily and monthly active users grew 16% year over year to 1.37 billion and 2.07 billion, respectively (read: 5 Red Hot Tech Stocks That Sent S&P 500 ETF Higher).
The social media giant warned of higher spending next year resulting from increased investments in security and preventing abuse, video content, and long-term initiatives, which center on augmented and virtual reality, artificial intelligence and connectivity. As such, the company now expects operating expenses to increase 45-60% next year, higher than this year’s expected rate of 35-40%. This would have a significant impact on the company's profitability. Capital spending is also expected to double from this year's level.
Currently, Facebook has a Zacks Rank #1 (Strong Buy) and a VGM Style Score of B. It boasts a solid Zacks Industry Rank in the top 36% and its revenues and earnings are expected to grow 42.3% and 26.5%, respectively, this year, much better than the industry’s average growth. All these suggest that Facebook is primed for more growth in the coming months (see: all the Technology ETFs here).
ETFs in Focus
Given this, ETF investors are seeking to bet on this networking giant. For them, we have presented six tech ETFs that have a larger allocation to Facebook and could see a surge in the days ahead.
Global X Social Media Index ETF (SOCL - Free Report)
This is the pure play ETF in the global social media space and has amassed $163.4 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 65,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 33 securities in the basket. Of these firms, Facebook takes the top spot, making up roughly 10.4% of assets. In terms of country exposure, U.S. firms take 46% of the portfolio, closely followed by China (31%), Russia (7%) and Germany (6%). The fund has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Buy 5 Top-Ranked ETFs on High P/E for Further Gains).
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 142 technology stocks. The fund has AUM of $3.9 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 188,000 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 26.1% share. The fund has a Zacks ETF Rank #1 with a Medium risk outlook (read: Technology ETF Hits New 52-Week High).
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 $5.1 billion and average daily volume of around 330,000 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 8.4% of assets. While information technology makes up for a bigger chunk of 69.9% share, consumer discretionary accounts for 19.3% of assets. The product has a Zacks ETF Rank #2 (Buy) 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 85 stocks in its basket with AUM of $507.1 million while charging 60 bps in fees per year. The product trades in a light volume of around 40,000 shares a day. Facebook takes the fourth spot with an 8% allocation. In terms of industrial exposure, Internet software and services makes up for 55.4% share in the basket, followed by Internet retail (37.8%). PNQI has a Zacks ETF Rank #1 with a High risk outlook.
Technology Select Sector SPDR Fund (XLK - Free Report)
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $19.2 billion in AUM. The fund charges 14 bps in fees per year from investors and trades in heavy volume of around 10.1 million shares a day on average. It holds about 73 securities in its basket with Facebook occupying the third position at 7.3%. In terms of industrial exposure, the fund is widely spread across software, Internet software & services, hardware storage & peripherals, IT services, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook.
AdvisorShares New Tech and Media ETF
This is an actively managed ETF designed to invest in companies that are driving economic growth in the modern era, and can adapt to changing leadership by maintaining the ability to invest in the next generation of technology and media companies leading the equity markets. It seeks to provide a similar return stream to the performance of technology and media equity leaders as characterized by the FANG stocks acronym. This approach results in a basket of 26 stocks wherein Facebook takes the third spot with 7.6% allocation. FNG debuted in July and has amassed $30.1 million in its asset base. It trades in average daily volume of 59,000 shares and comes with a high expense ratio of 0.85% (read: Invest in FANG Stocks With These ETFs).
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 >>