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After the closing bell on Wednesday, Facebook reported robust fourth-quarter 2017 results, smashing our top and bottom-line estimates on its booming mobile advertising business.
However, FB shares were hit as much as 5% initially after the results showed lower time spent by users on the platform. But the course reversed with the earnings conference call, as executives discussed double-digit advertising price growth. As such, Facebook shares gave up all of its losses seen early in aftermarket hours and swung to as high as $194.68 (read: FAAMG ETFs to Watch as Q4 Earnings Unfold).
Facebook Solid Q4 Results
Adjusted earnings per share came in at $2.20, crushing the Zacks Consensus Estimate by 24 cents and increasing 77% from the year-ago earnings. Revenues soared 47% year over year to $12.98 billion and edged past our estimate of $12.58 billion. Growing advertising revenues are mainly behind the robust performance.
Advertising revenues grew 48% year over year to $12.8 billion buoyed by Instagram ad sales that continued to drive up mobile advertising. Notably, mobile advertising revenues accounted for 89% of total advertising revenues, up from 84% in the year-ago quarter. Both daily and monthly active users grew 14% year over year to 1.40 billion and 2.13 billion, respectively. Although the time spent on the social platform reduced by 50 million hours per day due to changes to news feed and fewer viral videos, the average price for Facebook ads jumped 43%.
Investors should note that last November, the social media giant warned of higher spending for 2018, 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 expects operating expenses to increase 45-60% this year, higher than 32% recorded in 2017. This would have a significant impact on the company's profitability. Capital spending is also expected to double from last year's level.
Currently, Facebook has a Zacks Rank #2 (Buy) and a top Growth Style Score of A, suggesting that it is primed for more growth in the coming months. However, it belongs to the bottom-ranked Zacks Industry (bottom 14%) (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 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 $175 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 62,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 32 securities in the basket. Of these firms, Facebook takes the third spot, making up roughly 9.5% of assets. In terms of country exposure, United States firms take 43% of the portfolio, closely followed by China (35%), Russia (7%) and South Korea (6%). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Social Media ETF Hits New 52-Week High).
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 140 technology stocks. The fund has AUM of $4.2 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 181,000 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 24.8% share. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
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 $6.1 billion and average daily volume of around 362,000 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 with 7.8% of assets. While information technology makes up for a bigger chunk with 69.1% share, consumer discretionary accounts for 21.6% of assets. The product has a Zacks ETF Rank #2 with a High risk outlook.
This fund offers exposure to U.S. large-cap entrepreneurial companies with the highest market capitalization and composite scores based on six criteria. This can be easily done by tracking the Entrepreneur 30 Index. Holding 31 stocks in its basket, Facebook takes the third spot at 7.7%. About 44% of portfolio is tilted toward technology while consumer discretionary and financials also receive a double-digit exposure each. ENTR has newly debuted in the space and successfully accumulated $63.5 million in AUM within three months. It charges 49 bps in annual fees and trades in moderate volume of 68,000 shares a day on average (read: 8 New ETFs of 2017 to Explode in 2018).
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. It holds about 83 stocks in its basket with AUM of $545.6 million while charging 60 bps in fees per year. The product trades in a lower volume of around 32,000 shares a day. Facebook takes the fifth spot with 7.4% allocation. In terms of industrial exposure, Internet software and services makes up for 54.1% share in the basket, followed by Internet retail (39.3%). PNQI has a Zacks ETF Rank #2 with a High risk outlook (read: Top-Ranked ETFs Crushing the S&P 500 to Start 2018).
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $21.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 9.8 million shares a day on average. It holds about 71 securities in its basket with Facebook occupying the third position at 7.1%. In terms of industrial exposure, the fund is widely spread across software, Internet software & services, IT services, hardware storage & peripherals, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Trump's First Year in Office: 5 Must-See ETF Charts).
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Facebook ETFs to Surge on Q4 Earnings Beat
After the closing bell on Wednesday, Facebook reported robust fourth-quarter 2017 results, smashing our top and bottom-line estimates on its booming mobile advertising business.
However, FB shares were hit as much as 5% initially after the results showed lower time spent by users on the platform. But the course reversed with the earnings conference call, as executives discussed double-digit advertising price growth. As such, Facebook shares gave up all of its losses seen early in aftermarket hours and swung to as high as $194.68 (read: FAAMG ETFs to Watch as Q4 Earnings Unfold).
Facebook Solid Q4 Results
Adjusted earnings per share came in at $2.20, crushing the Zacks Consensus Estimate by 24 cents and increasing 77% from the year-ago earnings. Revenues soared 47% year over year to $12.98 billion and edged past our estimate of $12.58 billion. Growing advertising revenues are mainly behind the robust performance.
Advertising revenues grew 48% year over year to $12.8 billion buoyed by Instagram ad sales that continued to drive up mobile advertising. Notably, mobile advertising revenues accounted for 89% of total advertising revenues, up from 84% in the year-ago quarter. Both daily and monthly active users grew 14% year over year to 1.40 billion and 2.13 billion, respectively. Although the time spent on the social platform reduced by 50 million hours per day due to changes to news feed and fewer viral videos, the average price for Facebook ads jumped 43%.
Investors should note that last November, the social media giant warned of higher spending for 2018, 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 expects operating expenses to increase 45-60% this year, higher than 32% recorded in 2017. This would have a significant impact on the company's profitability. Capital spending is also expected to double from last year's level.
Currently, Facebook has a Zacks Rank #2 (Buy) and a top Growth Style Score of A, suggesting that it is primed for more growth in the coming months. However, it belongs to the bottom-ranked Zacks Industry (bottom 14%) (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 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 $175 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 62,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 32 securities in the basket. Of these firms, Facebook takes the third spot, making up roughly 9.5% of assets. In terms of country exposure, United States firms take 43% of the portfolio, closely followed by China (35%), Russia (7%) and South Korea (6%). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Social Media ETF Hits New 52-Week High).
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 140 technology stocks. The fund has AUM of $4.2 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 181,000 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 24.8% share. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
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 $6.1 billion and average daily volume of around 362,000 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 with 7.8% of assets. While information technology makes up for a bigger chunk with 69.1% share, consumer discretionary accounts for 21.6% of assets. The product has a Zacks ETF Rank #2 with a High risk outlook.
ERShares Entrepreneur 30 ETF (ENTR - Free Report)
This fund offers exposure to U.S. large-cap entrepreneurial companies with the highest market capitalization and composite scores based on six criteria. This can be easily done by tracking the Entrepreneur 30 Index. Holding 31 stocks in its basket, Facebook takes the third spot at 7.7%. About 44% of portfolio is tilted toward technology while consumer discretionary and financials also receive a double-digit exposure each. ENTR has newly debuted in the space and successfully accumulated $63.5 million in AUM within three months. It charges 49 bps in annual fees and trades in moderate volume of 68,000 shares a day on average (read: 8 New ETFs of 2017 to Explode in 2018).
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 83 stocks in its basket with AUM of $545.6 million while charging 60 bps in fees per year. The product trades in a lower volume of around 32,000 shares a day. Facebook takes the fifth spot with 7.4% allocation. In terms of industrial exposure, Internet software and services makes up for 54.1% share in the basket, followed by Internet retail (39.3%). PNQI has a Zacks ETF Rank #2 with a High risk outlook (read: Top-Ranked ETFs Crushing the S&P 500 to Start 2018).
Technology Select Sector SPDR Fund (XLK - Free Report)
This is the most popular technology ETF, which follows the Technology Select Sector Index and has $21.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 9.8 million shares a day on average. It holds about 71 securities in its basket with Facebook occupying the third position at 7.1%. In terms of industrial exposure, the fund is widely spread across software, Internet software & services, IT services, hardware storage & peripherals, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Trump's First Year in Office: 5 Must-See ETF Charts).
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>