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How Are Google ETFs Reacting to Dismal Q1 Earnings?

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Google-parent Alphabet (GOOGL - Free Report) recently reported first-quarter 2022 results, with earnings and revenues lagging estimates. Earnings declined on a year-over-year basis, whereas revenues rose over the prior year. Consequently, Alphabet’s share price has declined about 3.7% since the release of the impressive earnings results on Apr 26.

Q1 Earnings at a Glance

Earnings per share were $24.62, lagging the Zacks Consensus Estimate by 4.2% and decreasing 6.3% year over year. Revenues totaled $68.01 billion, growing 23% year over year (26% at constant currency). Net revenues, excluding total traffic acquisition cost or TAC (TAC is the portion of revenues shared with Google’s partners, and amount paid to distribution partners and others who direct traffic to the Google website), were $56.02 billion, which lagged the consensus mark of $56.17 billion. The figure rose 22.8% from the year-ago quarter.

Alphabet’s first-quarter revenues received some support from the strong momentum across the company’s search and cloud businesses. Strong segmental performance contributed well. However, the company faced some slowdown in spending on advertisement and sluggish growth in the YouTube business in the reported quarter.

The tech giant’s business segments include Google Services, Google Cloud and Other Bets. Revenues from the Google Services business rose 20.1% year over year to $61.50 billion, accounting for 90.4% of quarterly revenues. Under the services business, search revenues from Google-owned sites climbed 24.3% year over year to $39.60 billion. YouTube advertising revenues rose 14.4% year over year to $6.90 billion, while Network advertising revenues climbed 20.2% to $8.20 billion.

Google other revenues — which consist of Google Play and YouTube non-advertising revenues — were $6.80 billion for the first quarter, up 4.9% year over year. Total Google advertising revenues grew 22.3% year over year to $54.70 billion.

Moreover, Google Cloud revenues grew 43.8% year over year to around $5.8 billion, accounting for 8.6% of the quarterly revenues. Notably, with the aggravating coronavirus situation, some industries like cloud computing have been thriving, with most people working from home. Other Bets revenues were $440 million, surging 122.2% year over year, accounting for 0.6% of total first-quarter revenues.

Meanwhile, TAC was up 23.5% year over year to $11.9 billion.

Commenting on the results, Sundar Pichai, CEO of Google and Alphabet, reportedly said, “Q1 saw strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues. We’ll keep investing in great products and services, and creating opportunities for partners and local communities around the world.”

ETFs in Focus                    

The earnings results might have a huge impact on ETFs heavily invested in this Internet giant. Here we have highlighted four ETFs with double-digit exposure to Alphabet (see: all the Technology ETFs here).

Vanguard Communication Services ETF (VOX - Free Report)

This fund targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 108 stocks in its basket, Alphabet takes the second (Class A) and third (Class C) spot, with 12% and 10.9% share, respectively. VOX has AUM of $3.39 billion and charges 10 basis points (bps) in annual fees.

It has lost about 2.1% since Alphabet's first-quarter earnings release. The fund has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Netflix Sinks on Q1 Subscriber Loss: ETFs in Focus).

Fidelity MSCI Communication Services Index ETF (FCOM - Free Report)

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 114 stocks in its basket, with Alphabet occupying the second (Class A) and third position (Class C) at 12.1% and 11.1%. The product has amassed $640.3 million in its asset base and charges 8 bps in annual fees.

The fund is down 2.2% since the earnings results. It has a Zacks ETF Rank #3, with a Medium-risk outlook.

The Communication Services Select Sector SPDR Fund (XLC - Free Report)

This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $10.30 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the second and third positions, with 11.1% and 10.3% weights, respectively. The product charges 10 bps in annual fees.

The fund has declined 2.2% since the earnings release. It has a Zacks ETF Rank #3.

iShares Global Comm Services ETF (IXP - Free Report)

This ETF provides global exposure to companies in media, entertainment, social media, search engine, video/gaming and telecommunication services by tracking the S&P Global 1200 Communication Services 4.5/22.5/45 Capped Index. It holds 73 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the first and third positions, with 11.2% and 10.4% weights, respectively. The fund has amassed $206.5 million in its asset base. Its expense ratio came in at 0.43%.

The fund has lost 1.5% since the earnings release. IXP has a Zacks ETF Rank #3, with a Medium-risk outlook.