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ETFs to Gain as Amazon Crushes Q2 Estimates

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Amazon.com, Inc. (AMZN - Free Report) came up with strong second-quarter earnings results on Jul 28, which led shares of the company to gain in after-hour trading. Aside from witnessing strong growth in both earnings and revenues, Amazon easily outpaced our consensus estimates. These encouraging numbers are also likely to boost ETFs that have significant exposure to this e-commerce behemoth.

Amazon’s Q2 Results in Detail

The company reported second-quarter earnings per share of $1.78 that surpassed the Zacks Consensus Estimate of $1.14 and surged from the year-ago earnings of only 19 cents. Revenues climbed 31% year over year to $30.4 billion and topped our estimate of $29.73 billion. Moreover, operating income during the quarter jumped to $1.3 billion from the year-ago quarter’s $464 million. Net income of $857 million also showed a staggering increase from the year-ago figure of $92 million (Read: Amazon Stock Pops on Stellar Q1 Results: ETFs to Benefit).

Strong growth witnessed in its cloud business segment, Amazon Web Services (AWS), was cited as one of the key catalysts behind the impressive second-quarter results. Revenues from AWS rose 58.2% year over year and 12.5% sequentially to $2.89 billion. Also, operating income from the unit more than doubled from the year-ago period to $718 million. Separately, a 28.1% year-over-year surge in North America sales played an important role in boosting the company’s performance (read: U.S. Equity ETFs Attracting Healthy Inflows).

What Lies Ahead?

For the ongoing third quarter, the company expects revenues to grow 22–32% to $31–$33.5 billion, the midpoint of which is higher than our current estimate of $31.62 billion. Incredible growth in its Prime service, AWS division, and Prime Day sales is poised to boost its performance further in the coming months. Meanwhile, initiatives taken by the company to boost its business in India and the launch of Amazon Fresh in London are also expected to have a positive impact on its performance in the coming days.

On the conference call, founder and CEO of Amazon, Jeff Bezos said: “It’s been a busy few months for Amazon around the world, and particularly in India — where we launched a new AWS Region, introduced Prime with unlimited free shipping, and announced that Prime Video is coming soon, offering Prime members in India exclusive access to Amazon Original Series and Movies.” Amazon currently has a Zacks Rank #3 (Hold) with Growth and Momentum Style Scores of ‘A’ and ‘B,’ respectively.

ETFs to Benefit

Amazon’s shares gained 2% in after-hour trading yesterday following its second-quarter earnings release. The company’s impressive results are likely to continue boosting its shares in the days ahead. ETFs that have significant exposure to Amazon are also poised to gain from this encouraging backdrop. 

Below we highlight some of funds that would be in focus in the coming days and could see some upside post AMZN results. These funds have a solid Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their outperformance in the coming days:

VanEck Vectors Retail ETF RTH

This fund provides exposure to the 26 largest retail firms by tracking the MVIS U.S. Listed Retail 25 Index. Of these, AMZN takes the top position in the basket with 15.1% share. The ETF has a certain tilt toward specialty retail, which accounts for 28% share while Internet retail (19%), hypermarkets (12%), department stores (11%) and healthcare services (11%) round off to the top five. The product has amassed $133.8 million in its asset base and charges 35 bps in annual fees. Volume is moderate as it exchanges nearly 34,000 shares per day. RTH has a Zacks ETF Rank #1 with a Medium risk outlook (read: June Retail Sales Rejoice: ETFs & Stocks to Bet On).

Consumer Discretionary Select Sector SPDR Fund XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $10.2 billion and average daily volume of around 6 million shares. Holding 89 securities in its basket, Amazon takes the top spot with 12.3% of assets. Media and specialty retail dominate with more than 40% of the portfolio while Internet retail, and hotels restaurants and leisure round off the next two spots, with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank #2 with a Medium risk outlook.

First Trust Dow Jones Internet ETF FDN

This is one of the most popular and liquid ETFs in the broad technology space with AUM of $3.2 billion and average daily volume of more than 575,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds 41 stocks, with Amazon taking the second spot at 9.9%. From a sector look, Internet mobile applications account for half of the portfolio while Internet retail makes up for 20%. FDN has a Zacks ETF Rank #2 with a High risk outlook (read: 4 ETFs to Ride on Facebook's Spectacular Results).

Fidelity MSCI Consumer Discretionary ETF FDIS

This fund follows the MSCI USA IMI Consumer Discretionary Index, giving investors exposure to the broad consumer discretionary industry. The fund holds about 385 stocks in its basket with AUM of $261.4 million, while charging only 8 bps in fees per year. It trades in an impressive volume of around 100,000 shares a day. Amazon occupies the top position with 9.8% allocation. In terms of industrial exposure, media makes up for 22.9% share in the basket, followed by speciality retail (19.5%). FDIS has a Zacks ETF Rank #1 with a Medium risk outlook.

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