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Top-Ranked ETFs to Buy on Alphabet's Robust Q3 Results

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Google’s parent company Alphabet Inc.’s (GOOGL - Free Report) shares gained nearly 1% in after-hour trading yesterday on the back of its robust third-quarter earnings performance. Both earnings and revenues not only outpaced the estimates, but also recorded healthy year-on-year gains in the quarter.

The company’s CFO, Ruth Porat said: “We had a great third quarter... Mobile search and video are powering our core advertising business and we’re excited about the progress of newer businesses in Google and Other Bets.”

A Detailed Look into Q3 Performance 

Alphabet reported GAAP earnings of $7.25 per share during the quarter, surpassing the Zacks Consensus Estimate of $6.64. Earnings surged 26.5% from the year-ago level. Revenues (excluding total traffic acquisition costs) of $18.27 billion were much above the Zacks Consensus Estimate of $17.91 billion. Also, it jumped 19.3% year on year.

Moreover, the company’s GAAP operating income soared 22.5% from the year-ago level to $5.77 billion during the quarter (read: 4 ETFs to Tap Alphabet Post Upbeat Q2 Earnings).

Impressive performances by the company’s two broader segments – Google and Other Bets – primarily drove growth during the quarter. While revenues at the Google segment surged nearly 20.1% year over year to $22.25 billion in the third quarter, Other Bets segment revenues jumped 39.7% from the year-ago-level to $197 million. Strong year-over-year growth in revenues from Google websites (up 23%), Google Network Members' websites (up 1%) and Google advertising revenues (up 18%) primarily boosted the Google segment during the quarter. Total traffic acquisition costs were almost $4 billion, accounting for 21% of total advertising revenue.

Though the Other Bets segment registered an operating loss of $865 million during the third quarter, it was significantly narrower than a loss of $980 million incurred in the prior-year quarter. Separately, cost per click (CPC) was down 5% year over year. Paid clicks were up 9% year over year.  Alphabet benefited from increased use of Mobile Search by consumers, thanks to the ongoing efforts to enhance the Mobile Search experience.

The company also witnessed strong Desktop and Tablet Search and YouTube and programmatic advertising. Meanwhile, the company got an approval from its board of directors to buy back at most $7,019,340,976.83 of its Class C shares (read: Catch Cloud with These ETFs).

Top-Ranked ETFs to Buy

As the after-hour market movement suggests, investors’ sentiment remained positive about Alphabet, which might provide a significant boost to the company’s shares in the days ahead. Technology ETFs having significant exposure to the Internet behemoth are poised to gain from this encouraging environment. Hence, we have highlighted three such ETFs, which also carry a Zacks ETF Rank #1 (Strong Buy).

Vanguard Information Technology ETF VGT

This fund provides a broad exposure to the technology sector within the U.S. by tracking the MSCI US IMI Info Technology 25/50. The fund has accumulated AUM of $10 billion while charging 10 bps in fees per year. Volume is moderate at 369,000. In total, the fund holds 373 stocks in its basket. Out of these, Alphabet takes the second spot at 10.1%. In terms of industrial exposure, Software makes up for almost one-third share in the basket. The fund gained 3.9% over the past three-month period (read: 10 Tech ETFs Set to Surge on Microsoft's Robust Q1).

iShares US Technology IYW

This ETF tracks the Dow Jones U.S. Technology Index, giving investors exposure to the broad technology space. The fund holds 141 stocks in its basket with AUM of $3 billion while charging 44 bps in fees and expenses. It exchanges more than 243,000 shares a day. Of the major holdings, GOOGL has a weight of 6.4%. The product is heavily skewed toward the software & services segment, accounting for 54.3% of the holdings. The fund has returned 4.2% over the past three-month period (read: Tech ETFs to Watch Post Apple's Mixed Bag Q4).

Technology Select Sector SPDR ETF XLK

This technology ETF follows the Technology Select Sector Index and is by far the most popular choice within the technology domain. It has $13.1 billion in AUM. This fund trades in heavy volume of roughly 9 million shares and charges 14 bps in fees per year from investors. In total, the fund holds about 74 securities in its basket.

Of these firms, Alphabet is among the top five, making up roughly 5.4% of the assets. Internet Software & Services, which gets 20% of the fund assets, is the top sector in terms of holdings, closely followed by Software (19%) and Technology Hardware Storage & Peripherals (16.2%). The fund gained 2.6% over the past three-month period.

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