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Amazon Fails to Impress Post Q4 Results: Will ETFs Suffer?
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After the closing bell on Thursday, online e-commerce behemoth Amazon (AMZN - Free Report) disappointed investors as holiday-quarter sales fell short of our expectations. The company also provided a downbeat outlook due to increased spending on warehouses, movies and gadgets. However, it came up with an earnings surprise of 10% (read: ETFs to Ride on Amazon's Best Ever Holiday Season).
Q4 Results in Detail
The company reported earnings per share of $1.54, crushing the Zacks Consensus Estimate of $1.40 and increasing from the year-ago quarter of $1.00. Revenues climbed 22% year over year to $43.7 billion missing our estimate of $44.9 billion.
The fast-growing cloud computing business Amazon Web Services (AWS) remained the bright spot during the quarter. Notably, revenues from AWS rose 47% year over year to $3.54 billion (see: all the Technology ETFs here).
Amazon is in the midst of another period of aggressive spending, which will weigh on its profitability. For the ongoing first quarter, the company expects revenues to grow 14–23% to $33.25–$35.75 billion. The mid-point is below analysts’ expectation of $35.95 billion as polled by Reuters and the Zacks Consensus Estimate of $35.83 billion.
Despite the earnings beat, concerns over big spending unnerved investors, pushing shares of AMZN down as much as 4.6% in after-market hours. Further, Amazon has a Zacks Rank #5 (Strong Sell) and falls in the bottom 35% of the Zacks Industry Rank. The company also has a VGM Style Score of C, suggesting more pain for AMZN in the coming months.
ETF Impact
The rough trading in the stock might spread into the ETF world, especially funds with double-digit allocation to this Internet giant. Below we highlight a few funds that would be in focus in the coming days and could see some downside.
This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Among these, AMZN takes the top position in the basket with 15.8% share. The ETF has a certain tilt toward specialty retail, which accounts for 28% share while Internet direct marketing (22%), hypermarkets (12%), drug stores (10%), and healthcare services (10%) round off the top five. The product has amassed $96.5 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 19,000 shares per day. RTH has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook (read: ETFs & Stocks Unfazed by Softer December Retail Sales).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
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 $10.8 billion and an average daily volume of more than 5.4 million shares. Holding 86 securities in its basket, Amazon takes the top spot with 13.6% of assets. Media dominates about one-fourth of the portfolio, while Internet direct marketing, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 1 with a Medium risk outlook.
This fund manages over $2 billion in asset base and provides exposure to 384 energy stocks by tracking the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index. The product sees moderate volume of about 86,000 shares and charges 10 bps in annual fees. Here, Amazon is the top firm with 10.2% allocation. Internet direct marketing, movies & entertainment, and cable & satellite are the top three sectors accounting for a double-digit exposure each. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 375 stocks in its basket. Out of these, AMZN takes the top spot with 11% share. Media holds the top sector with 25.2% share, followed by specialty retail (18.1%), internet & direct marketing retail (17.0%), and hotels restaurants & leisure (15.2%). The product has amassed $234.8 million in its asset base while trades in a moderate volume of around 78,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank of 1 with a Medium risk outlook.
This ETF provides targeted exposure to the domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 185 stocks in its basket with Amazon topping with 10.9% share. In terms of industrial exposure, retailing makes up the largest share with 37.5%, followed by media (24.6%), consumer services (15.2%), and foods & staples retailing (13.5%). The fund has amassed $920.9 million in its asset base while trades in a small volume of 45,000 shares a day on average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3 with a Medium risk outlook.
This ETF debuted in the space nearly nine months ago and has already attracted $2.6 million in its asset base. It trades in a meager volume of under 1,000 shares. It targets companies that have the potential to outperform the broad U.S. consumer discretionary sector and tracks the MSCI USA Consumer Discretionary Diversified Multiple-Factor Capped Index. Holding 43 stocks in its basket, Apple is the top firm accounting for 12.6% of the portfolio. In terms of industrial exposure, approximately 45% of the portfolio is dominated by retailing while media and consumer durables round off the next two spots with a double-digit exposure each. CNDF charges 35 bps in fees per year.
First Trust Dow Jones Internet Index (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad technology space with AUM of $3.5 billion and average daily volume of more than 493,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. Overall, the fund holds 42 stocks, with Amazon occupying the second position with 10.2% share. From a sector look, Internet mobile applications account for half of the portfolio while Internet & direct marketing retail makes up for 21%. FDN has a Zacks ETF Rank of 3 with a High risk outlook (read: 4 Tech ETFs Set to Soar on Facebook's Stellar Q4 Results).
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Amazon Fails to Impress Post Q4 Results: Will ETFs Suffer?
After the closing bell on Thursday, online e-commerce behemoth Amazon (AMZN - Free Report) disappointed investors as holiday-quarter sales fell short of our expectations. The company also provided a downbeat outlook due to increased spending on warehouses, movies and gadgets. However, it came up with an earnings surprise of 10% (read: ETFs to Ride on Amazon's Best Ever Holiday Season).
Q4 Results in Detail
The company reported earnings per share of $1.54, crushing the Zacks Consensus Estimate of $1.40 and increasing from the year-ago quarter of $1.00. Revenues climbed 22% year over year to $43.7 billion missing our estimate of $44.9 billion.
The fast-growing cloud computing business Amazon Web Services (AWS) remained the bright spot during the quarter. Notably, revenues from AWS rose 47% year over year to $3.54 billion (see: all the Technology ETFs here).
Amazon is in the midst of another period of aggressive spending, which will weigh on its profitability. For the ongoing first quarter, the company expects revenues to grow 14–23% to $33.25–$35.75 billion. The mid-point is below analysts’ expectation of $35.95 billion as polled by Reuters and the Zacks Consensus Estimate of $35.83 billion.
Despite the earnings beat, concerns over big spending unnerved investors, pushing shares of AMZN down as much as 4.6% in after-market hours. Further, Amazon has a Zacks Rank #5 (Strong Sell) and falls in the bottom 35% of the Zacks Industry Rank. The company also has a VGM Style Score of C, suggesting more pain for AMZN in the coming months.
ETF Impact
The rough trading in the stock might spread into the ETF world, especially funds with double-digit allocation to this Internet giant. Below we highlight a few funds that would be in focus in the coming days and could see some downside.
VanEck Vectors Retail ETF (RTH - Free Report)
This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Among these, AMZN takes the top position in the basket with 15.8% share. The ETF has a certain tilt toward specialty retail, which accounts for 28% share while Internet direct marketing (22%), hypermarkets (12%), drug stores (10%), and healthcare services (10%) round off the top five. The product has amassed $96.5 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 19,000 shares per day. RTH has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook (read: ETFs & Stocks Unfazed by Softer December Retail Sales).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
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 $10.8 billion and an average daily volume of more than 5.4 million shares. Holding 86 securities in its basket, Amazon takes the top spot with 13.6% of assets. Media dominates about one-fourth of the portfolio, while Internet direct marketing, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank of 1 with a Medium risk outlook.
Vanguard Consumer Discretionary ETF (VCR - Free Report)
This fund manages over $2 billion in asset base and provides exposure to 384 energy stocks by tracking the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index. The product sees moderate volume of about 86,000 shares and charges 10 bps in annual fees. Here, Amazon is the top firm with 10.2% allocation. Internet direct marketing, movies & entertainment, and cable & satellite are the top three sectors accounting for a double-digit exposure each. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report)
This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 375 stocks in its basket. Out of these, AMZN takes the top spot with 11% share. Media holds the top sector with 25.2% share, followed by specialty retail (18.1%), internet & direct marketing retail (17.0%), and hotels restaurants & leisure (15.2%). The product has amassed $234.8 million in its asset base while trades in a moderate volume of around 78,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank of 1 with a Medium risk outlook.
iShares U.S. Consumer Services ETF (IYC - Free Report)
This ETF provides targeted exposure to the domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 185 stocks in its basket with Amazon topping with 10.9% share. In terms of industrial exposure, retailing makes up the largest share with 37.5%, followed by media (24.6%), consumer services (15.2%), and foods & staples retailing (13.5%). The fund has amassed $920.9 million in its asset base while trades in a small volume of 45,000 shares a day on average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3 with a Medium risk outlook.
iShares Edge MSCI Multifactor Consumer Discretionary ETF
This ETF debuted in the space nearly nine months ago and has already attracted $2.6 million in its asset base. It trades in a meager volume of under 1,000 shares. It targets companies that have the potential to outperform the broad U.S. consumer discretionary sector and tracks the MSCI USA Consumer Discretionary Diversified Multiple-Factor Capped Index. Holding 43 stocks in its basket, Apple is the top firm accounting for 12.6% of the portfolio. In terms of industrial exposure, approximately 45% of the portfolio is dominated by retailing while media and consumer durables round off the next two spots with a double-digit exposure each. CNDF charges 35 bps in fees per year.
First Trust Dow Jones Internet Index (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad technology space with AUM of $3.5 billion and average daily volume of more than 493,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. Overall, the fund holds 42 stocks, with Amazon occupying the second position with 10.2% share. From a sector look, Internet mobile applications account for half of the portfolio while Internet & direct marketing retail makes up for 21%. FDN has a Zacks ETF Rank of 3 with a High risk outlook (read: 4 Tech ETFs Set to Soar on Facebook's Stellar Q4 Results).
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 >>