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What's in Store for Facebook ETFs This Earnings Season?
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Social media giant Facebook is set to release first-quarter fiscal 2018 results on Apr 25 after market close. The company witnessed a tumultuous ride in recent months following the data breach report from Cambridge Analytica. In fact, the stock slipped into correction territory and erased about $50 billion in its market-cap value on the news in a week (read: 4 Tech ETFs That Tumbled Most on Facebook Data Scandal).
Despite the slide, Facebook has been able to outperform the industry by a margin of 1.7% from a year-to-date look. The outperformance might continue given the positive earnings revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals though earnings surprise is difficult to predict at this time.
Inside Our Methodology
Facebook has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.47%, implying that a beat cannot be predicted this quarter. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP makes us confident in predicting an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although the stock saw negative earnings estimate revision of a couple of cents over the past 30 days for the first quarter, the earnings estimates have moved up by 12 cents over the past 90 days. Additionally, Facebook’s earnings surprise history is robust, with a positive earnings surprise of 15.78% on average over the past four quarters. It is expected to post solid earnings growth of 10.58% and revenue growth of 42.66% in Q1 (read: 5 Reason Why FANG ETFs Lost Their Charm in March).
The stock has a top Growth Style Score of A but Value and Momentum Score of D and C, respectively, look ugly. According to the analysts polled by Zacks, Facebook has an average target price of $215.63 with 93% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This represents 30% upside from the current price.
What to Watch?
After a data scandal, the social media giant is subject to increased regulatory pressure, and could have to spend more cash to examine content and protect data. This would amplify the already higher spending expectation for 2018. In the last earnings report, 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.
ETFs in Focus
Given Facebook's attractive fundamentals, investors could focus on ETFs having the largest allocation to the social media giant. While there are several ETFs in the space having FB in their basket, we have highlighted five funds that have the social media giant in their top five holdings (see: all the Technology ETFs here):
Global X Social Media Index ETF (SOCL - Free Report) — The fund has delivered returns of 3.8% since the start of the year and carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. Facebook takes the third spot with 8.8% allocation.
First Trust Dow Jones Internet Index (FDN - Free Report) — The fund has gained 14.1% in the same time frame and has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Here, FB occupies the second position, accounting for 7.8% share (read: Should You Buy Beaten Down FANG ETFs Ahead of Q1 Earnings?).
iShares Dow Jones US Technology ETF (IYW - Free Report) — This product has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook and has gained 4.4% since the start of the year. Facebook is the third firm with 7.5% allocation (read: Tech ETFs to Buy After Massive Selloff).
PowerShares Nasdaq Internet Portfolio (PNQI - Free Report) — It has climbed 12.2% year to date and has a Zacks ETF Rank #3 with a High risk outlook. Here, Facebook takes the fifth spot with 7.5% share.
Select Sector SPDR Technology ETF (XLK - Free Report) – The fund has added 3.5% in the same time frame and carries a Zacks ETF Rank #2 with a Medium risk outlook. Facebook occupies the third position and accounts for 6.5% share.
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What's in Store for Facebook ETFs This Earnings Season?
Social media giant Facebook is set to release first-quarter fiscal 2018 results on Apr 25 after market close. The company witnessed a tumultuous ride in recent months following the data breach report from Cambridge Analytica. In fact, the stock slipped into correction territory and erased about $50 billion in its market-cap value on the news in a week (read: 4 Tech ETFs That Tumbled Most on Facebook Data Scandal).
Despite the slide, Facebook has been able to outperform the industry by a margin of 1.7% from a year-to-date look. The outperformance might continue given the positive earnings revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals though earnings surprise is difficult to predict at this time.
Inside Our Methodology
Facebook has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.47%, implying that a beat cannot be predicted this quarter. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP makes us confident in predicting an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Although the stock saw negative earnings estimate revision of a couple of cents over the past 30 days for the first quarter, the earnings estimates have moved up by 12 cents over the past 90 days. Additionally, Facebook’s earnings surprise history is robust, with a positive earnings surprise of 15.78% on average over the past four quarters. It is expected to post solid earnings growth of 10.58% and revenue growth of 42.66% in Q1 (read: 5 Reason Why FANG ETFs Lost Their Charm in March).
The stock has a top Growth Style Score of A but Value and Momentum Score of D and C, respectively, look ugly. According to the analysts polled by Zacks, Facebook has an average target price of $215.63 with 93% giving a Strong Buy or a Buy rating ahead of the company’s earnings. This represents 30% upside from the current price.
What to Watch?
After a data scandal, the social media giant is subject to increased regulatory pressure, and could have to spend more cash to examine content and protect data. This would amplify the already higher spending expectation for 2018. In the last earnings report, 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.
ETFs in Focus
Given Facebook's attractive fundamentals, investors could focus on ETFs having the largest allocation to the social media giant. While there are several ETFs in the space having FB in their basket, we have highlighted five funds that have the social media giant in their top five holdings (see: all the Technology ETFs here):
Global X Social Media Index ETF (SOCL - Free Report) — The fund has delivered returns of 3.8% since the start of the year and carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. Facebook takes the third spot with 8.8% allocation.
First Trust Dow Jones Internet Index (FDN - Free Report) — The fund has gained 14.1% in the same time frame and has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Here, FB occupies the second position, accounting for 7.8% share (read: Should You Buy Beaten Down FANG ETFs Ahead of Q1 Earnings?).
iShares Dow Jones US Technology ETF (IYW - Free Report) — This product has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook and has gained 4.4% since the start of the year. Facebook is the third firm with 7.5% allocation (read: Tech ETFs to Buy After Massive Selloff).
PowerShares Nasdaq Internet Portfolio (PNQI - Free Report) — It has climbed 12.2% year to date and has a Zacks ETF Rank #3 with a High risk outlook. Here, Facebook takes the fifth spot with 7.5% share.
Select Sector SPDR Technology ETF (XLK - Free Report) – The fund has added 3.5% in the same time frame and carries a Zacks ETF Rank #2 with a Medium risk outlook. Facebook occupies the third position and accounts for 6.5% share.
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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 >>