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Social Media ETFs to Gain as Twitter Prepares for S&P 500

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June seems to have brought good tidings for the tech space. On Jun 4, the Nasdaq hit an all-time high with several tech biggies touching a new record and the S&P Dow Jones Indices announced that Twitter (TWTR - Free Report) will substitute Monsanto on the S&P 500.

The changes will be put into effect before the market opens on Jun 7, after German pharmaceutical and life sciences company Bayer completes its $63 billion acquisition of Monsanto. Twitter, which gained 3.5% on Jun 4, rose considerably in extended trading on Monday, per CNBC.

Notably, Twitter — the short messing service company — has a Zacks Rank #1 (Strong Buy). It comes from a top-ranked Zacks industry (top 34%) and has a VGM Score of C. The company’s first-quarter 2018 non-GAAP earnings per share of 16 cents beat the Zacks Consensus Estimate of 12 cents. The figure also showed an improvement over the year-ago quarter’s 7 cents.

Revenues of $665 million rose 21% from the year-ago quarter and beat the consensus mark of $609.3 million. The social media company's emergence in live video and more personalized content appears to have started yielding results. However, the stock tumbled post the release of Q1 results due to a weak guidance (read: Twitter Tops Yet Tumbles on Weak Guidance: ETFs in Focus).

Post that selloff, Twitter stock should be fairly valued at the current level and should ride higher on the inclusion in the S&P 500. Investors should note that another tech company, Netflix (NFLX - Free Report) will take the agricultural giant's position on the S&P 100. The stock has a Zacks Rank #3 (Hold).

Why Are Social Media Stocks Gaining Precedence?

It seems to be the right move to tap the power of social media. Per Statista,the number of monthly active social media users worldwide is expected to reach about 3.02 billionby 2021, ‘around a third of Earth’s entire population.’

Investors should note that millennials, that are slowly turning out to be the backbone of the U.S. economy, indulge in social media. As per a report by Goldman Sachs’ Global Investment Research, 44% of millennials are into text messaging, 38% into both social media and instant messaging and 16% into blogging.

The percentages are higher than any other generation. As of 2017, 81% of the United States population had a social networking profile. Last but not the least, Twitter has been attaining gradual stability over time, which acted as an entry card to the S&P 500 (read: 4 ETF Ideas to Follow Millennials' Lifestyle).

Why Social Media ETFs Are Likely to Gain

Twitter’s jump will likely have a considerable impact on Global X Social Media ETF (SOCL - Free Report) . Twitter takes about 12.28% of SOCL, holding the top position. As a result, the company’s performance is crucial to the entire social media sector.

The product charges 65 bps in annual fees. SOCL has company-specific concentration risk, putting more than 60% investments in its top 10 holdings. At the current level, SOCL carries a Zacks ETF Rank #3 (Hold) with a High-risk outlook.

Another ETF that will be impacted by Twitter’s earnings is AdvisorShares New Tech And Media ETF (FNG - Free Report) . Twitter takes about 5% of the fund while Netflix holds about 6%. Yet another ETF, BUZZ US Sentiment Leaders ETF (BUZ - Free Report) , puts 3.38% weight in Twitter, which is the fund’s top holding. Netflix takes the fourth position with 3.24% weight.

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