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Should You Buy Facebook ETFs Ahead of Q4 Earnings?

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Social media giant Facebook FB is set to release fourth-quarter fiscal 2019 results on Jan 29 after market close. The stock has returned 13.5% over the past three months, on par with the industry’s gain. The upside is expected to continue as Facebook is poised to beat the earnings estimate going by the Zacks methodology given the positive earnings revision trend, which is generally a precursor to an earnings beat, and attractive fundamentals.

The momentum is expected to continue if the company beats estimates in the soon-to-be reported quarter.

Earnings Whispers

Facebook has a Zacks Rank #3 (Hold) and an Earnings ESP of +2.62%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Facebook saw positive earnings estimate revision of a penny over the past 30 days for the soon-to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator for the stock. The Zacks Consensus Estimate for Q4 earnings indicates growth of 5.46% from the year-ago reported figure. Revenues are expected to increase 23.4% in the soon-to-be-reported quarter.

However, the company delivered average negative earnings surprise of 20.06% in the past four quarters. The stock belongs to a bottom-ranked Zacks Industry (bottom 33%) but has a VGM Score of A.

The Zacks Consensus Estimate for Facebook’s average target price is $241.81, with nearly 90% of the analysts giving a Strong Buy or a Buy rating ahead of the company’s earnings. This represents about 12.5% upside from the current price (read: FAANG ETFs in the Spotlight Ahead of Q4 Earnings).

What to Watch

Investors will be watching for signs of progress on newer initiatives like peer-to-peer payments and commerce, as well as continued strength in Facebook's core ad business. In the last reported quarter, the social media giant warned of “pronounced deceleration” in Q4 revenues amid overlapping products and “ad-targeting headwinds.” Also, the company expects new rules and product changes aimed at protecting users' privacy to result in a slowdown in revenue growth this year and significantly raise expenses.

ETFs in Focus

Given this, ETFs having the highest allocation to the social media giant will be in focus going into its earnings announcement. These funds would be the potential movers if Facebook comes up with a positive earnings surprise. While there are several ETFs in the space with FB in their basket, we have highlighted six funds that have the social media giant in their top five holdings:

Communication Services Select Sector SPDR XLC — The ETF has accumulated $7.5 billion and has a Zacks ETF Rank #2 (Buy). Facebook takes the top spot with 19.8% of the portfolio (read: A Look Back At S&P 500 Sector ETFs in 2019).

Fidelity MSCI Communication Services Index ETF FCOM — This fund manages $510.9 million in its asset base and has a Zacks ETF Rank #3 (Hold). Facebook takes the top spot, making up for 15.3% share.

Vanguard Communication Services ETF VOX — The fund has $2.2 billion in AUM and carries a Zacks ETF Rank #3. Facebook occupies the second position and accounts for 14.8% share (read: ETFs in Focus on Netflix's Solid Q4 But Weak Outlook).

iShares Global Comm Services ETF IXP — This fund has AUM of $244.6 million and a Zacks ETF Rank #3. Facebook takes the top spot, making up for 12.9% share.

Global X Social Media Index ETF (SOCL - Free Report) — The fund has amassed $134.3 million in its asset base and carries a Zacks ETF Rank #3. Facebook takes the top spot with 10.1% allocation (read: 10 ETFs Crushing the Market to Start 2020).

MicroSectors FANG+ ETN FNGS - This ETN accounts for 10% share in Facebook and has accumulated $35.6 million in its asset base within three months of debut.

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