After the closing bell on Thursday, the online e-commerce behemoth Amazon.com, Inc. (AMZN) disappointed investors with a wide Q3 earnings miss and a downbeat outlook for the holiday quarter on increased spending on shipping, video offerings and other projects.
Amazon reported earnings per share of 52 cents per share, up over 200% year over year but way below the Zacks Consensus Estimate of 85 cents. Revenues climbed 29% year over year to $32.7 billion and topped our estimate of $32.6 billion.
Though the retail segment was not strong as the company doubled its spending on the creation and marketing of movies and TV shows ahead of the holiday season, higher-than-expected revenues were credited to the fast-growing cloud computing business.
Notably, revenues from the cloud computing business, Amazon Web Services (AWS), rose 55% year over year to $3.23 billion (see: all the Technology ETFs here).
For the ongoing second quarter, the company expects revenues to grow 17–27% to $42.0–$45.5 billion. The mid-point is much below analysts’ expectation of $44.6 billion as polled by Thomson Reuters and the Zacks Consensus Estimate of $44.7 billion. Amazon also expects operating income in the range of $0–$1.25 billion compared with $1.1 billion in the year-ago period.
Given the earnings miss and disappointing holiday-quarter guidance, shares of AMZN tumbled nearly 6% in after-market hours on Thursday and continued in free-fall on Friday. This fall marked the end of the recent eight-and-a-half month uptrend, as per technical analysts.
However, the dip could be temporary for Amazon as the online giant continued its growth in the cloud computing business with AWS on track to hit over $11 billion or a possible $12 billion this year (read: Catch Cloud with These ETFs).
Further, Amazon has a Zacks Rank #2 (Buy) and boasts a solid industry Zacks Rank in the top 15% with a VGM Style Score of B, suggesting that the online giant is poised for strong growth in the coming months.
The rough trading in the stock will definitely spread into the ETF world, especially the funds with the highest allocation to this Internet giant. Below we highlight some of the funds that would be in focus in the coming days and could see some downside post AMZN results.
However, these funds have a favorable Zacks ETF Rank of 2 (Buy) or 3 (Hold), suggesting that investors having a strong stomach for extreme volatility could take advantage of beaten down prices:
ETFs to Watch After Amazon.com, Inc’s Earnings Miss: Market Vectors Retail ETF (RTH)
Market Vectors Retail ETF (RTH) provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index.
Of these, AMZN takes the top position in the basket with 17.7% share. The ETF has a certain tilt toward specialty retail, which accounts for 28% share while Internet retail (22%), hypermarkets (11%), drug stores (10%), departmental stores (10%) and healthcare services (11%) round off the next five.
The product has amassed $117 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 23,000 shares per day.
RTH has a Zacks ETF Rank of 3 (read: Retail Sales Recover in September: ETF & Stock Winners).
ETFs to Watch After Amazon.com, Inc’s Earnings Miss: Consumer Discretionary SPDR (ETF) (XLY)
Consumer Discretionary SPDR (ETF) (XLY) 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 $9.2 billion and average daily volume of around 5.2 million shares. Holding 89 securities in its basket, Amazon takes the top spot with 13.9% of assets. Media dominates about one-fourth of the portfolio while Internet retail, 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 3.
ETFs to Watch After Amazon.com, Inc’s Earnings Miss: iShares Dow Jones US Consumer Services (ETF) (IYC)
iShares Dow Jones US Consumer Services (ETF) (IYC) provides targeted exposure to the domestic consumer services stocks by tracking the Dow Jones U.S. Consumer Services Index.
It holds 183 stocks in its basket with Amazon being the top firm at 11.3% share. In terms of industrial exposure, retailing makes up the largest share with 38.6%, followed by media (22.6%), consumer services (15.1%), and foods & staples retailing (14.6%). The fund has amassed $835.5 million in its asset base while trades in a small volume of 35,000 shares a day on average.
It charges 44 bps in annual fees from investors and has a Zacks ETF Rank of 3.
ETFs to Watch After Amazon.com, Inc’s Earnings Miss: Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
Fidelity MSCI Consumer Discretionary Index ETF (FDIS) tracks the MSCI USA IMI Consumer Discretionary Index, holding 377 stocks in its basket.
Out of these, AMZN takes the seventh spot with 11.4% share. Media makes up for the top sector with 23% share each, followed by specialty retail (18.3%), internet & direct marketing retail (17.4%), and hotels restaurants & leisure (15.3%). The product has amassed $211.9 million in its asset base while trades in a good volume of around 80,000 shares a day on average.
It charges 12 bps in annual fees from investors and has a Zacks ETF Rank of 3 (read: Online Shopping Gaining Traction: ETFs to Buy).
ETFs to Watch After Amazon.com, Inc’s Earnings Miss: First Trust DJ Internet Index Fund (ETF) (FDN)
First Trust DJ Internet Index Fund (ETF) (FDN) is one of the most popular and liquid ETFs in the broad technology space with AUM of $3.8 billion and average daily volume of more than 471,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds 42 stocks, with Amazon taking the top spot at 10.3%. From a sector look, Internet mobile applications account for half of the portfolio while Internet retail makes up for 22%. FDN has a Zacks ETF Rank of 2.
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