The fourth-quarter reporting cycle saw a spate of solid earnings reports from tech giants like International Business Machines Corp. (IBM), Netflix, Inc. (NFLX), Microsoft Corporation (MSFT), and Apple Inc. (AAPL).
Facebook reported stellar fourth-quarter 2016 results beating our top and bottom line estimates on the strength in mobile advertising business and growing momentum for video advertising.
Facebook’s Q4 Results in Detail
Adjusted earnings per share (accounting for stock-based compensation) came in at $1.24, crushing the Zacks Consensus Estimate of $1.11 growing over twofold from the year-ago quarter. Revenues soared 51% year over year to $8.81 billion and edged past our estimate of $8.47 billion. Growing advertising revenue is the major reason for the robust performance.
Advertising revenues grew 53% year over year to $8.63 billion. Notably, mobile advertising revenues accounted for 84% of total advertising revenue, up from 80% in the year-ago quarter. The company’s dominance in mobile advertising revenues is expected to increase in the coming months as it is looking to add advertising in its messaging services What’s App and Facebook Messenger.
Additionally, Facebook is expected to garner about $33.76 billion in global ad revenue this year, the company world’s No. 2 digital ad publisher behind Alphabet Inc (GOOGL) according to eMarketer. Further, the company will continue to reap the benefits of a big push into video both on Facebook itself and on Instagram (read: Tech ETFs to Watch Post Microsoft & Alphabet Results).
Daily active users grew 18% year over year to 1.23 billion in the fourth quarter with 1.15 billion coming from mobile. Meanwhile, monthly active users grew 17% year over year to 1.86 billion, of whom mobile active users accounted for 1.74 billion, up 21%. eMarketer expects the number of US users will increase 2.7% in 2017, while user growth worldwide will grew 7.9%.
Given outstanding results, shares of FB spiked as much as 3.6% to an-all time high of $137.99 in aftermarket hours, eroding all the negative sentiments of the revenue slowdown, which the company warned in the third quarter. It further indicates good tidings for the near term. Currently, Facebook has a favorable Zacks Rank #3 (Hold) with a VGM Style Score of C.
Given this, investors could definitely focus on ETFs that have a larger allocation to this networking giant and grab any opportunity from a surge in the price of FB.
For those investors, we have highlighted four ETFs that are poised to move upward following Q4 results (see: all the Technology ETFs here):
Global X Social Media Index ETF (SOCL)
This fund is the only pure play in the global social media space and has amassed $77.9 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 95,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 33 securities in the basket. Of these firms, Facebook takes the top spot, making up roughly 11.7% of assets. In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China (28%), Russia (8%) and Japan (6%). The fund has a Zacks ETF Rank of 3 with a High risk outlook.
First Trust Dow Jones Internet Index Fund (FDN)
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 around 494,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.54%. Facebook occupies the top position in the basket with 10.5% of assets. While information technology makes up for a bigger chunk of 69% share, consumer discretionary accounts for 21.1% of assets. The product has a Zacks ETF Rank of 3 with a High risk outlook.
PowerShares Nasdaq Internet Portfolio (PNQI)
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 83 stocks in its basket with AUM of $292.4 million while charging 60 bps in fees per year. It trades in a light volume of around 21,000 shares a day. Facebook takes the second spot with an 8.2% allocation. In terms of industrial exposure, Internet software and services makes up for 55.9% share in the basket, followed by Internet retail (39.3%). PNQI has a Zacks ETF Rank of 3 with a High risk outlook.
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 138 technology stocks. The fund has AUM of $2.9 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 272,000 shares in hand a day. Facebook occupies the third position in the basket with 7.6% of assets. More than half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 26.9% share. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Will Q4 Earnings Strengthen Tech ETFs Further?).
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