Alibaba Stock Up on Healthy Q1 Earnings: ETFs in Focus

Shares of Chinese e-commerce giant, Alibaba Group Holding Limited BABA jumped yesterday on the back of fiscal first-quarter earnings crushing estimates. Strong growth in users and solid increase in sales in the cloud-computing segment played a major role in boosting Alibaba’s earnings results. However, the year-on-year plunge in net income during the quarter indicated that some roadblocks are still at work.

A Detailed Look into Alibaba’s Q1 Results

Earnings of 52 cents per ADS handily surpassed the Zacks Consensus Estimate of 38 cents. It also increased 52.9% from the year ago quarter. Revenues climbed nearly 59% year over year to 32.15 billion yuan ($4.84 billion), the highest increase since its public offering. Revenues were also higher than our consensus estimate of $4.5 billion. Strong sales growth in the Chinese commerce retail business and cloud computing business boosted Alibaba’s performance during the quarter (read: Market Welcomes Alibaba First Guidance: ETFs to Ride On).

Despite several concerns in the Chinese economy, the e-commerce mammoth saw a year-on-year surge of 49% in China commerce retail business revenues to 23.38 billion yuan ($3.52 billion) during the quarter. 54% growth from the year-ago quarter in revenues of online marketing service primarily boosted the revenues of this segment.

Moreover, mobile revenues shot up 119% to $2.64 billion and accounted for 75% of China commerce retail revenues. Mobile monthly active users increased 39% year over year to 427 million during the quarter. Also, annual active buyers surged 18% from the year-ago quarter to 434 million during the 12-month period through Jun 30, 2016. Additionally, revenues in cloud computing jumped 156% from the year-ago quarter primarily due to strong growth in paying customers (read: Investors Cheer Alibaba Revenue Growth: ETFs in Focus).

Alibaba is progressing well on its mobile shift and continues to dominate the Internet e-commerce market in China. Separately, gross merchandise volume in the Chinese retail marketplaces, namely, Taobao and Tmall, grew 19% year over year to $76 billion.

Market Impact

Shares of Alibaba jumped 5.1% on the back of robust fiscal first-quarter earnings results. Currently, Alibaba has a Zacks Rank #3 (Hold), suggesting that the company has potential to capitalize on its encouraging earnings results which may have a significant impact on its price performance in the days ahead.

Given this, ETFs having a higher allocation to this Chinese e-commerce giant will be in focus. Investors should closely monitor the movement in these funds and grab the opportunity when it arises or avoid if the stock drags them down.

KraneShares CSI China Internet ETF KWEB

This product provides a concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 36 securities in its basket with Alibaba occupying the first position at 11.1%. The technology sector makes up for a substantial 58.4% of total assets, while consumer discretionary takes the remainder with just 1.2% allotted to industrials. The ETF has amassed $173.6 million in its asset base and charges 72 bps in annual fees from investors. Volume is good as it exchanges 140,000 shares in hand per day. KWEB added 1.68% in the last trading session following the Alibaba earnings announcement (read: Volatility Abates in Chinese Stocks; Time to Buy These ETFs?).

BLDRS Emerging Markets 50 ADR ETF ADRE

The product offers exposure to 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 38.2% of the portfolio is allotted to Chinese firms with Alibaba occupying the second position at 11%. Brazil, Taiwan and India round off the next three spots in terms of country exposure. From a sector look, information technology accounts for 35.6%, followed by financials (16.5%) and telecom (16.4%). ADRE has amassed $129.9 million in its asset base while it trades in light volume of about 6,000 shares. It charges 30 bps in fees per year and gained 1.4% on the day.

Guggenheim BRIC ETF EEB

This product provides exposure to BRIC countries and follows the BNY Mellon BRIC Select DR Index. In total, it holds 103 stocks with Alibaba at the top position, accounting for 11% of assets. More than one-fourth of the portfolio is dominated by information technology while energy, financials and telecom services round off the next three spots with double-digit exposure each. The ETF has $96.9 million in AUM and sees paltry volume of around 6,000 shares. Expense ratio came in at 0.64%. The fund added 1.9% on the day.

Renaissance IPO ETF IPO

This ETF follows the Renaissance IPO Index, which holds the largest and most-liquid newly listed U.S. initial public offerings. Currently, the product holds 66 securities and BABA takes the top spot in the basket with 10.4% of assets. From a sector look, financial stocks make up for 29% share while technology, consumer discretionary and healthcare make up for double-digit exposure each. The fund has attracted $12.3 million in its asset base and sees a paltry volume of about 2,000 shares per day on average. It charges 60 bps in fees per year and was up 1% post Alibaba results (read: Alarm Bells Ringing for IPO ETFs?).

First Trust International IPO ETF FPXI

This product provides exposure to the largest and most liquid companies that are domiciled outside the U.S. by tracking the IPOX International Index. Holding 50 stocks in its basket, Alibaba occupies the top position with 10.3% allocation. More than one-fourth of the portfolio is skewed toward Japanese firms while China and Hong Kong firms round off the next two spots. From a sector look, financials takes the largest share at 48.2%, followed by industrials and information technology. The product has been able to manage $2.7 million in its asset base and charges 70 bps in fees per year. Volume is light exchanging 24,000 shares in hand on average. It added 1% post Alibaba results.

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