eBay's Weak Earnings Guidance Puts These ETFs in Focus


The e-commerce behemoth eBay Inc (EBAY) came out with Q2 results after the closing bell on Tuesday. Though the company surpassed the Zacks Consensus Estimate on both lines, a dull outlook dampened investors’ mood. The shares slumped 4.33% following the announcement.  
Earnings per share came in at $0.58 per share, beating the estimate by a penny and revenues of $4.262 billion also came ahead of the estimate of $4.231 billion. Revenues grew 14% year over year. Sales growth in eBay’s Pay Pal business has also shown some signs of stagnation. PayPal's take rate has declined year over year.
The story was still decent until now, but the real pressure came from the guidance. The company guided non-GAAP earnings in the range of $0.67 to $0.69 per share, down from the average estimate of $0.70 per share.  The company also reiterated its full-year guidance both on earnings and revenue fronts despite beating the quarterly results.
Market Impact
As expected, thanks to the sub-par outlook, eBay shares, which was up 1.68% prior to the release, traded in the red in the after hours on Tuesday. The results have put some ETFs having considerable exposure in eBay in focus and we have highlighted these funds below (read: Guide to Internet ETFs):    
PowerShares Nasdaq Internet Portfolio (PNQI)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 100 stocks in its basket with AUM of $307.2 million while charging 60 bps in fees per year. It trades in moderate volumes of more than 100,000 shares a day.

The in-focus eBay occupies the first position with a 15.25% allocation. In terms of industrial exposure, Internet software and services make up for more than two-thirds of the basket, followed by Internet retail. PNQI has lost nearly 10.5% so far this year. However, the fund currently has a Zacks ETF Rank of 2 or 'Buy' rating with a 'High' risk outlook.

First Trust Dow Jones Internet Index (FDN)

This is one of the most popular and liquid ETFs in the broad tech space with AUM of over $1.9 billion and average daily volume of more than 650,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year (read: 3 ETFs to Watch on Solid GrubHub Debut).

In total, the fund holds 42 stocks in its basket with the in-focus eBay taking the third spot with a 6.09% share. From a sector look, Internet mobile applications account for more than half of the portfolio while Internet retail make up for 23%. The ETF is down about 8.8% year to date but has a Zacks ETF Rank of 2 or 'Buy' rating with a 'High' risk outlook.
EcoLogical Strategy ETF (HECO)
This is an actively managed fund with having amassed about $17.6 million in assets. The fund charges about 95 bps in fees. In-focus eBay has about 4.79% of assets. The fund added about 0.47% this year.
Bottom Line

The broader e-commerce space is surely mushrooming, though of late it is displaying a sluggish trend as evident by the Zacks industry rank of ‘bottom 32%’ thanks mainly to the momentum sell-off.
eBay currently carries a Zacks Rank #3 (Hold). So investors counting on the long-term potential in the space can consider the recent dip in eBay as a buying opportunity (read: Buy These 2 Tech ETFs on NASDAQ Sell-Off).
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Read the analyst report on EBAY

Read the analyst report on PNQI

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Read the analyst report on HECO

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