Social Media ETF: Should You Connect After Dull Earnings? - ETF News And Commentary
It seems that Global X Social Media Index ETF (SOCL) has fallen on hard times. The fund started the year on strong footing thanks to the flight of tech stocks. After that, many of its components like Twitter (TWTR), LinkedIn Corp. (LNKD) and Facebook (FB) came up with downbeat Q1 results (read: Twitter Tweets a Weak Q1 & Soft View, ETFs in Focus).
The weakness did not the end there, as the losing streak has continued for SOCL even in recent trading. Most recently, the revenue miss and lackluster guidance by Groupon Inc. (GRPN) – another SOCL component – cropped up as yet another concern for the fund. Groupon fell 3.36% after hours (on May 5) following its earnings release.
Groupon Q1 in Detail
Groupon’s loss per share of a penny met the Zacks Consensus Estimate. However, loss per share narrowed on a year-over-year basis. The real pain came from its revenues of $750.4 million (up about 3% year over year) which missed the Zacks Consensus Estimate of $800 million by a wide margin. The adverse impact of a stronger greenback was blamed for the revenue weakness.
There was no spark in the guidance either. The deal-site expects Q2 revenue between $700 million and 750 million, well below the $776 million Zacks Consensus Estimate.
LinkedIn's Q1 in Detail
Coming to LinkedIn, investors hurried to sell its shares as the professional networking behemoth matched the Zacks Consensus Estimate for the top line but the bottom line missed the same. The company reported wider-than-expected adjusted loss of 18 cents. Loss was also wider than the year-ago loss of 8 cents.
Moreover, LinkedIn lowered its guidance for the full year. The company now expects revenues of approximately $2.90 billion compared with its previous forecast of $2.93 billion to $2.95 billion. For the second quarter, LinkedIn expects revenues within $670 million to $675 million, much below the Zacks Consensus Estimate of $719 million.
So many negative attributes took on investors’ nerves. As a result, shares lost over 20% since reporting earnings on April 30 after the closing bell (read: Sell-Off in Social Media Stocks Puts SOCL ETF in Trouble).
Other Dampeners
Situations were no different for Facebook and Twitter. Facebook missed our estimates on both the top and the bottom lines due to a strong dollar. Twitter too came up with a weak Q1 and a disappointing guidance. Yelp (YELP) missed on the bottom line and managed to match the same on the top line. Over the last five days, YELP, TWTR and FB were down 23.3%, 7.8% and 3.3% respectively (read: ETFs to Watch on Facebook's Q1 Disappointment).
Is It a Solid Entry Point?
If a strong dollar is an issue, then most companies should enjoy free sailing as the greenback has taken a backseat for a while thanks to the Fed’s repeated hints at a delayed rate hike. This set of globally famous companies should not face an acute blow from a stronger dollar in Q2. Plus, investors should note that these companies are spending heavily on their products and services both organically and inorganically. So, these could be wise bets over the long haul.
On the other hand, apart from Twitter, other players’ sit at the bottom 44% of the Zacks Industry Rank. At the time of writing, Twitter and Yelp’s Zacks Industry Rank falls within the top 29% zone. Investors should also note that Twitter and Yelp have high growth scores, as per Zacks Style score while other three are mainly momentum plays (read: ETFs in Focus as Revenue Growth Boosts Google Shares).
Market Impact
In such a backdrop, we would suggest investors to take a cautious approach on investing in the social media space as possibilities and perils weigh almost the same. The recent stretch of huge sell-off may be the result of overvaluation and things should bottom out soon. So, investors can use this sell-off as an opportunity to enter the social media space at a compelling valuation.
Adding TWTR, FB or GRPN to one’s portfolio might not be a very safe idea right now, but having a basket approach via SOCL – a pure play social media ETF – might be a great idea as far as risk minimization is concerned. SOCL has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘High’ risk outlook.
SOCL in Focus
SOCL focuses on companies across the globe engaged in some aspect of the social media industry. The fund tracks Solactive Social Media Index and invests $107.9 million of assets in 32 holdings.
The in-focus Groupon takes the seventh spot in the fund accounting for about 4.75% in the portfolio while Facebook takes the second spot at 10% and LinkedIn the third at 8.26%. However, probably following the latest disaster in the Twitter stock, it now does not have a place in the top 10 holdings. Twitter takes the 14th position with 3.59%. Yelp gets a spot above Twitter with about 3.89%.
SOCL has company-specific concentration risk putting more than 60% of investments in its top 10 holdings. The product charges 65 bps in annual fees. SOCL lost over 4.3% in the last five days, though it is up over 9% so far this year.
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GLBL-X SOCL MDA (SOCL): ETF Research Reports
TWITTER INC (TWTR): Free Stock Analysis Report
LINKEDIN CORP-A (LNKD): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis Report
YELP INC (YELP): Free Stock Analysis Report
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