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Alibaba Sales Growth Slows Down: ETFs in Focus

Sweta Killa

Chinese e-commerce giant Alibaba Group BABA reported third-quarter fiscal 2019 results before the opening bell on Jan 30, wherein it beat earnings expectations but lagged on revenues.

Earnings of $1.77 per ADS came in at 14 cents ahead the Zacks Consensus Estimate. Revenues climbed 41% year over year to $17.06 billion but fell short of the estimate of $17.26 billion. This marks the weakest revenue growth in nearly three years as the e-commerce giant has been affected by China’s economic slowdown (read: China Industrial Profits Drop for 2 Months: ETFs in Focus).

Additionally, it bucked the strong trend of the December quarter. Alibaba generally posts highest revenues in this quarter due to its mega "Singles' Day" in November - the world's biggest online sales event that outstrips the combined sales of U.S. shopping holidays - Black Friday and Cyber Monday.

Core e-commerce revenues grew 40% year over year, cloud computing revenues soared 84%, and digital media and entertainment revenues increased 20%.

Annual active consumers increased 33 million from the last quarter to reach 699 million in December. Mobile monthly active users in its China retail marketplaces increased 35 million quarter over quarter to 636 million (see: all the Technology ETFs here).

Market Impact

Following the earnings beat, BABA shares climbed 6.3% on the day. Alibaba currently has a Zacks Rank #3 (Hold) and a VGM Score of D. It belongs to the top-ranked Zacks industry (top 43%).

Given this, ETFs having the highest allocation to the Chinese e-commerce giant is in focus for the days ahead. Below, we have highlighted six ETFs in detail:

Invesco BLDRS Emerging Markets 50 ADR Index Fund ADRE
The product offers exposure to 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 41.4% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 17.5%. Brazil, Taiwan and India round off the next three spots in terms of country exposure. Consumer discretionary, financials, communication services, information technology and energy are the top five sectors. ADRE has amassed $129.1 million in its asset base while trading in light volume of about 9,000 shares. It charges 18 bps in fees per year and gained 2.1% on the day. ADRE has a Zacks ETF Rank #3 with a Medium risk outlook (read: EM Equities ETFs Off to a Great Start in 2019: Here's Why).

ProShares Online Retail ETF ONLN

This is the first ETF focused exclusively on retailers that principally sell online. It follows the ProShares Online Retail Index, holding 21 stocks in its basket. While American firms dominate the portfolio with three-fourth share, Chinese firms account for 21.3% with Alibaba taking the spot and accounting for about 16.1% share. The product has amassed $33.4 million in its asset base while trading in a paltry volume of around 21,000 shares a day on average. It charges 58 bps in annual fees from investors and climbed 2.9% on the day (read:  Best-Performing ETFs of January).

ProShares Long Online/Short Stores ETF CLIX

This fund seeks to benefit from both outperforming online and underperforming physical retailers through the long/short strategy. It combines the 100% long position in retailers that primarily sell online or through other non-store channels with a 50% short position in those that rely principally on physical stores by tracking the performance of the ProShares Long Online/Short Stores Index. The approach reduces equity market exposure and results in less volatility than long-only equity strategies. With long positions in 21 stocks, Alibaba occupies the second spot with 16% allocation. The ETF charges 65 bps in annual fees from investors and trades in average daily volume of 11,000 shares. It has accumulated $45.1 million in its asset base and gained 2.1% on the day.

iShares MSCI China ETF MCHI

This ETF targets Chinese stock market and follows the MSCI China Index. Holding 302 securities in its basket, Alibaba takes the second spot with 12.9% share. From a sector look, about 27.2% of the portfolio is allotted to communication while financials (23.1%) and consumer discretionary (20.8%) round off the next two spots. The fund has amassed $4.1 billion in its asset base while charging 59 bps in annual fees. Volume is also solid as it exchanges nearly 6.5 million shares on average daily basis. The ETF gained 2.1% following the results and has a Zacks ETF Rank #3 with a Medium risk outlook.

Invesco BLDRS Asia 50 ADR Index Fund ADRA

This ETF follows the capitalization-weighted BNY Mellon Asia 50 ADR Index and tracks the performance of approximately 50 Asian market-based DRs. Chinese firms make up for the largest share at 34.1%, with Alibaba at the top position with 13.4% allocation. Japanese firms account for 31.2% of the assets. ADRA is often overlooked by investors as depicted by its AUM of $18 million and average daily volume of about 1,000 shares. It charges 30 bps in annual fees and added 1% on the day post BABA results. The fund has a Zacks ETF Rank #3 with a Medium risk outlook (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

Franklin FTSE China ETF FLCH

This product follows the FTSE China Capped Index, charging investors 19 bps in annual points. It holds 274 stocks in its basket with Alibaba taking the second spot at 12.7%. Communication services, financials and consumer discretionary are the top three sectors with more than 20% allocation each. The ETF has amassed $35.4 million in its asset base and sees average daily volume of 10,000 shares. It has risen 2.3% following Alibaba results and has a Zacks ETF Rank #3.

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iShares MSCI China ETF (MCHI): ETF Research Reports
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