After the closing bell on Monday, Google parent Alphabet GOOGL reported strong fourth-quarter 2018 results, topping both revenue and earnings estimates. However, higher-than-expected spending sparked investors’ concerns over the future return on investment (see: all the Technology ETFs here).
Earnings per share came in at $12.77, trumping the Zacks Consensus Estimate of $11.08 and improving from the year-ago earnings of $9.70. Revenues rose 22% year over year to $39.3 billion, topping the estimate of $31.28 billion. Advertising revenues grew 19.9% year over year to $32.63 billion and accounted for 83% of total revenues. Paid ad clicks on Google's own sites and apps jumped 66% while cost-per-click dropped 29% from the year-ago quarter.
Traffic acquisition costs (the fees Google pays to companies like Apple AAPL to be the default search engine) were $7.44 billion, up 13% from the third quarter of this year and 15% from the year-ago quarter (read: Apple Rallies on Earnings Beat: Top-Ranked Tech ETFs to Buyy).
Despite the earnings and revenue beat, shares of GOOGL dropped as much as 3% in aftermarket hours. The decline was due to increased investment in its cloud business, YouTube and other areas. Currently, Alphabet carries a Zacks Rank #3 (Hold) and has a VGM Score of C. It falls under a top-ranked Zacks industry (top 43%).
ETFs in Focus
The sluggish trading could have a huge impact on ETFs that are heavily invested in this Internet giant. Below we have highlighted five ETFs with double-digit exposure to Alphabet that could see some losses in today’s trading session. These funds have a solid Zacks ETF Rank #1(Strong Buy) or #2 (Buy):
Vanguard Communication Services ETF VOX
This fund also targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 109 stocks in its basket, Alphabet takes the top spot with 23.6% share. Interactive media & services is the top sector accounting for 39.2% of the portfolio, while integrated telecommunication services and movies & entertainment round off the next two. VOX has AUM of $1.3 billion and trades in a good volume of 269,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
Communication Services Select Sector SPDR Fund XLC
This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $4.1 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Alphabet occupying the third position holding 11.5% share. About 45.7% of the portfolio is allocated to interactive media & services while entertainment and media round off the next two spots. The product charges 13 bps in annual fees and trades in an average daily volume of 3 million shares. It has a Zacks ETF Rank #2 (read: Bunch of Leveraged Communication Services ETFs Hit Market).
Fidelity MSCI Communication Services Index ETF FCOM
This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 103 stocks in its basket with Alphabet occupying the third position at 11.1%. Interactive media & services takes the top spot at nearly 40.7%, while diversified telecommunication services, entertainment, and media round off the next three spots. The product has amassed $295.8 million in its asset base and trades in average daily volume of 113,000 shares. It charges 8 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Global Comm Services ETF IXP
This ETF provides global exposure to companies in media, entertainment, social media, search engine, video/gaming and telecommunication services by tracking the S&P Global 1200 Communication Services Sector Index. It holds 67 stocks in its basket with GOOGL taking the third spot at 9.4% share. Interactive media & services, integrated telecommunication services and movies & entertainment are the top three sectors with double-digit exposure each. The fund has amassed $234.8 million in its asset base, while trading in average daily volume of 73,000 shares. Expense ratio came in at 0.47%. IXP has a Zacks ETF Rank #2 with a Medium risk outlook.
iShares Dow Jones US Technology ETF IYW
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 150 technology stocks. Out of these, GOOGL occupies the fifth position in the basket with 6.2% of the assets. Software & services dominated the portfolio with one-third share while tech hardware & equipment, media & entertainment, and semiconductors & semiconductor equipment also takes double-digit exposure each. The fund has AUM of $3.7 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 225,000 shares in hand a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook (read: Top-Ranked Sector ETFs & Stocks to Buy for 2019).
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Vanguard Communication Services ETF (VOX): ETF Research Reports
Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports
iShares U.S. Technology ETF (IYW): ETF Research Reports
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