U.S. markets closed

What Will Earnings Bring for Cloud ETFs?

Sanghamitra Saha

Cloud was an emerging concept even before the virus-led lockdown as companies were discarding their own servers and shifting to the cost-effective renting model, giving huge business to mega cloud owners like Amazon AMZN and Microsoft MSFT. The coronavirus-led lockdowns brightened the appeal for the sector as there has been a transition to work-and-learn-from-home.

Cloud ETFs like WisdomTree Cloud Computing Fund WCLD (up more than 25% past month), Global X Cloud Computing ETF CLOU (up 25.4%) and First Trust Cloud Computing ETF SKYY (up about 23%) have beaten the S&P 500 (up about 21.6%) past month.

Against this scenario, let’s take a look at what’s in store for cloud stocks this reporting season and how cloud ETFs can be impacted (read: Why Cloud Computing Stocks & ETFs are COVID-19's Biggest Winners).

Inside the Expected Earnings Performance

Shopify Inc. SHOP will report on May 6. This Zacks Rank #2 (Buy) stock has an Earnings ESP of +16.08%. Positive ESP suggests that analysts have recently become bullish on the company's earnings prospects.

Zoom Video Communications Inc. ZM operates in this segment. Zacks Rank #1 (Strong Buy) Zoom is likely to report next on Jun 4. Zoom has a positive ESP of 3.96%. Rank #2 Okta Inc. OKTA is likely to report on Jun 4. Okta’s ESP is +5.17%.

Zacks Rank #2 Five9 Inc. FIVN (expected report date May 4) and DocuSign Inc. DOCU (Jun 4) each has a 0.00% ESP. Rank #3 stocks Qualys Inc. QLYS (expected to report on May 7) and Cloudflare, Inc. NET (May 7) have a 0.00% ESP.

Not all cloud companies look promising in terms of ESP. Things are a bit disappointing for the big names. Zacks Rank #3 (Hold) major could owners Amazon (AMZN), Microsoft MSFT and Alphabet Inc. GOOGL are likely to report on Apr 30, Apr 29 and Apr 28 respectively. Amazon, Microsoft and Alphabet have a negative earnings ESP of 1.67%, 1.42%, and 5.19%. respectively.

Zacks Rank #3 Oracle Corporation ORCL (likely to report on Jun 17) has an earnings ESP of negative 1.51% while Zacks Rank #2 Akamai Technologies Inc. AKAM has an earnings ESP of negative 0.75% (to be reported on Apr 28).

Impact on ETFs

Overall, the impact on ETFs is likely to be mixed. If the above-mentioned ESPs are any guide, then SKYY is likely to lag other cloud ETFs like WCLD and CLOU. This is because SKYY is concentrated on big cloud operators that primarily have negative ESPs.

On the other hand, WCLD has less company-specific risks as no stock accounts for more than 3.03% of the portfolio. It has notable exposure to better ESP-holders like Zoom, Okta, Shopify, Five9, Qualys and Cloudflare.

CLOU is likely to have a mixed impact. While Shopify’s presence at the top spot is a plus, Netflix’s mixed Q1 earnings, and negative ESPs of Zscalerand Akamai Technologies could keep the fund’s performance at check (read: Stay-at-Home Boosts Netflix Q1 Subscribers: ETFs to Buy).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Oracle Corporation (ORCL) : Free Stock Analysis Report
 
Akamai Technologies, Inc. (AKAM) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Qualys, Inc. (QLYS) : Free Stock Analysis Report
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
Five9, Inc. (FIVN) : Free Stock Analysis Report
 
First Trust Cloud Computing ETF (SKYY): ETF Research Reports
 
Okta, Inc. (OKTA) : Free Stock Analysis Report
 
DocuSign Inc. (DOCU) : Free Stock Analysis Report
 
Global X Cloud Computing ETF (CLOU): ETF Research Reports
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report