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eBay Drags Down Internet ETFs

Sanghamitra Saha
Ingersoll-Rand (IR) grows on the back of stellar sales, greater operational efficacy, pricing actions and strategic acquisitions.

Shares of e-commerce giant eBay Inc. EBAY plunged about 10% on Jul 19, marking its biggest single-day decline in nearly two years. Sluggish growth in its marketplace business in Q2 and a reduction in the revenue forecast for the rest of the year led to this massacre.

eBay’s second-quarter 2018 earnings beat the Zacks Consensus Estimate by 2 cents. Pro-forma earnings of 53 cents improved 18% year over year. Gross revenues of $2.64 billion increased 9.1% year over year (up 6% on an Fx-neutral basis) and were at the lower end of the guided range of $2.64-$2.68 billion. Revenues, however, missed the Zacks Consensus Estimate of $2.66 billion.

Inside the Weak Guidance

eBay lowered its full-year revenue guidance for 2018. The company now expects full-year revenues between $10.75 billion and $10.85 billion versus previous guided range of $10.9-$11.1 billion. The Zacks Consensus Estimate was $10.97.

For the upcoming quarter, eBay expects revenues to grow 5-7% on an Fx-neutral basis to $2.64-$2.69 billion.The Zacks Consensus Estimate for third-quarter revenues was pegged at $2.73 billion. Non-GAAP earnings are expected within 54-56 cents while the Zacks Consensus Estimate was 56 cents.

ETFs in Focus  

The stock has a Zacks Rank #4 (Sell) at the time of writing. The stock belongs to a bottom-ranked Zacks industry (bottom 26%). The VGM Score is C. Investors should also note that the pain in the stock has spread to some e-Bay heavy internet ETFs.

Invesco Nasdaq Internet ETF PNQI

This fund gives investors exposure to the broad Internet industry. The fund holds about 95 stocks in its basket while charging 60 bps in fees per year.

The in-focus eBay occupies the seventh position with 3.75% allocation while Netflix takes the top position with about 7.95%. In terms of industrial exposure, internet software and services make up for 56% of the basket, followed by internet retail (33.6%).

Both eBay and Netflix led the fund to shed about 1.4% on July 19, 2018. Investors should note that the video streaming giant Netflix too missed its own subscriber forecast for the first time in five years by more than a million (read: Netflix Sinks on Weak Q2 Subscriber: ETFs to Watch).

First Trust Dow Jones Internet Index FDN

This is one of the most popular and liquid ETFs in the broad technology space. The fund charges 53 bps in fees per year. In total, it holds 42 stocks in its basket with the in-focus e-Bay taking the eighth spot with 3.18% share. From a sector look, information technology accounts for about 70% of the portfolio while consumer discretionary makes up 20%. Netflix took the third spot with about 5.81% exposure. The fund was down about 1.2% on July 19, 2018 (read: A Spread of ETFs to Tap the Dip in FANGs).

Amplify Online Retail ETF IBUY

This ETF comprises stocks that are into online retailing. eBay accounts for about 2.62% of the product and Netflix takes about 3.32% of the fund. IBUY was down 0.8% on July 19, 2018.

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