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ETFs Set to Surge on Robust Q1 Facebook Results

Sweta Killa
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After the closing bell on Wednesday, Facebook FB greeted the Wall Street with robust first-quarter 2018 results, wherein it came up with huge revenue and earnings beat. This indicates that the social media giant easily shrugged off concerns over the data-privacy scandal involving Cambridge Analytica that broke in mid-March (read: What's in Store for Facebook ETFs This Earnings Season?).

Facebook Solid Q1 Results

Adjusted earnings per share came in at $1.69, crushing the Zacks Consensus Estimate by 33 cents and increasing 63% from the year-ago earnings. Revenues soared 49% year over year to $11.97 billion and edged past our estimate of $11.45 billion. Growing mobile advertising revenues are mainly behind the robust performance.

Advertising revenues grew 50% year over year to $11.8 billion buoyed by Instagram ad sales that continued to drive mobile advertising. Notably, mobile advertising revenues accounted for 91% of total advertising revenues, up from 89% in the year-ago quarter. Both daily and monthly active users grew 13% year over year to 1.45 billion and 2.20 billion, respectively.

Facebook will continue to invest heavily in security and preventing abuse, video content, and long-term initiatives, which center on augmented and virtual reality, artificial intelligence and connectivity. As such, the company expects operating expenses to increase 50-60% this year, higher than 32% recorded in 2017. This would have a significant impact on the company's profitability.

Market Impact

Shares of FB jumped as much as 7.6% in aftermarket hours following the earnings report. Currently, Facebook has a Zacks Rank #3 (Hold) and a top Growth Score of A, suggesting that it is primed for more growth in the coming months. Further, it belongs to a top-ranked Zacks industry (top 42%) (see: all the Technology ETFs here).

ETFs in Focus

Given this, ETF investors are seeking to bet on this networking giant. For them, we have presented six ETFs that have a larger allocation to Facebook and could see a surge in the days ahead.

Global X Social Media Index ETF SOCL

This is the pure play ETF in the global social media space and has amassed $192.1 million in its asset base. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 88,000 shares a day. The product tracks the Solactive Social Media Total Return Index, holding 32 securities in the basket. Of these firms, Facebook takes the third spot, making up roughly 8.8% of assets. In terms of country exposure, U.S. firms take 48% of the portfolio, closely followed by China (31%), Japan (7%) and Russia (7%). The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Reason Why FANG ETFs Lost Their Charm in March).

iShares U.S. Technology ETF IYW

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 136 technology stocks. The fund has AUM of $4 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 247,000 shares in hand a day. Facebook occupies the third position in the basket with 7.4% of assets. More than half of the portfolio is allocated to software and services, while technology hardware and equipment accounts for 25.1% share. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

First Trust Dow Jones Internet Index Fund FDN

This is one of the most popular and liquid ETFs in the broad technology space, with AUM of $7.1 billion and average daily volume of around 543,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio comes in at 0.54%. Facebook occupies the second position with 7.7% of assets. While information technology makes up for a bigger chunk with 69.2% share, consumer discretionary accounts for 20.8% of assets. The product has a Zacks ETF Rank #2 with a High risk outlook.

ERShares Entrepreneur 30 ETF ENTR

This fund offers exposure to U.S. large-cap entrepreneurial companies with the highest market capitalization and composite scores based on six criteria. This can be easily done by tracking the Entrepreneur 30 Index. Holding 31 stocks in its basket, Facebook takes the eight spot at 7.4%. About 46% of portfolio is tilted toward technology while consumer discretionary and financials also receive double-digit exposure each. ENTR has accumulated $66.1 million in AUM. It charges 49 bps in annual fees and trades in a lower volume of 38,000 shares a day on average (read: Is the Rout in Tech ETFs Transitory?).

PowerShares Nasdaq Internet Portfolio PNQI

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. It holds about 96 stocks in its basket with AUM of $588.8 million while charging 60 bps in fees per year. The product trades in a lower volume of around 47,000 shares a day. Facebook takes the fifth spot with 7.4% allocation. In terms of industrial exposure, Internet software and services makes up for 53.9% share in the basket, followed by Internet retail (34.9%). PNQI has a Zacks ETF Rank #3 with a High risk outlook.

Technology Select Sector SPDR Fund XLK

This is the most popular technology ETF, which follows the Technology Select Sector Index and has $19.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 13.9 million shares a day on average. It holds about 72 securities in its basket, with Facebook occupying the third position at 6.4%. In terms of industrial exposure, the fund is widely spread across software, Internet software & services, hardware storage & peripherals, IT services, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: 5 Tech ETFs in Green Despite One-Month Turmoil).

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