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Facebook Q2 Beat Put These ETFs in Focus

Sweta Killa

After the closing bell on Wednesday, Facebook FB came up with robust second-quarter 2019 results, wherein it beat estimates on both revenues and earnings. However, the social media giant warned of deceleration in revenue growth, more specifically in the fourth quarter.

Before the earnings announcement, the Federal Trade Commission (FTC) levied a $5 billion fine against the social media giant related to the Cambridge Analytica Scandal. Facebook put aside $3 billion for the fine in Q1 2019, but had to set aside an additional $2 billion following the FTC’s announcement.

Q2 Results in Focus

Adjusted earnings per share came in at $1.99, crushing the Zacks Consensus Estimate of $1.90 and increasing from the year-ago earnings of $1.75. Revenues soared 28% year over year to $16.89 billion and edged past the estimated $16.45 billion.

Notably, mobile advertising revenues accounted for 94% of total advertising revenues, up from 91% in the year-ago quarter. Both daily and monthly active users grew 8% year over year to 1.59 billion and 2.41 billion, respectively. The company estimates that about 2.7 billion people use Facebook, WhatsApp, Instagram or Messenger ("Family" of services) each month, and about 2.1 billion people use at least one of the Family of services every day on average.

The social media giant expects revenues to decelerate sequentially in the second half of the year and in 2020 on a constant currency basis. It expects advertising-related headwinds will be more pronounced in in the fourth quarter and next year. Also, the company projects new rules and product changes aimed at protecting users' privacy would slow its revenue growth next year and significantly raise expenses.

Facebook also disclosed FTC’s new investigation for potential violations of U.S. antitrust law in its earnings releases (read: Antitrust Probe Likely to Hit These Tech ETFs).

Market Impact

Following the results, shares of FB jumped as much as 3.5% in aftermarket hours on elevated volume. Currently, Facebook has a Zacks Rank #3 (Buy) and solid Momentum Score of A. However, it belongs to a bottom-ranked Zacks industry (bottom 41%).

ETFs to Watch

Given this, ETFs having a larger allocation to the networking giant are poised to surge post Facebook results. We have highlighted six of them in detail below:

Communication Services Select Sector SPDR XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $5.9 billion in its asset base. It follows the Communication Services Select Sector Index and holds 27 stocks in its basket, with Facebook occupying the top position with 20% share. About 47.6% of the portfolio is allocated to interactive media & services, while media  and entertainment round off the next three. The product charges 13 bps in annual fees and trades in an average daily volume of 3.5 million shares. It has a Zacks ETF Rank #2 (Buy).

Fidelity MSCI Communication Services Index ETF FCOM

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 109 stocks in its basket with Facebook occupying the top position at 16.3%. Interactive media & services takes the top spot at nearly 42.8%, while media, entertainment, and diversified telecommunication services round off the next three spots. The product has amassed $368.8 million in its asset base and trades in average daily volume of 95,000 shares. It charges 8 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Tap Disney's Roaring Box Office Success With These ETFs).

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 114 stocks in its basket, Facebook takes the second spot with 15.7% share. Interactive media & services is the top sector accounting for 42% of the portfolio, while movies & entertainment, cable & satellite and integrated telecommunication services round off the next two. VOX has AUM of $2 billion and trades in a good volume of 255,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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 69 stocks in its basket with Facebook taking the top spot at 13.2% share. Interactive media & services dominate the fund’s return at 40.1%, while integrated telecommunication services and movies & entertainment round off the top three with double-digit exposure each. The fund has amassed $266 million in its asset base, while trades in an average daily volume of 44,000 shares. Expense ratio came in at 0.47%. IXP has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Global X Social Media Index ETF SOCL

This is the pure-play ETF in the global social media space and has amassed $133 million in its asset base. It tracks the Solactive Social Media Total Return Index, holding 46 securities in the basket. Of these firms, Facebook takes the top spot, making up for 11.4% of assets. The ETF charges 0.65% in annual fees, and sees moderate trading volumes of roughly 23,000 shares a day. The fund has a Zacks ETF Rank #3 with a High risk outlook.

First Trust Dow Jones Internet Index FDN

This is one of the most-popular and liquid ETFs in the broad tech space with AUM of $9 billion and average daily volume of around 543,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 52 bps in fees per year. Holding 42 stocks in its basket, Facebook occupies the second position at 8.6%. The product has a Zacks ETF Rank #2 with a High risk outlook (read: 5 Unbeatable ETF Strategies for 2nd Half).

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