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Facebook Tumbles Post Q4 Results: What's in Store for ETFs?

Sweta Killa

After the closing bell on Wednesday, Facebook FB came up with robust fourth-quarter 2019 results wherein it beat estimates on both revenues and earnings. However, the slowdown in revenue growth and warnings of decelerated expansion disappointed investors, sending shares of Facebook down more than 7% in aftermarket hours.

Adjusted earnings per share came in at $2.56, crushing the Zacks Consensus Estimate of $2.52 and increasing from the year-ago earnings of $2.38. Revenues increased 25% year over year to $21.08 billion and edged past the estimated $20.88 billion. It was the slowest-ever quarterly sales growth for Facebook (read: Should You Buy Facebook ETFs Ahead of Q4 Earnings?).
 
Daily and monthly active users grew 9% and 8% year over year, respectively, to 1.66 billion and 2.5 billion. The company estimates that about 2.89 billion people use Facebook, WhatsApp, Instagram or Messenger ("Family" of services) each month, and about 2.26 billion people use at least one of the Family of services every day on average.

On the conference call, the social media giant warned that the pace of expansion will slow further in the first quarter of 2020 as it is facing more-restrictive privacy regulations and continued scrutiny from global lawmakers and antitrust officials. The company expects new rules and product changes aimed at protecting users' privacy to result in increasing expenses significantly.

Currently, Facebook has a Zacks Rank #3 (Hold) and a VGM Score of A. However, it belongs to a bottom-ranked Zacks industry (bottom 33%).

ETFs to Watch

Given this, ETFs having a larger allocation to the networking giant are in focus 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 $7.3 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Facebook occupying the top position at 19.8%. About 46.4% of the portfolio is allocated to interactive media & services, while entertainment, media, and diversified telecommunication services round off the next three. The product charges 15 bps in annual fees and trades in average daily volume of 3.1 million shares. It has a Zacks ETF Rank #2 (Buy) (read: A Look Back At S&P 500 Sector ETFs in 2019).

Fidelity MSCI Communication Services Index ETF FCOM

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 107 stocks in its basket with Facebook occupying the top position at 15.4%. Interactive media & services takes the top spot at nearly 44%, while media, entertainment, and diversified telecommunication services round off the next three spots. The product has amassed $500.9 million in its asset base and trades in average daily volume of 96,000 shares. It charges 8 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

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 14.8% share. Interactive media & services is the top sector, accounting for 42.7% of the portfolio, while cable & satellite, movies & entertainment, and integrated telecommunication services round off the next two. VOX has AUM of $2.2 billion and trades in a good volume of 150,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3 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 4.5/22.5/45 Capped Index. It holds 67 stocks in its basket with Facebook taking the top spot at 12.9% share. Interactive media & services dominate the fund’s return at 40%, while integrated telecommunication services round off the next spot with double-digit exposure. The fund has amassed $243.3 million in its asset base, while trading in average daily volume of 55,000 shares. Expense ratio came in at 0.46%. IXP has a Zacks ETF Rank #3 with a Medium risk outlook.

Global X Social Media Index ETF SOCL

This is a pure-play ETF in the global social media space and has amassed $133.3 million in its asset base. It tracks the Solactive Social Media Total Return Index, holding 42 securities in the basket. Of these firms, Facebook takes the top spot, making up for 10.4% of assets. The ETF charges 0.65% in annual fees and sees moderate trading volumes of roughly 16,000 shares a day. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: 10 ETFs Crushing the Market to Start 2020).

MicroSectors FANG+ ETN FNGS

This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly-traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 stocks in its basket in equal proportion with Facebook share coming in at 10%. The product has accumulated $35.4 million in its asset base within three months of debut and charges 58 bps in annual fees. It trades in a meager volume of 3,000 shares a day on average.

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