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How is Q1 Earnings Going for Social Media ETF?

Sanghamitra Saha
The Zacks Analyst Blog Highlights: Facebook, Twitter and Snap

The social media space is hot with Global X Social Media Index ETF SOCL having returned about 2.3% in the past five days (as of Apr 24, 2019), beating the S&P 500 (up 0.8%). Upbeat earnings reports from Twitter TWTR and Facebook FB boosted the space.

Facebook Beats Revenues; Stories Feature Aid

Facebook beat revenue expectations and matched estimates for its daily active user growth. It beat the monthly active users and average revenue per user forecasts by FactSet. After releasing earnings, shares rose 7.6% in after hours on Apr 24. Growing ad revenue from the company’s newer Stories products aided revenues. Per management, Facebook, Messenger and WhatsApp’s Stories features now have 500 million daily active users. Instagram hit that mark in January (read: Facebook ETFs in Focus Ahead of Q1 Earnings).

Twitter Beats Overall

Twitter reported first-quarter 2019 non-GAAP earnings of 37 cents per share that skyrocketed 131.3% year over year. Excluding benefits from deferred tax asset worth $124.4 million, adjusted earnings were 9 cents compared with 8 cents in the year-ago quarter.

Revenues increased 18% year over year to $787 million. On a constant-currency (cc) basis, revenues grew 20%. The Zacks Consensus Estimate for earnings and revenues were pegged at 15 cents and $775 million, respectively. Monthly active users (MAUs), excluding SMS users were 330 million versus 318 million expected in a FactSet consensus estimate. The stock rallied 15.6% in the key trading session on Apr 23, marking the best day since 2017.

Snap Q1 Earnings & Revenues Surpass Estimates

Snap Inc. SNAP reported first-quarter 2019 loss of 10 cents per share, narrower than the Zacks Consensus Estimate of a loss of 12 cents and the year-ago quarter’s loss of 17 cents. Revenues increased 38.9% from the year-ago quarter to $320.4 million, surpassing the consensus mark of $306 million. The revenue figure was above the guided range of $285-$310 million. Average revenues per user (ARPU) increased 39% year over year but declined 19.6% quarter over quarter to $1.68.

Market Impact

Investors should note that Twitter and Facebook have solid exposure in the social media ETF SOCL. Below we provide some details on the fund.

SOCL in Focus

This fund is a pure play in the global social media space. Twitter takes the second spot with about 10.69% exposure while Facebook accounted for 10.33% of the portfolio. The fund has about $144.1 million in assets and charges 65 bps in fees (see all technology ETFs here).  

Bottom Line

The social media fund has been steady at the onset of the sector’s earnings season, which started off with Twitter and Facebook. The fund added 1.8% after hours on Apr 24. However, the long-term outlook depends on how other constituents perform.

Some of the fund’s key holdings, Yandex N.V. YNDX, Baidu Inc. BIDU and Spotify Technology SA SPOT have a Zacks Rank #4 (Sell) or 5 (Strong Sell).  Each of these stocks account for 4% of the fund’s portfolio.

These stocks have Earnings ESP of 0.00%, negative 12.24% and 0.00%. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).

Other constituents which account for 4-5% of the fund each are — Alphabet Inc. GOOGL, IAC/InterActiveCorp IAC and NetEase, Inc. NTES — all carrying a Zacks Rank #3 (Hold).

So, the outlook for the social media space is mixed. Though the fund had a reasonably good start to the reporting season, it might not be able to sustain the same upbeat momentum till the end of the reporting cycle. The fund has a Zacks Rank #3 with a High-risk outlook.

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IAC/InterActiveCorp (IAC) : Free Stock Analysis Report
 
Yandex N.V. (YNDX) : Free Stock Analysis Report
 
NetEase, Inc. (NTES) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Baidu, Inc. (BIDU) : Free Stock Analysis Report
 
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Snap Inc. (SNAP) : Free Stock Analysis Report
 
Twitter, Inc. (TWTR) : Free Stock Analysis Report
 
Global X Social Media ETF (SOCL): ETF Research Reports
 
Spotify Technology SA (SPOT) : Free Stock Analysis Report
 
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