Credit: Shutterstock photoAfter the closing bell on Wednesday, the social media giant Facebook ( FB ) impressed investors' with solid third quarter results backed by robust advertising revenues. Despite increased spending on Messenger, WhatsApp and Oculus, the company crushed our earnings estimate, breaking the trend of miss in the last three quarters. This has increased confidence in the company's future growth story.
Facebook Q3 Earnings in Detail
Adjusted earnings per share (accounting for stock-based compensation) came in at 35 cents, a penny above the Zacks Consensus Estimate. Revenues climbed 41% year over year to $4.50 billion and edged past our estimate of $4.39 billion. Growth was broad based with advertising revenues firing on all cylinders (read: Eyeing Q3 Revenue Growth Potential? Try These Sector ETFs ).
Advertising revenues grew 45.4% year over year to $4.30 billion. Mobile advertising revenues now account for 78% of total advertising revenue, up from 76% in the prior quarter and 66% in the year-ago quarter.
Daily active users hit over $1 billion in the reported quarter, representing a 17% increase from the year-ago quarter. More than 88% of total users came from the mobile segment, users of which increased 27% year over year. Monthly active users grew 14% year over year to 1.55 billion, of whom mobile active users accounted for 1.39 billion, up 23%. Additionally, Facebook had 8 billion video views per day from 500 million people at the end of September compared with 4 billion views in April.
Following the robust results, shares of FB initially climbed about 5% to an all-time high of $109.34 but pared some gain to close at up 3.8% in after-market hours trading. This suggests solid trading in the coming days as the company's real growth story hinges on its growing advertising business that is generating social network advertising revenues worldwide (see: all the Technology ETFs here ).
As per eMarketer ,, Facebook will bring in about 65% of global advertising revenues over the next two years. It is expected to record a 42% jump in revenues this fiscal year. Notably, Instagram business is performing remarkably well and will see stupendous growth of 149% in advertising revenues next year.
Further, Facebook currently has a Zacks Rank #1 (Strong Buy) and a solid Zacks Industry Rank in the top 26%, suggesting that the bullish trend will continue at least in the near future.
ETFs in Focus
Based on impressive results and solid growth prospects, investors could definitely focus on ETFs that have a larger allocation to this networking giant and grab any opportunity from a surge in the FB price. For those investors, we have highlighted four ETFs that are poised to move upward following FB Q3 results:
Global X Social Media Index ETF ( SOCL )
This fund offers the only pure play in the global social media space and has amassed $78.6 million in its asset base. The ETF charges 0.65% in fees and expenses, and sees lower trading volumes of roughly 49,000 shares a day. The product tracks the Solactive Social Media Index, holding 31 securities in the basket. Of these firms, Facebook takes the second spot, making up roughly 10.3% of assets. In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China (27%), Russia (9%) and Japan (6%). The fund has a Zacks ETF Rank of 2 or 'Buy' rating with a High risk outlook (read: Social Media ETF: Will You Sign In or Out Post Earnings? ).
First Trust US IPO Index Fund ( FPX )
This ETF provides exposure to the U.S. IPO market by tracking the IPOX-100 U.S. Index. It has accumulated $814 million in AUM and charges 60 bps in fees a year. Volume is good as it exchanges nearly 132,000 shares in hand on average. In total, the fund holds 100 securities in its basket with FB at the top position, having 10.8% allocation. From a sector look, information technology takes the top spot at 27.4% while consumer discretionary and health care round of the next two spots with double-digit exposure each.
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 $4.5 billion and average daily volume of around 524,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 41 stocks in its basket. Expense ratio came in at 0.54%. Facebook occupies the second position in the basket with 10.3% of assets. While information technology makes up for 70.2% share, consumer discretionary accounts for 22.3% of assets. The product has a Zacks ETF Rank of 2 with a High risk outlook (read: Internet ETF (FDN) Hits New 52-Week High ).
PowerShares Nasdaq Internet Portfolio ( PNQI )
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 94 stocks in its basket with AUM of $223 million while charging 60 bps in fees per year. It trades in light volume of around 19,000 shares a day. Facebook takes the fourth position with an 8.3% allocation. In terms of industrial exposure, Internet software and services makes up for 56% share in the basket, followed by Internet retail (38.9%). PNQI has a Zacks ETF Rank of 2 with a High risk outlook.
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FACEBOOK INC-A (FB): Free Stock Analysis Report
GLBL-X SOCL MDA (SOCL): ETF Research Reports
FT-IPOX 100 (FPX): ETF Research Reports
FT-DJ INTRNT IX (FDN): ETF Research Reports
PWRSH-ND INTRNT (PNQI): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
