In a highly competitive social media space, companies find it difficult to maintain market share and expand the user base without spending. This is also evident in the latest Twitter (TWTR) results, which managed to meet on the bottom line but provided a sluggish outlook owing to a slowdown in user growth (read: Twitter (TWTR) Stock Tumbles on Earnings, Puts These ETFs in Focus).
Like Twitter, user growth may also be slowing for Facebook (FB) but the company is looking to bolster its current offerings in order to enhance its user base. The social media giant reported robust Q3 results after the market closed on Tuesday, exceeding our estimates on both top and bottom lines for the sixth consecutive quarter fueled by its mobile advertising business.
While this is good news, the company warned of rising cost and guided lower on the revenue front for the ongoing quarter. These unnerved investors, pushing FB shares to a free-fall territory.
Facebook Earnings in Detail
Earnings per share came in at 33 cents, beating the Zacks Consensus Estimate by a penny. Revenues climbed 59% year over year to $3.2 billion and surpassed our estimate of $3.1 billion. Solid performances were driven by a 64% year-over-year increase in advertising revenues. Mobile advertising revenues now account for 66% of total advertising revenue, up from 62% in the prior quarter and 49% in the year-ago quarter.
As such, the mobile advertisement segment is a key catalyst for the company that will help in gaining share in the global digital advertising market. Facebook is expected to steal share from Google (GOOG) this year and capture 20.4% of the global mobile digital ad sales, up from 16.5% last year, as per eMarketer. Meanwhile, Google's market share in global mobile digital ad will likely decline to 44.6% from 46.4% (read: Google's Q3 Earnings Miss Might Be Trouble for These ETFs).
The company saw remarkable year-over-year growth of 19% in daily active users to 864 million. About three-fourths of total users came from the mobile segment, which rose 39% year over year in the third quarter. Though monthly active users grew 14% year over year to 1.35 billion, it is only modestly up from 1.32 billion from the prior quarter.
Additionally, Facebook expects a difficult fourth quarter with revenue growth decreasing to 40-47%, indicating total revenue of $3.6–$3.8 billion. The mid-point of the range ($3.7 billion) is lower than the Zacks Consensus Estimate of $3.74 billion and the growth rate is also well below 63% reported in the year-ago quarter. Further, according to Bloomberg, the growth rate will be the lowest since the first quarter of 2013, when revenue rose 38%.
Moreover, the company will likely increase its spending in the future quarters on hiring binge, new acquisitions as well as growing existing products and new areas such as WhatsApp, Oculus and video. Expenses are expected to grow by 55-75% next year, which will likely weigh on the future profit margins.
The disappointing outlook turned investors wary and compelled them to book their profits at current levels. Facebook tumbled as much as 11% in aftermarket hours yesterday on elevated volume after touching an all-time high of $81.16 in the normal trading session. The stock also witnessed a decline of over 6% in today's pre-market session and currently has a Zacks Rank #3 (Hold) and a poor Zacks Industry Rank in the bottom 43%, suggesting that more pain is in store for this company.
This is especially true as FB rose about 47.8% in the year-to-date time frame when compared to losses for the other social media stocks like Twitter, LinkedIn (LNKD) and Groupon (GRPN), which were down 31.2%, 5.3% and 49%, respectively, in the same time frame (see: all the Technology ETFs here).
ETFs to Watch
The sluggish trading in Facebook following the Q3 announcement will likely impact the ETF world as well since the stock is one of the major components in some ETFs. Below, we have highlighted three funds having double-digit allocation to this networking giant and might see downward pressure over the next few days arising from declining FB price.
Global X Social Media Index ETF (SOCL)
This fund offers the only pure play in the global social media space and has amassed $124 million in its asset base. The ETF charges 0.65% in fees and expenses, and sees good volumes of roughly 165,000 shares a day. The product tracks the Solactive Social Media Index, holding 31 securities in the basket.
Of these firms, Facebook takes the top spot, making up roughly 13.25% of assets. In terms of country exposure, U.S. firms take more than half the portfolio, closely followed by China (27%) and Japan (9%). The ETF has piled up enough losses of about 12% so far this year and has a Zacks ETF Rank of 2 or ‘Buy' rating with a High risk outlook.
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. The fund has accumulated $508.9 million in AUM and charges 60 bps in fees a year. Volume is moderate as it exchanges nearly 79,000 shares in hand on average (read: Invest in Global IPOs with This New ETF).
In total, the fund holds 100 securities in its basket with FB at the top having 10.79% allocation. From a sector look, information technology and consumer discretionary take the top two spots at 24.5% and 21.7%, respectively, while health care and energy round off the next two levels with double-digit exposure. FPX has added over 6% so far this year.
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 over $1.7 billion and average daily volume of more than 384,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio came in at 0.54%.
Facebook occupies the top position in the basket with 10.79% of assets. In terms of industry exposure, Internet mobile applications account for three-fifths of the portfolio while Internet retail makes up for 23%. The product has lost 1.4% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold' rating with a Medium risk outlook.
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FACEBOOK INC-A (FB): Free Stock Analysis Report
GLBL-X SOCL MDA (SOCL): ETF Research Reports
FT-DJ INTRNT IX (FDN): ETF Research Reports
TWITTER INC (TWTR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
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Market News and Data brought to you by Benzinga APIsLike Twitter, user growth may also be slowing for Facebook (FB) but the company is looking to bolster its current offerings in order to enhance its user base. The social media giant reported robust Q3 results after the market closed on Tuesday, exceeding our estimates on both top and bottom lines for the sixth consecutive quarter fueled by its mobile advertising business.
While this is good news, the company warned of rising cost and guided lower on the revenue front for the ongoing quarter. These unnerved investors, pushing FB shares to a free-fall territory.
Facebook Earnings in Detail
Earnings per share came in at 33 cents, beating the Zacks Consensus Estimate by a penny. Revenues climbed 59% year over year to $3.2 billion and surpassed our estimate of $3.1 billion. Solid performances were driven by a 64% year-over-year increase in advertising revenues. Mobile advertising revenues now account for 66% of total advertising revenue, up from 62% in the prior quarter and 49% in the year-ago quarter.
As such, the mobile advertisement segment is a key catalyst for the company that will help in gaining share in the global digital advertising market. Facebook is expected to steal share from Google (GOOG) this year and capture 20.4% of the global mobile digital ad sales, up from 16.5% last year, as per eMarketer. Meanwhile, Google's market share in global mobile digital ad will likely decline to 44.6% from 46.4% (read: Google's Q3 Earnings Miss Might Be Trouble for These ETFs).
The company saw remarkable year-over-year growth of 19% in daily active users to 864 million. About three-fourths of total users came from the mobile segment, which rose 39% year over year in the third quarter. Though monthly active users grew 14% year over year to 1.35 billion, it is only modestly up from 1.32 billion from the prior quarter.
Additionally, Facebook expects a difficult fourth quarter with revenue growth decreasing to 40-47%, indicating total revenue of $3.6–$3.8 billion. The mid-point of the range ($3.7 billion) is lower than the Zacks Consensus Estimate of $3.74 billion and the growth rate is also well below 63% reported in the year-ago quarter. Further, according to Bloomberg, the growth rate will be the lowest since the first quarter of 2013, when revenue rose 38%.
Moreover, the company will likely increase its spending in the future quarters on hiring binge, new acquisitions as well as growing existing products and new areas such as WhatsApp, Oculus and video. Expenses are expected to grow by 55-75% next year, which will likely weigh on the future profit margins.
The disappointing outlook turned investors wary and compelled them to book their profits at current levels. Facebook tumbled as much as 11% in aftermarket hours yesterday on elevated volume after touching an all-time high of $81.16 in the normal trading session. The stock also witnessed a decline of over 6% in today's pre-market session and currently has a Zacks Rank #3 (Hold) and a poor Zacks Industry Rank in the bottom 43%, suggesting that more pain is in store for this company.
This is especially true as FB rose about 47.8% in the year-to-date time frame when compared to losses for the other social media stocks like Twitter, LinkedIn (LNKD) and Groupon (GRPN), which were down 31.2%, 5.3% and 49%, respectively, in the same time frame (see: all the Technology ETFs here).
ETFs to Watch
The sluggish trading in Facebook following the Q3 announcement will likely impact the ETF world as well since the stock is one of the major components in some ETFs. Below, we have highlighted three funds having double-digit allocation to this networking giant and might see downward pressure over the next few days arising from declining FB price.
Global X Social Media Index ETF (SOCL)
This fund offers the only pure play in the global social media space and has amassed $124 million in its asset base. The ETF charges 0.65% in fees and expenses, and sees good volumes of roughly 165,000 shares a day. The product tracks the Solactive Social Media Index, holding 31 securities in the basket.
Of these firms, Facebook takes the top spot, making up roughly 13.25% of assets. In terms of country exposure, U.S. firms take more than half the portfolio, closely followed by China (27%) and Japan (9%). The ETF has piled up enough losses of about 12% so far this year and has a Zacks ETF Rank of 2 or ‘Buy' rating with a High risk outlook.
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. The fund has accumulated $508.9 million in AUM and charges 60 bps in fees a year. Volume is moderate as it exchanges nearly 79,000 shares in hand on average (read: Invest in Global IPOs with This New ETF).
In total, the fund holds 100 securities in its basket with FB at the top having 10.79% allocation. From a sector look, information technology and consumer discretionary take the top two spots at 24.5% and 21.7%, respectively, while health care and energy round off the next two levels with double-digit exposure. FPX has added over 6% so far this year.
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 over $1.7 billion and average daily volume of more than 384,000 shares. The fund follows the Dow Jones Internet Composite Index and holds 42 stocks in its basket. Expense ratio came in at 0.54%.
Facebook occupies the top position in the basket with 10.79% of assets. In terms of industry exposure, Internet mobile applications account for three-fifths of the portfolio while Internet retail makes up for 23%. The product has lost 1.4% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold' rating with a Medium risk outlook.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FACEBOOK INC-A (FB): Free Stock Analysis Report
GLBL-X SOCL MDA (SOCL): ETF Research Reports
FT-DJ INTRNT IX (FDN): ETF Research Reports
TWITTER INC (TWTR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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