eBay Crumbles on Mixed Q3 and Weak Outlook: 3 ETFs to Watch (revised) - ETF News And Commentary

The e-commerce giant

came out with Q3 results after the closing bell on October 15. Overall, the mood was downbeat with a sales miss and tapered outlook, though an earnings beat was the only healing point in the Q3 release (read:

).

Adjusted earnings per share came in at $0.68, better than the year-ago level of $0.64,

. Revenues of $4.35 billion fell shy of the estimate of $4.37 billion but grew 12% year over year. Revenues were primarily volume-driven.

eBay's Pay Pal business put up a good show in the quarter with a

advancement in active registered accounts.  Another segment – Marketplaces – generating revenues from the sale of goods available on eBay properties, recorded a 13% jump in active buyers.

However, as expected, pricing was an issue for the company which is why on the margin front, the e-commerce giant clearly underperformed. The non-GAAP operating margin was 310 bps down to 23.7% in the third quarter.

While the story so long was acceptable, the real blow came in the form of guidance. The company reduced its non-GAAP earnings per share expectation for the last quarter of the fiscal to the range of $0.88 to $0.91 per share. However, Wall Street analysts had a consensus estimate of $0.91 per share, per

.

Not only this, eBay cut its revenue guidance from the range of $18–$18.3 billion to $17.85–$17.95 billion. Prior to this, the company slashed its revenue guidance in Q2 from $18─$

to $18

billion. 

As expected, the sluggish outlook went against eBay shares which fell in after hours of October 15, and are down more than 5% in Thursday trading. The results have put some ETFs with considerable exposure in eBay in focus. These funds are highlighted below (read:

):    

(

)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 97 stocks in its basket with AUM of $314.2 million while charging 60 bps in fees per year.

The in-focus eBay occupies the fourth position with a 7.93% allocation. In terms of industrial exposure, Internet software and services make up for more than two-thirds of the basket, followed by Internet retail. PNQI has lost nearly 7.2% so far this year.

(

)

This is one of the most popular and liquid ETFs in the broad tech space with AUM of over $1.64 billion and average daily volume of more than 300,000 shares. The fund tracks the Dow Jones Internet Index and charges 57 bps in fees per year.

In total, the fund holds 42 stocks in its basket with the in-focus eBay taking the third spot with a 6.26% share. From a sector look, information technology accounts for about 70% of the portfolio while consumer discretionary makes up 25%. The ETF is down about 5.4% year to date.

(

)

This ETF follows the Morningstar Wide Moat Focus Index and provides equal-weighted exposure to 22 U.S. securities that have a unique sustainable competitive advantage in their respective industries. Here, eBay occupies the fifth position in the basket, accounting for 5.19% of total assets.

The product is pretty spread out across various sectors with financials, information technology, consumer staples and healthcare taking double-digit allocation. The fund has accumulated $840.6 million in its asset base and sees good volume of more than 100,000 shares a day. Its expense ratio comes in at 0.49%. The fund has added nearly 4.1% so far this year.

Prior to the holiday season, results of e-commerce companies play a crucial role in understanding the sector sentiment. If we go by a recent report issued by National Retail Federation

, online sales should see an 8–11% jump this holiday season (predicted by shop-org).

Also, the Internet e-commerce industry presently resides at the top 33% allocation of Zacks Industry Rank. All these point to a moderately bullish near-term outlook (read:

). 

On the other hand, eBay itself currently carries a Zacks Rank #4 (Sell) with poor fundamentals.  So, investors counting on the long-term potential in the space can consider the recent sluggishness in eBay as a buying opportunity. However, an ETF approach may be better; at least it can cover up eBay's weakness with some other components' strength (read:

).

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