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Investors Cheer Alibaba Revenue Growth: ETFs in Focus

Chinese e-commerce giant Alibaba Group (BABA) reported fourth-quarter fiscal 2016 results before the opening bell yesterday. While revenue performance was encouraging amid the China slowdown, profitability was a disappointment.

Alibaba Results in Detail

Earnings of 20 cents per ADS came in below the Zacks Consensus Estimate of 38 cents. Revenues nevertheless climbed 39% year over year to $3.75 billion, easily crushing our estimate of $3.58 billion. This represents the fastest growth in four quarters. Robust performance was driven by higher mobile sales on its e-commerce platform and increased sales in the cloud computing business.

Mobile revenue shot up 149% to $2.03 billion and mobile monthly active users increased 42% year over year to 289 million during the quarter. Additionally, cloud computing and Internet infrastructure continued to show rapid expansion with revenue rising 175% year over year. This marks a solid acceleration from the prior quarter year-over-year growth of 126% (read: Investors Returning to China ETFs).

Alibaba is progressing well on its mobile shift and continues to dominate the Internet e-commerce market in China with nearly 80% share. Gross merchandise volume in the Chinese retail marketplaces, namely, Taobao and Tmall, grew 24% year over year to $115 billion.

Market Impact

Investors welcomed Alibaba’s accelerating revenue growth by overlooking the earnings miss. As a result, shares of BABA climbed as much as 5.4% on the day. Meanwhile, the stock crushed its average daily volume figures, as nearly 28 million shares moved hands compared with just 11.6 million on average.

Given this, ETFs having a higher allocation to this Chinese e-commerce giant will be in focus in the days ahead. Investors should closely monitor the movement in these funds and grab the opportunity when it arises. However, most of these have seen rough trading following Alibaba results.

KraneShares CSI New China ETF (KFYP)

This fund tracks the CSI China Overseas Five Year Plan Index, holding 105 securities in its basket. Of these, Alibaba takes the second spot at 15.8%. About half of the portfolio is skewed toward information technology (33.9%) while consumer discretionary and industrials round off the top three with double-digit exposure. The fund is unpopular and illiquid as depicted by its AUM of $2.7 million and average daily volume of under 2,000 shares. Expense ratio came in at 0.71%. The ETF shed 4.3% following the results and has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating with a High risk outlook (read: Is It Finally Time for China ETFs?).
 
First Trust International IPO ETF (FPXI)
 
This product provides exposure to the largest and most liquid companies that are domiciled outside the U.S. by tracking the IPOX International Index. Holding 50 stocks in its basket, Alibaba occupies the top position with 10.6% allocation. About one-fourth of the portfolio is skewed toward the Japanese firms while China and German firms round off the next two spots. From a sector look, financials takes the largest share at 46%, closely followed by information technology, consumer discretionary and industrials. The product has been able to manage $1.3 million in its asset base and charges 70 bps in fees per year. Volume is light exchanging 35,000 shares in hand on average. It added 0.3% post Alibaba results and has a Zacks ETF Rank of 4 or ‘Sell’ rating.
 
BLDRS Emerging Markets 50 ADR Index Fund (ADRE)
 
The product offers exposure to 52 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 39.9% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 10.6%. Brazil, Taiwan and India round off the next three spots in terms of country exposure. From a sector look, information technology accounts for 35.8%, followed by telecom (16.3%) and financials (14.9%). ADRE has amassed $121.3 million in its asset base while trades in light volume of about 11,000 shares. It charges 30 bps in fees per year and gained 0.4% on the day. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
 
KraneShares CSI China Internet Fund (KWEB)
 
This product provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 36 securities in its basket with Alibaba occupying the second position at 10.2%. The technology sector makes up for a substantial 62.7% of total assets, while consumer discretionary takes the remainder with just 1.2% allotted to industrials. The ETF has amassed $213.2 million in its asset base and charges 71 bps in annual fees from investors. Volume is good as it exchanges 132,000 shares in hand per day. KWEB added 0.06% in the last trading session following the Alibaba earnings announcement (see: all the Technology ETFs here).
 
Renaissance IPO ETF (IPO)
 
This ETF follows the Renaissance IPO Index, which holds the largest and most-liquid newly listed U.S. initial public offerings. Currently, the product holds 64 securities and BABA takes the top spot in the basket with 10.0% of assets. From a sector look, technology stocks make up for 30.6% share while financials and healthcare make up for double-digit exposure each. The fund has attracted $13.6 million in its asset base and sees a paltry volume of about 4,000 shares per day on average. It charges 60 bps in fees per year and is down 0.3% post Alibaba results.
 
Guggenheim BRIC ETF (EEB)
 
This product provides exposure to BRIC countries and follows the BNY Mellon BRIC Select DR Index. In total, it holds 105 stocks with Alibaba at the top position, accounting for 10.3% of assets. More than one-fourth of the portfolio is dominated by information technology while energy, financials and telecom services round off to next three spots with double-digit exposure each. The ETF has $86.7 million in AUM and sees paltry volume of around 8,000 shares. Expense ratio came in at 0.64%. The fund added 0.1% on the day and has a Zacks ETF Rank of 3 with a Medium risk outlook (read: 5 Emerging Market ETFs Up Over 20% YTD).
 
SPDR S&P BRIC 40 ETF (BIK)
 
This ETF also tracks BRIC nations with the help of S&P BRIC 40 Index. Holding 43 stocks in its basket, Alibaba occupies the second position with 9.2% share. Here, financials and information technology are the top two sectors accounting for 37.7% and 30.7%, respectively. The fund has accumulated $68 million in its asset base and trades in volume of around 15,000 shares. It charges 0.49% in expense ratio and was up 0.3% on the day. BIK has a Zacks ETF Rank of 4 with a Medium risk outlook.
 
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ALIBABA GROUP (BABA): Free Stock Analysis Report
 
KRANS-C CHN 5YP (KFYP): ETF Research Reports
 
FT-INTL IPO FD (FPXI): ETF Research Reports
 
BLDRS-EMER MKTS (ADRE): ETF Research Reports
 
KRANS-C CHN INT (KWEB): ETF Research Reports
 
RENAIS-IPO ETF (IPO): ETF Research Reports
 
GUGG-BRIC (EEB): ETF Research Reports
 
SPDR-SP BRIC 40 (BIK): ETF Research Reports
 
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