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ETFs in Focus Post Alphabet's Q2 Earnings

Shares of Google parent, Alphabet GOOGL, fell 2.94% in after-hours trading on July 24, 2017, owing to reduced profits. The company reported a 21% year-over-year increase in net quarterly revenues. It beat the Zacks Consensus Estimate on both earnings and revenues in the second quarter of 2017. However, earnings declined on an absolute basis.


Q2 Performance


Alphabet reported non-GAAP earnings per share of $5.01, which beat the Zacks Consensus Estimate of $4.39 but decreased from $7 in the year-ago period. Revenues of $20.919 billion (excluding total acquisition costs) came ahead of the consensus mark of $20.825 billion.


Operating income decreased to $4.132 billion from $5.968 billion in the year-ago quarter. Net income declined to $3.524 billion from $4.877 billion in the year-ago quarter, primarily due to the antitrust fine of $2.74 billion imposed by the European Commission on account of wrongful advertisement display and violation of the European competition law by the company.


Revenue Performance


Properties revenues (including Traffic Acquisition costs) increased to $18.425 billion from $15.400 billion in the year-ago quarter.


Network members’ properties revenues (including Traffic Acquisition costs) increased to $4.247 billion from $3.743 billion in the year-ago quarter.


Advertising revenues (including Traffic Acquisition costs) increased to $22.672 billion from $19.143 billion in the year-ago quarter.


Other revenues (including Traffic Acquisition costs) increased to $3.090 billion from $2.172 billion in the year-ago quarter.


Segment revenues (including Traffic Acquisition costs) increased to $25.762 billion from $21.315 billion in the year-ago quarter.


Other bets revenues (including Traffic Acquisition costs) increased to $248 million from $185 million in the year-ago quarter.


Total traffic acquisition costs increased to $5.091 billion from $3.975 billion in the year-ago quarter.


The aggregate paid clicks increased 52% on a year-over-year basis and 12% on a sequential basis while the aggregate cost-per-click decreased 23% on a year-over-year basis and 6% on a sequential basis.


Shares of Alphabet Inc are up almost 26% so far this year (as of July 24, 2017).


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Alphabet (see all Technology ETFs here).


Technology Select Sector SPDR Fund XLK


XLK is a relatively cheaper bet on the technology sector. This fund has AUM of $17.03 billion and charges a fee of 14 basis points a year. It has 5.56% allocation to Alphabet Inc (Class A) (as of July 24, 2017). The fund has returned 25.59% in the last one year and 19.13% year to date (as of July 24, 2017). XLK currently has a Zacks ETF Rank of #2 (Buy) with a Medium risk outlook.


Vanguard Information Technology ETF VGT


This fund is one of the most popular and cheap bets on the U.S. technology sector. It has AUM of $14.0 billion and charges a fee of 10 basis points a year. It has a 10.3% allocation to Alphabet Inc (Class A) (as of June 30, 2017). The fund has returned 30.55% in the last one year and 22.53% year to date (as of July 24, 2017). VGT currently has a Zacks ETF Rank of #2 with a Medium risk outlook.


iShares U.S. Technology ETF IYW


This fund provides exposure to the U.S. technology sector. It has AUM of $3.72 billion and charges a fee of 44 basis points a year. It has a 6.46% allocation to Alphabet Inc (Class A) (as of July 21, 2017). The fund has returned 31.35% in the last one year and 22.78% year to date (as of July 24, 2017). IYW currently has a Zacks ETF Rank of #1 (Strong Buy) with a Medium risk outlook.


Below is a chart comparing the year-to-date performance of the funds and Alphabet.


 
Source: Yahoo Finance


To Conclude


Although the company reported a decline in earnings, it still beat the consensus estimate. Moreover, the fall was owing to a one-time fine imposed on Alphabet and is not reflective of the company’s fundamentals. Despite these headwinds, the company has strong fundamentals and the tech sector is expected to perform well owing to increased innovation and consumer confidence (read: Tech ETFs to Buy as Microsoft Beats Big on Earnings).


Most recently, the S&P 500 Information Technology index surged past its dotcom era peak to a 17-year high owing to improving economic sentiment (read: Tech Index Breaks Dotcom Era Record: ETFs to Buy).


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Alphabet Inc. (GOOGL): Free Stock Analysis Report
 
SPDR-TECH SELS (XLK): ETF Research Reports
 
VIPERS-INFO TEC (VGT): ETF Research Reports
 
ISHARS-US TECH (IYW): ETF Research Reports
 
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