Focus on ETFs after Meta’s first-ever revenue drop
AAfter the July 27 closing bell, Facebook’s parent company, Meta Platforms META, announced dismal results for the second quarter of 2022, in which it missed earnings estimates. The social media giant announced its first-ever quarterly drop in revenue and provided a grim forecast given the wider fallout from digital advertising.
Thus, FB shares fell 4.6% during secondary market hours on high volume. This has focused on ETFs – Communications Services Select Sector SPDR Fund XLC, Fidelity MSCI Index ETF Communication Services COMF, Vanguard Communications Services ETF VOICE, iShares Global Comm Services ETF IXPs and RETAINED Compound Kings ETFs KNGS – with a substantial allocation to this social media giant.
Benefits in a nutshell
Adjusted earnings per share came in at $2.46, missing Zacks’ consensus estimate of $2.50, but down 32% from a year earlier. Revenue fell 1% year-over-year to $28.82 billion and topped the estimated $28.7 billion. This is Meta’s first year-over-year revenue decline since its IPO in 2012. Recession fears and competitive pressures weighed on its digital ad sales (read: ETF in short before Big Tech Q2 earnings).
The number of global daily active users of Meta Platforms grew 4% year-over-year to 2.88 billion. Monthly active users grew 4% year over year to 3.65 billion. The company said about 2.93 billion people use at least one of the family’s services (Facebook, WhatsApp, Instagram or Messenger) every day, on average.
The world’s largest social media platform has released a weak third-quarter revenue forecast. It expects revenue in the range of $26 billion to $28.5 billion, flat or down from $28.3 billion in the third quarter of 2021, which will mark a second consecutive decline of a year to year. Along with falling ad sales, Meta faces pressure from the strong dollar and growing competition from rival TikTok. It expects revenue growth of 6% in the third quarter, based on current exchange rates. Additionally, Meta expects Reality Labs’ third quarter revenue to be lower than the second quarter.
Focus on ETFs
Communications Services Select Sector SPDR Fund (XLC)
Communication Services Select Sector SPDR Fund provides exposure to companies in the telecommunications services, media, entertainment and interactive media and services, and has accumulated $9.4 billion in its asset base. It tracks the index of selected Communication Services sectors and holds 26 stocks in its basket, with Meta Platforms taking the top spot at 18.1%. Around 46% of the portfolio is allocated to media & interactive services, while entertainment and media round out the next two (see: all Communication ETFs here).
Communication Services Select Sector SPDR Fund charges 10 basis points in annual fees and trades an average daily volume of 5.2 million shares. He has a Zacks ETF Rank #2 (Buy).
Fidelity MSCI Communication Services Index ETF (FCOM)
The Fidelity MSCI Communication Services Index ETF tracks the MSCI USA IMI Communication Services 25/50 Index. He has 115 stocks in his basket, with Meta Platforms holding the top position at 12.5%. Interactive media and services take first place with 42.3%, while media, entertainment and diversified telecommunications services complete the next three positions.
The Fidelity MSCI Communication Services Index ETF has amassed $543.6 million in its asset base and trades an average daily volume of 150,000 shares. It charges 8 basis points in annual fees and has a Zacks ETF Rank #2 with a medium risk outlook.
Vanguard Communications Services ETF (VOX)
Vanguard Communication Services ETF also targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 110 stocks in its basket, Meta Platform takes the top spot with a 12.4% share. Interactive media and services is the top sector, accounting for 42.2% of the portfolio, while movies and entertainment, integrated telecommunications services, and cable and satellite round out the next three (read: ETFs to win as the Alphabet Grows Despite Missed Q2 Gains).
The Vanguard Communication Services ETF has an AUM of $2.6 billion and trades in a good volume of 300,000 shares per day, on average. It charges 10 basis points in annual fees and has a Zacks ETF Rank #3 (Hold) with a medium risk outlook.
iShares Global Comm Services (IXP) ETF
iShares Global Comm Services ETF provides global exposure to media, entertainment, social media, search engine, video/gaming services and telecommunications companies by tracking the S&P Global 1200 Communication Services Index 4.5/22.5/45 Capped Index. He has 73 stocks in his basket, with Meta Platforms taking third place with 10.6% share. Interactive media and services led the fund’s return at 44.3%, followed by integrated telecommunications services (19.5%).
iShares Global Comm Services ETF amassed $280.6 million in its asset base while trading at an average daily volume of 58,000 shares. The expense ratio is 0.43%. IXP has a Zacks ETF #3 rating with a medium risk outlook.
Kings Compound ETF ETFs (KNGS)
MAINTAIN Compound Kings ETF is actively managed and seeks long-term growth and income primarily by investing in compound companies: companies with the potential to reinvest their own cash flows at above-average rates of return. It holds 26 stocks in its basket, with Meta Platforms taking second place with 9.7% of assets.
MAINTENANCE Compound Kings ETF has accumulated $7.7 million in its asset base and charges 60 basis points on an annual basis. It trades a volume of 1,000 shares per day on average.
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Vanguard Communication Services ETF (VOX): ETF Research Reports
ETF Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports
iShares Global Comm Services ETF (IXP): ETF Research Reports
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
ETF Compound Kings (KNGS) FUNDS: ETF Research Reports
Meta Platforms, Inc. (META): Free Stock Analysis Report
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.