Alphabet Slips on Q3 Earnings Miss: ETFs in Focus

After the closing bell on Tuesday, Google parent Alphabet GOOGL reported weak third-quarter 2022 results, missing both revenue and earnings estimates. Slowing ad sales growth is responsible for the weak results.

As such, shares of GOOGL tumbled as much as 7% in after-market trading on an elevated volume. This has put the focus on ETFs — Communication Services Select Sector SPDR Fund XLC, Vanguard Communication Services ETF VOX, Fidelity MSCI Communication Services Index ETF FCOM, iShares Global Comm Services ETF IXP and MicroSectors FANG+ ETN FNGS — with a substantial allocation to Alphabet.

Earnings in Focus

Earnings per share came in at 1.06, missing the Zacks Consensus Estimate of $1.25 and declining from $1.39 in the year-ago quarter. Revenues grew 6% year over year to $69.1 billion (including traffic acquisition costs (TAC) which the company does not calculate in its headline). The 6% growth is down from 41% growth seen in the year-ago level and marks the slowest rate of revenue growth for the company since the second quarter of 2020, when its sales were hit by the early stages of the COVID-19 pandemic.

The company reported revenues of $57.27 billion, up from $53.62 billion in the year-ago quarter but below the consensus estimate of $58.31 billion. Advertising revenues improved to $54.5 billion from $53.13 billion a year ago. The YouTube division was the major disappointment as sales fell 1.9% year over year (see: all the Communication ETFs here).

ETFs in Focus

Communication Services Select Sector SPDR Fund (XLC)

Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $8.4 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Alphabet occupying the second position at 12.2%. About 45% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two.

Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6.2 million shares. It has a Zacks ETF Rank #3 (read: 5 Sectors & Its Top ETFs to Play Solid Dividend & Buyback Yield).

Vanguard Communication Services ETF (VOX)

Vanguard Communication Services ETF targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 113 stocks in its basket, Alphabet takes the top spot with a 12% share. Interactive media & services is the top sector, accounting for 41.4% of the portfolio, while movies & entertainment, integrated telecommunication services, and cable & satellite round off the next three.

Vanguard Communication Services ETF has AUM of $2.4 billion and trades in a good volume of 278,000 shares a day, on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Communication Services Index ETF (FCOM)

Fidelity MSCI Communication Services Index ETF follows the MSCI USA IMI Communication Services 25/50 Index. It holds 118 stocks in its basket, with Alphabet occupying the top position at 11.7% (read: Disney Subscriber Base Overtakes Netflix: 5 ETFs to Stream).

Fidelity MSCI Communication Services Index ETF has amassed $513.7 million in its asset base and trades in an average daily volume of 94,000 shares. It charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares Global Comm Services ETF (IXP)
 
iShares Global Comm Services ETF provides global exposure to companies in media, entertainment, social media, search engine, video/gaming and telecommunication services by tracking the S&P Global 1200 Communication Services 4.5/22.5/45 Capped Index. It holds 74 stocks in its basket, with Alphabet taking the top spot at 12.3% share. Interactive media & services dominates the fund’s return at 42.6%, followed by integrated telecommunication services (20.3%).

iShares Global Comm Services ETF has amassed $280.8 million in its asset base while trading at an average daily volume of 148,000 shares. The expense ratio comes in at 0.40%. IXP has a Zacks ETF Rank #3 with a Medium risk outlook.

MicroSectors FANG+ ETN (FNGS)

MicroSectors FANG+ ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket, with Alphabet accounting for a 10% share.

MicroSectors FANG+ ETN has accumulated $48.7 million in its asset base and charges 58 bps in annual fees. It trades in an average daily volume of 19,000 shares and has a Zacks ETF Rank #3.

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Alphabet Inc. (GOOGL) : Free Stock Analysis Report
 
Vanguard Communication Services ETF (VOX): ETF Research Reports
 
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
 
MicroSectors FANG ETN (FNGS): ETF Research Reports
 
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