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Can Google ETFs Keep Gaining on Q3 Earnings Optimism?

With support from the search, advertising, cloud and YouTube businesses, Google (GOOGL) has posted better-than-expected Q3 earnings results amid the coronavirus pandemic

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This story originally appeared on Zacks

Google-parent Alphabet GOOGL recently reported third-quarter 2021 results, with earnings and revenues topping estimates and increasing on a year-over-year basis. Notably, witnessing its best day since February, Alphabet’s share price has surged about 5% since the release of the impressive earnings results on Oct 26.

- Zacks

Q3 Earnings at a Glance

Earnings per share were $27.99, surpassing the Zacks Consensus Estimate by 21% and increasing 70.7% year over year. Revenues totaled $65.10 billion, rising 41% year over year (39% at constant currency). Net revenues, excluding total traffic acquisition cost or TAC (TAC is the portion of revenues shared with Google’s partners, and amount paid to distribution partners and others who direct traffic to the Google website), stood at $53.60 billion.

Net revenues surpassed the Zacks Consensus Estimate by 3.5%, largely on strong performances by the company’s search and advertising units. Notably, cloud and YouTube businesses also contributed well to the top line but their growth slowed-down sequentially. A rise in online activities across the world and strength in Other Bets business were tailwinds.

Alphabet’s business segments include Google Services, Google Cloud and Other Bets. Revenues from the Google Services business rose 40.7% year over year to $59.90 billion, accounting for 91.9% of quarterly revenues. Under the services business, search revenues from Google-owned sites climbed 43.9% year over year to $37.90 billion. YouTube advertising revenues rose 43% year over year to $7.20 billion, while Network advertising revenues climbed 39.8% to $7.90 billion.

Google other revenues — which consists of Google Play and YouTube non-advertising revenues — were $6.70 billion for the third quarter, up 23.3% year over year. Total Google advertising revenues grew 43.2% year over year to $53.10 billion.

Moreover, Google Cloud revenues grew 44.9% year over year to around $4.90 billion, accounting for 7.7% of the quarterly revenues. Notably, with the aggravating coronavirus situation, some industries like cloud computing have been thriving, with most people working from home. Other Bets revenues were $182 million, up 2.2% year over year, accounting for 0.3% of total third-quarter revenues.

Meanwhile, TAC was up 40.8% year over year to $11.50 billion.

Commenting on the results, Sundar Pichai, CEO of Google and Alphabet, reportedly said, “Five years ago, I laid out our vision to become an AI-first company. This quarter’s results show how our investments there are enabling us to build more helpful products for people and our partners. Ongoing improvements to Search, and the new Pixel 6, are great examples. And as the digital transformation and shift to hybrid work continue, our Cloud services are helping organizations collaborate and stay secure.”

ETFs in Focus                    

The earnings results might have a huge impact on ETFs that are heavily invested in this Internet giant. Here we have highlighted four ETFs with double-digit exposure to Alphabet (see: all the Technology ETFs here).

Vanguard Communication Services ETF VOX

This fund targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 114 stocks in its basket, Alphabet takes the second (Class A) and third (Class C) spot, with 11.2% and 10.6% share, respectively. VOX has AUM of $4.59 billion and charges 10 basis points (bps) in annual fees.

It has lost about 0.3% since Alphabet's second-quarter earnings release. The fund has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (read: Facebook ETFs in Focus on Mixed Q3 Earnings).

Fidelity MSCI Communication Services Index ETF FCOM

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 110 stocks in its basket, with Alphabet occupying the second (Class A) and third position (Class C) at 11.4% and 10.8%. The product has amassed $926.2 million in its asset base and charges 8 bps in annual fees.

The fund is down 0.4% since the earnings results. It has a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook.

The Communication Services Select Sector SPDR Fund XLC

This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $15.02 billion in its asset base. It follows the Communication Services Select Sector Index and holds 27 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the second and third position, with 12.9% and 12.2% weights, respectively. The product charges 12 bps in annual fees.

The fund has declined 0.3% since the earnings release. It has a Zacks ETF Rank #1  (read: 4 ETF Plays as Buybacks Bounce Back & Likely to Soar Higher).

iShares Global Comm Services ETF IXP

This 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 69 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the second and third position, with 12.5% and 11.7% weights, respectively. The fund has amassed $305.6 million in its asset base. Its expense ratio came in at 0.43%.

The fund has gained 0.2% since the earnings release. IXP has a Zacks ETF Rank #3, with a Medium-risk outlook.



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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

 

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