Should You Buy Facebook ETFs as Coronavirus Boosts Traffic?

Sweta Jaiswal, FRM

Coronavirus continues to wreak havoc in the United States with more than 68,000 confirmed cases and the death toll surpassing the grim mark of 1000. In order to contain the outbreak, lockdown measures and social distancing are extremely important. As increasing number of people are spending time indoors, in line with social-distancing guidelines, they are resorting to in-house entertainment and mediums to virtually connect with their family members and friends. Accordingly, Facebook FB is witnessing a significant increase in usage of its services, including Messenger, Instagram and WhatsApp. In this regard, Alex Schultz, Facebook's vice president of analytics, and Jay Pareikh, vice president of infrastructure have said that "the usage growth from COVID-19 is unprecedented across the industry, and we are experiencing new records in usage almost every day".

The company has also informed that total messaging has soared by more than 50% over the last month in countries that were the most affected by the pandemic. In addition, voice and video calling more than doubled on Messenger and WhatsApp in places severely affected. For instance, time spent across Facebook’s apps jumped by roughly 70% since the beginning of the coronavirus outbreak in Italy, which is one of the worst affected countries. Management at Facebook also informed that messaging surged 50% and group calling with three or more participants soared more than 1,000% in the past month. Also, total number of views on Instagram and Facebook Live doubled in a week.

Facebook is also gradually re-emerging as a strong power in news consumption. The company also witnessed a surge in U.S. traffic from Facebook to other websites. Per a New York Times article, Facebook saw coronavirus-related traffic flowing to mainstream news houses. For instance, there was a 119% rise in the clicks on The Washington Post’s Facebook links during a two-week period in March in comparison to the same period in the previous month. The Facebook traffic to Times has soared 180%, along with NBC News’ traffic surging 160% (read: ETFs to Gain as New US Stimulus Package Gets a Nod).

Coronavirus to Hit Ad-Sales

Despite the boost in traffic, Facebook doesn’t expect the surge to benefit its top line as it doesn’t monetize a number of these services. In fact, its ad-sales are expected to suffer due to measures like lockdowns and mass quarantines imposed in majority of countries to control the outbreak. It is worth noting here that 98.5% of Facebook’s 2019 revenues came in from advertisements. Moreover, small business houses are resorting to trimming their cash allocations to marketing and advertising as they are grappling with the virus-led uncertainty.

In this regard, management at Facebook noted that "our business is being adversely affected like so many others around the world. We don't monetize many of the services where we're seeing increased engagement, and we've seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19.”

ETFs to Watch

Given this, investors can keep an eye on the ETFs having a larger allocation to the networking giant. We have highlighted some of these in detail below:

Vanguard Communication Services ETF VOX

This fund also targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 113 stocks in its basket, Facebook takes the second spot with 15% share. VOX has AUM of $1.58 billion and charges 10 bps in annual fees. It carries a Zacks ETF Rank of 3 (Hold), with a Medium-risk outlook (read: Is It the Right time to Buy Netflix ETFs?).

Fidelity MSCI Communication Services Index ETF FCOM

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 105 stocks in its basket with Facebook occupying the top position at 14.9%. The product has amassed $372.7 million in its asset base. It charges 8 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium-risk outlook.

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 68 stocks in its basket with Facebook taking the top spot at 11.8% share. The fund has amassed $204 million in its asset base. Expense ratio came in at 0.46%. IXP has a Zacks ETF Rank #3, with a Medium-risk outlook.

Global X Social Media Index ETF SOCL

This is a pure-play ETF in the global social media space and has amassed $102.1 million in its asset base. It tracks the Solactive Social Media Total Return Index, holding 42 securities in the basket. Of these firms, Facebook takes the second spot, making up for 9.1% of assets. The ETF charges 0.65% in annual fees. The fund carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook.

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Facebook, Inc. (FB) : Free Stock Analysis Report
 
Vanguard Communication Services ETF (VOX): ETF Research Reports
 
Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports
 
Global X Social Media ETF (SOCL): ETF Research Reports
 
iShares Global Comm Services ETF (IXP): ETF Research Reports
 
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