Will Google ETFs Keep Shining on Q3 Earnings Optimism?

Sweta Jaiswal, FRM
·4-min read

Google-parent Alphabet (GOOGL) recently reported third-quarter 2020 results, with earnings and revenues topping estimates and increasing on a year-over-year basis. Notably, Alphabet’s share price surged 6.5% in after-hour trading on impressive earnings results.

Q3 Earnings at a Glance

Earnings per share were $16.40, beating the Zacks Consensus Estimate of $11.40 and increasing 61.9% sequentially and 62.1% year over year. 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) came in at $38.01 billion, gaining 20.3% sequentially and 15.1% year over year. Net revenues surpassed the Zacks Consensus Estimate by 7.5%, largely on strong performances by the company’s search, cloud and YouTube businesses.

Alphabet’s business segments include search, advertising, Play, hardware, and Cloud & Apps. Revenues from Google-owned and partner sites within the search business rose 9.9% and 8.9% year over year, making for 68% and 12.4% of quarterly revenues, respectively. Consequently, there was a year-over-year rise of 9.8% in total advertising revenues. YouTube advertising revenues surged 32.4% year over year to $5 billion, contributing 10.9% of quarterly revenues. Google other revenues — which consists of YouTube non-advertising revenues — were $5.5 billion for the third quarter, increasing 35.3% year over year. Moreover, Google cloud grew 44.8% year over year to $3.44 billion, accounting for 7.5% of quarterly revenues. Notably, with aggravating coronavirus outbreak, some industries including cloud computing have been thriving with majority of people working from home.

Meanwhile, TAC rose 22% sequentially and 9% year over year.

ETFs in Focus                      

The earnings results might have a huge impact on ETFs that are heavily invested in this Internet giant. Below 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 112 stocks in its basket, Alphabet takes the second (Class C) and third (Class A) spot, with 10.9% and 10.7% share. VOX has AUM of $2.73 billion and charges 10 basis points (bps) in annual fees. The fund has a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook (read: Trick or Treat Ahead for Tech ETFs After Earnings Subdue Mood?).

Fidelity MSCI Communication Services Index ETF FCOM

This fund follows the MSCI USA IMI Communication Services 25/50 Index. It holds 104 stocks in its basket, with Alphabet occupying the second (Class C) and third position (Class A) at 10.9% and 10.7%. The product has amassed $558.8 million in its asset base and charges 8 bps in annual fees. It has a Zacks ETF Rank #2, with a Medium-risk outlook (read: ETFs to Soar on Robust Facebook Q3 Earnings).

The Communication Services Select Sector SPDR Fund XLC

This ETF tracks the communication services sector of the S&P 500 Index and has accumulated $10.52 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the second and third position, with 11.8% and 11.6% weights, respectively. The product charges 13 bps in annual fees. It has a Zacks ETF Rank #2 (read: ETFs to Win From the Netflix, Amazon Q3 Earnings Faceoff).

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 70 stocks in its basket, with Alphabet Inc. Class A and Alphabet Inc. Class C occupying the second and third position, with 10.7% and 10.5% weights, respectively. The fund has amassed $322.3 million in its asset base. Expense ratio came in at 0.46%. IXP has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook.

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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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