ETFs In Focus As Revenue Growth Boosts Google Shares

by: Zacks Funds

Shares of Google (NASDAQ:GOOG) (NASDAQ:GOOGL), the world's biggest Internet search engine, rose in extended market trading on Thursday after the company reported solid year-on-year gain in first-quarter revenue. However, both the adjusted first-quarter revenue and earnings per share (EPS) figures missed the Zacks Consensus Estimate. This marked a string of 6 straight quarters of missed bottom-line expectations for Google.

Strong growth in advertising revenues drove Google's overall revenue in the first quarter. However, a stronger dollar had a negative impact on earnings results. According to the company's CFO, currency headwinds dragged down the year-on-year growth rate in total revenue by about 5% (read: 3 Currency ETFs that Crumbled in Q1).

Q1 Earnings in Detail

The company reported first-quarter EPS of $5.20 (accounting for traffic acquisition costs (TAC)), missing the Zacks Consensus Estimate of $5.38. Also, the EPS was below the year-ago figure of $5.33. Meanwhile, first-quarter revenue (excluding TAC) of $13.91 billion also came in lower than the Zacks Consensus Estimate of $14.1 billion. However, adjusted revenue increased 14.1% from the year-ago quarter on the back of impressive growth in advertisement revenue. According to the report, total advertisement revenue surged 11% year over year to $15.51 billion.

While aggregate paid clicks were up 13% year over year, they slipped by a percentage point from Q4. Paid clicks on Google websites fell 3% from the previous quarter. Costs per click were down 7% in aggregate year over year, and 13% lower for Google sites (read: ETFs in Focus on Google Earnings Miss and Soaring Costs).

Meanwhile, surging operating expenses hurt Google's earnings in the first quarter. Operating expenses increased nearly 20.8% year on year to $6.46 billion in the quarter.

Shares of the tech giant rose nearly 4% in extended trading on Thursday following the release of its first-quarter 2015 earnings results (read: Winning ETF Picks For Q1 Earnings Season).

ETFs in Focus

Investors reacted favorably to Google's strong growth in first-quarter revenue. The spotlight will be on Google during the post-earnings period as well. In this scenario, we have highlighted three ETFs having a significant exposure to the company and may get a boost from further gains, if any, in Google's shares.

First Trust Dow Jones Internet Index ETF (NYSEARCA:FDN)

This is one of the most popular and active ETFs in the broad tech space with an AUM of $2.75 billion and average daily volume of more than 312,000 shares. The fund holds a small basket of 42 stocks, charging investors 57 basis points annually.

Google scores among the top 10 holdings having a total allocation of more than 9.5% (Class A and Class C). From a sector look, information technology accounts for about 69% of the portfolio while consumer discretionary makes up 25.2%. The product has gained 9.9% in the year-to-date frame and has a Zacks ETF Rank of #3 (Hold) with a High risk outlook.

iShares U.S. Technology ETF (NYSEARCA:IYW)

IYW is also quite popular in the tech space with AUM of $2.85 billion while charging 43 bps in fees and expense. Moreover, the fund trades in good volumes of about 580,000 shares a day.

The product tracks the Dow Jones U.S. Technology Index, giving investors exposure to a basket of 141 stocks. Google scores among the top 10 holdings having 8.6% allocation (Class A and Class C). IYW has gained 3.5% in the year-to-date frame and has a Zacks ETF Rank of #1 (Strong Buy) with a Medium risk outlook.

Technology Select Sector SPDR ETF (NYSEARCA:XLK)

This is the most popular and actively traded ETF in the broad tech space with an AUM of $12.68 billion and average daily volume of more than 8 million shares. This fund follows the S&P Technology Select Sector Index and holds about 74 securities in its basket. Out of these firms, Google Class A and Class C shares take the sixth and the seventh spots, having a combined allocation of roughly 8%.

Sector-wise, Technology Hardware, Storage & Peripherals accounts for about 22.4% of the portfolio while Software and IT Services take the next two spots. The product has gained 3.4% in the year-to-date frame and has a Zacks ETF Rank of #2 (Buy) with a Medium risk outlook.

Original post