The earnings season is off to a flying start with equity markets scaling record highs, owing to a slew of upbeat economic data, strong corporate performance and President Donald Trump's tax reform signed into law. However, the performance has been relatively poor for Google parent, Alphabet.
Shares of Alphabet (NASDAQ:GOOGL) decreased 2.3% in after-hours trading on Feb 1, 2018, owing to poor results. The company reported a 24.0% year-over-year increase in net quarterly revenues. It beat the Zacks Consensus Estimate on revenues in the fourth quarter of 2017, but failed to beat the consensus estimate on earnings (read: FAAMG ETFs to Watch as Q4 Earnings Unfold).
Q4 Performance
Alphabet reported non-GAAP earnings of $9.70 per share, which failed to beat the Zacks Consensus Estimate of $10.12 but increased from $7.56 in the year-ago period. Revenues of $25.873 billion (excluding total acquisition costs) surpassed the consensus estimate of $25.655 billion.
Operating income increased to $7.664 billion from $6.639 billion in the year-ago quarter. The company reported that aggregate paid clicks increased 43% year-over-year, but aggregate cost-per-click was down 14%.
Revenue Performance
Properties revenues (including Traffic Acquisition costs) increased to $22.237 billion from $17.968 billion in the year-ago quarter.
Network members’ properties revenues (including Traffic Acquisition costs) increased to $4.990 billion from $4.431 billion in the year-ago quarter.
Advertising revenues (including Traffic Acquisition costs) increased to $27.227 billion from $22.399 billion in the year-ago quarter.
Other revenues (including Traffic Acquisition costs) increased to $4.687 billion from $3.403 billion in the year-ago quarter.
Segment revenues (including Traffic Acquisition costs) increased to $31.914 billion from $25.802 billion in the year-ago quarter.
Other Bets revenues (including Traffic Acquisition costs) increased to $409 million from $262 million in the year-ago quarter.
Total traffic acquisition costs increased to $6.450 billion from $4.848 billion in the year-ago quarter.
Moreover, on a full-year basis, the company’s total revenues increased to $110.855 billion in 2017 compared with $90.272 billion in 2016.
Alphabet is a Zacks Rank #3 stock and its share price has increased 20.7% in a year.
In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Alphabet (see all Technology ETFs here).
Technology Select Sector SPDR Fund XLK
XLK is a relatively cheaper bet on the technology sector. This fund has AUM of $20.6 billion and charges a fee of 13 basis points a year. It has 5.3% allocation each to Alphabet Inc (Class A) and Alphabet Inc (Class C) (as of Feb 8, 2018). The fund has returned 21.2% in a year but lost 4.2% year to date (as of Feb 8, 2018). XLK has a Zacks ETF Rank of #2 (Buy), with a Medium risk outlook.
Vanguard Information Technology ETF (HN:VGT)
This fund is one of the most popular and cheap bets on the U.S. technology sector. It has AUM of $17.8 billion and charges a fee of 10 basis points a year. It has a 10.2% allocation to Alphabet Inc (Class A) (as of Dec 31, 2017). The fund has returned 23.1% in a year but lost 4.8% year to date (as of Feb 8, 2018). VGT has a Zacks ETF Rank of #2, with a Medium risk outlook.
iShares U.S. Technology ETF IYW
This fund provides exposure to the U.S. technology sector. It has AUM of $3.8 billion and charges a fee of 44 basis points a year. It has a 6.1% allocation each to Alphabet Inc (Class A) and Alphabet Inc (Class C) (as of Feb 7, 2018). The fund has returned 21.9% in a year but lost 4.4% year to date (as of Feb 8, 2018). IYW has a Zacks ETF Rank of #1 (Strong Buy), with a Medium risk outlook.
Below is a chart comparing the one year performance of the funds and Alphabet.
Source: Yahoo (NASDAQ:AABA) Finance
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Alphabet Inc. (GOOGL): Free Stock Analysis Report
SPDR-TECH SELS (XLK): ETF Research Reports
VIPERS-INFO TEC (VGT): ETF Research Reports
ISHARS-US TECH (IYW): ETF Research Reports
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Zacks Investment Research