ETFs On Watch On Facebook Inc’s Lofty Valuation [Global X Funds]

stock price surgeThe social media giant Facebook Inc (NASDAQ:FB) yet again reported robust results for Q2 on a boom in mobile advertising business. The company surpassed our estimates on both top and bottom lines for the fifth consecutive quarter, lending optimism to its future growth.

Earnings per share more than doubled to 30 cents and strongly outpaced the Zacks Consensus Estimate of 26 cents. Revenues climbed 61% year over year to $2.91 billion and surpassed our estimate of $2.80 billion.

The performance was driven by a 67% year-over-year increase in advertising revenues. Mobile advertising revenues now account for 62% of total advertising revenue, up from 59% in the prior quarter and 30% in the year-ago quarter. The company saw remarkable growth of 19% in active users to 829 million. About three-fourths of total users came from the mobile segment, which rose 39% year over year in the second quarter.

The outlook for Facebook appears bright thanks to continued market share gain in the global digital advertising, in particular the mobile advertisement segment, which is a key growth catalyst. Facebook is expected to steal some share from Google (GOOG) this year and capture 22.3% of global mobile digital ad sales up from 18% last year, as per eMarketer. Meanwhile, Google’s market share in the global mobile digital ad will likely decline to 47% from 49%.

However, Facebook currently has a Zacks Rank #4 (Sell) and a poor Zacks Industry Rank in the bottom 31%, suggesting that some pain could be in store for this company and that the bullish trend might not continue for long. This is because Facebook shares surged a whopping 173% over the past one year and are currently valued at 77 times reported earnings. This valuation seems much expensive compared to 18.4 times for the S&P 500, according to Bloomberg (read: The Fed’s Valuation Concerns Put These Growth ETFs in Focus).

The lofty valuation might spark some sell-off due to profit booking activity, as investors have started turning cautions. As a result, shares of FB initially moved in the negative territory dropping 2.5% in after-market hours trading and then bounced back, rising 5.5% at the close on strong earnings and revenue beats. In fact, the stock made a new record high of $75.45 after market.

ETFs to Watch

Given impressive results but valuation concerns, investors should closely watch the movement in the ETFs that have a larger allocation to this networking giant and grab any opportunity from a rise in the FB price or avoid the funds if the stock drags those down. For those investors, we have highlighted three ETFs that could be in focus in the coming days:

Global X Social Media Index ETF (NASDAQ:SOCL)

This ETF offers the only pure play in the social media space and has amassed $131.7 million in its asset base. The ETF charges 0.65% in fees and expenses, and sees good volumes of roughly 216,000 shares a day. The product tracks the Solactive Social Media Index, holding 31 securities in the basket.

Of these firms, Facebook takes the second spot, making up roughly 11.26% of assets. In terms of country exposure, U.S. firms take more than half the portfolio, closely followed by China (28%) and Japan (8%). The ETF has still piled up with enough losses on momentum sell-off early this year, losing 9.1%. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

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