Markets

Alibaba's Earnings & Revenue Miss Drags Down These ETFs

Chinese e-commerce giant Alibaba Group BABA reported first-quarter fiscal 2019 results before the opening bell yesterday wherein it missed both earnings and revenue expectations.

Earnings of $1.22 per ADS came in seven cents below the Zacks Consensus Estimate. Revenues jumped 61% year over year to $12.22 billion and fell short of the estimate of $12.25 billion. The robust revenue growth was credited to a booming core e-commerce business, fast-growing cloud computing services and strong media and entertainment growth.

Core e-commerce revenues grew 61% year over year, cloud computing revenues soared 93% and digital media and entertainment revenues increased 46%. Mobile monthly active users in its China retail marketplaces increased 2.7% year over year to 634 million, while annual active buyers totaled 576 million, up 4.1% year over year (see: all the Technology ETFs here ).

While revenue growth accelerated, heavy spending in new areas of core online retail business with investments in supermarkets and stores as well as in new artificial intelligence and cloud computing businesses hurt profit margins. China's biggest e-commerce firm warned that profits will continue to be impacted by investments in new businesses, partly due to the consolidation of Koubei and expenses related to its newly-created local services unit. Alibaba had formed a holding company for its food delivery platform Ele.me and food and lifestyle services firm, Koubei, for which it had received over $3 billion in new investment commitments.

Market Impact

Following the miss, BABA shares dropped 3.2% on the day. The stock has been hit badly in recent months due to broader sell-off in Chinese stocks over concerns about the impact of the U.S.-China trade war and slowing economy. The pain is likely to continue, given that the stock has a Zacks Rank #5 (Strong Sell) and a VGM Score of D. Further, it belongs to the bottom-ranked Zacks industry ( bottom 27% ).

Given this, investors may want to avoid Alibaba for the time being. However, risk-tolerant investors could tap the beaten down prices with lower risk in the form of ETFs. For them, we have highlighted six ETFs having the highest allocation to the Chinese e-commerce giant.

Invesco BLDRS Emerging Markets 50 ADR Index Fund ADRE

The product offers exposure to the 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 45.3% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 17.8%. Taiwan, Brazil and India round off the next three spots, in terms of country exposure. From a sector look, information technology accounts for 43.9% share, followed by financials (15.8%), telecom services (10.4%) and materials (9.2%). ADRE has amassed $150.8 million in its asset base while trading in light volume of about 11,000 shares. It charges 18 bps in fees per year and lost 1.6% on the day. ADRE has a Zacks ETF Rank #3 with a Medium risk outlook (read: EM ETFs Rebound in July: Value Trap or Value Play? ).

Invesco BLDRS Asia 50 ADR Index Fund ADRA

This ETF follows the capitalization-weighted BNY Mellon Asia 50 ADR Index and tracks the performance of approximately 50 Asian market-based DRs. Chinese firms make up for the largest share at 34.8% with Alibaba at the top position with 12.8% allocation. Japanese firms account for 32.1% of the assets. ADRA is often overlooked by investors as depicted by its AUM of $21.3 million and average daily volume of about 1,000 shares. It charges 30 bps in annual fees and lost 0.4% on the day post BABA results. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares MSCI China ETF MCHI

This ETF follows the MSCI China Index, holding 289 securities in its basket. Of these, Alibaba takes the second spot with 12.7% share. From a sector look, about 38.3% of the portfolio is allotted to information technology while financials (21.9%) and consumer discretionary (8.8%) round off the next two spots. The fund has amassed $3.4 billion in its asset base while charging 62 bps in annual fees. Volume is also solid as it exchanges nearly 3.5 million shares on average daily basis. The ETF shed 1.8% following the results and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: China ETFs: Buy the Dip? ).

SPDR S&P China ETF GXC

This product follows the S&P China BMI Index, charging investors 59 bps in annual points. It holds 377 stocks in its basket with Alibaba taking the second spot at 11.83%. From a sector look, information technology takes the largest share at 35.8% while financials and consumer discretionary round off the next two spots. The ETF has amassed $1.1 billion in its asset base and sees average daily volume of 62,000 shares. It was down 1.7% following Alibaba results and has a Zacks ETF Rank #2 with a Medium risk outlook.

Invesco China Technology ETF CQQQ

This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index. Holding 74 stocks, Alibaba occupies the second position in the basket with 9.6% share. The product manages an asset base of $362.9 million while trading in good volume of around 119,000 shares a day. Expense ratio comes in at 0.70%. CQQQ dropped 2% on the day, following Alibaba's results and carries a Zacks ETF Rank #3 with a High risk outlook.

KraneShares CSI China Internet Fund KWEB

This product provides concentrated exposure to China's Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 46 securities in its basket with Alibaba occupying the second spot at 9.3%. The technology sector makes up for a substantial 63.6% of the total assets, while consumer discretionary takes 29.5% share. The ETF has AUM of $1.2 billion and charges 72 bps in annual fees from investors. Volume is solid as it exchanges around 722,000 shares in hand per day. KWEB was down 2.3% in the last trading session, following Alibaba's earnings announcement, and currently has a Zacks ETF Rank #3 with a High risk outlook.

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Alibaba Group Holding Limited (BABA): Free Stock Analysis Report

GUGG-CHINA TEC (CQQQ): ETF Research Reports

ISHARS-MS CH IF (MCHI): ETF Research Reports

BLDRS ASIA 50 (ADRA): ETF Research Reports

SPDR-SP CHINA (GXC): ETF Research Reports

BLDRS-EMER MKTS (ADRE): ETF Research Reports

KRANS-C CHN INT (KWEB): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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