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Amazing Q3 at Amazon: ETFs to Benefit

In Q2, Amazon ( AMZN ) rocked the investing world with heroic results wherein it beat the earnings estimate by over 200% and kept the wining momentum intact in Q3. The e-commerce behemoth came up with strong third-quarter results after the closing bell on October 22. This injected fresh optimism into Wall Street and made Amazon a $300 billion company.

The company earned 17 cents compared to the Zacks Consensus Estimate of a loss of 10 cents per share. This represents the fourth consecutive quarterly earnings beat for Amazon. The results were even more robust given Amazon's loss of 95 cents per share in the year-ago quarter, hinting at the scale of improvement in the last one year.

Revenues climbed 23.3% year over year to $25.4 billion and were ahead of the Zacks Consensus Estimate of $24.9 billion. Persistent strength in cloud computing business was the key to its success as Amazon Web Service revenues skyrocketed 78.4%.

Also, accelerated growth in the North American market and new initiatives to lure customers to fend off competition paid off. Notably, revenues in North America grew 28.2% year over year while international revenues grew 7.8%.

In the quarter, operating cash flow grew 72% to $9.8 billion for the trailing 12 months compared with $5.7 billion for the trailing 12 months ended September 30, 2014. As far as guidance is concerned, the company projects revenue growth of 14-25% for the ongoing fourth quarter to $33.5-$36.8 billion, the high end reaching above the Zacks consensus of $35.2 billion. Amazon also expects operating income of $80 million to $1.28 billion compared with $591 million in the same period last year.

Market Impact

Based on solid results and an optimistic outlook, shares of AMZN spiked over 9.7% on October 22 to a new 52-week high in after marker hours on double the average volume. Including after-market gains, the stock is up about 100% from a year-to-date look.

Impressed by Amazon's stellar Q3 results, several analysts should revise up the stock's target price. Amazon has a Zacks Rank #2 (Buy). Further, the stock has a Zacks Growth Style Score of 'A' and Momentum Style Score of 'B' (read: Time for Momentum ETFs? ).

Also, according to Reuters, Amazon could emerge as a big winner this holiday season surpassing the other two local players thanks to its logistics network, fantastic deals, swift delivery and gold bar offers to grab market share.

The northbound trading in the stock will definitely spread into the ETF world, especially the funds with the highest allocation to this Internet giant. Below we have highlighted some of these that would be in focus in the coming days:

Market Vectors Retail ETF ( RTH )

This fund provides exposure to the 26 largest retail firms by tracking the Market Vectors U.S. Listed Retail 25 Index. Of these, AMZN takes the top position in the basket with 12.5% share. The ETF has a certain tilt toward specialty retail, which accounts for 29% share while Internet retail (17%), hypermarkets (13%), drug stores (12%) and department stores (10%) round off the next three spots.

The product has amassed $187.4 million in its asset base and charges 35 bps in annual fees. Volume is moderate as it exchanges nearly 72,000 shares per day. After hours, RTH added over 1.6%. The product is up 6.3% so far this year (as of October 22, 2015). RTH has a Zacks ETF Rank of 1 or 'Strong Buy' rating with a Medium risk outlook (read: Top Ranked Retail ETFs Wait for a Holiday Season Rally ).

First Trust Dow Jones Internet Index ( FDN )

This is one of the most popular and liquid ETFs in the broad tech space with AUM of over $3.69 billion and average daily volume of more than 500,000 shares. The fund tracks the Dow Jones Internet Index and charges 54 bps in fees per year.

In total, the fund holds 41 stocks in its basket with the in-focus Amazon taking the first spot with 10.52% share. From a sector look, information technology accounts for about 70.7% of the portfolio while consumer discretionary makes up over 21%. This Zacks Rank #2 (Buy) ETF has returned 16.6% (read: 5 ETFs Up At Least 10% This Year ).

Consumer Discretionary Select Sector SPDR Fund ( XLY )

This product offers exposure to the broad consumer discretionary space by tracking the S&P Consumer Discretionary Select Sector Index and charging 0.14% in expense ratio. It is the largest and the most popular product in this space with AUM of nearly $11.1 billion and average daily volume of roughly 6.5 million shares.

Holding 91 securities in its basket, Amazon occupies the top position with 9.13% of assets. Media dominates about one-fourth of the portfolio while specialty retail, Internet retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund has a Zacks ETF Rank of 2 with a Medium risk outlook.

PowerShares Nasdaq Internet Portfolio ( PNQI )

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 94 stocks in its basket with AUM of $223.2 million while charging 60 bps in fees per year (read: Is Weak Q3 a Good Entry for Netflix ETF Investors? ).

The in-focus Amazon has an 8.48% allocation and holds the third position in the fund. In terms of industrial exposure, Internet software and services make up for more than half of the basket, followed by Internet retail. PNQI is up over 11% so far this year. The fund carries a Zacks ETF Rank #2 with a High risk outlook.

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AMAZON.COM INC (AMZN): Free Stock Analysis Report

MKT VEC-RETAIL (RTH): ETF Research Reports

FT-DJ INTRNT IX (FDN): ETF Research Reports

SPDR-CONS DISCR (XLY): ETF Research Reports

PWRSH-ND INTRNT (PNQI): 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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