Alibaba Beats On Earnings, Lowers Guidance: ETFs In Focus

Chinese e-commerce giant Alibaba Group (BABA – Free Report) reported second-quarter fiscal 2019 results before the opening bell on Nov 2, wherein it beat earnings expectations but lagged on revenues.

Earnings of $1.01 per ADS came in 19 cents above the Zacks Consensus Estimate. Revenues jumped 54% year over year to $12.34 billion and fell short of the estimate of $12.65 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 56% year over year, cloud computing revenues soared 90%, and digital media and entertainment revenues increased 24%.

Alibaba had another strong quarter of rapid growth as annual active consumers increased 25 million from the last quarter to reach 601 million in the 12 months ended Sep 30, 2018. Mobile monthly active users in its China retail marketplaces increased 32 million quarter over quarter to 666 million.

Chinese e-commerce giant reduced its fiscal-year revenue forecast by 4-6%, citing growing doubts about the economy as China’s expansion recently slowed to its weakest pace in nearly a decade as well as concerns about the economic fallout from the U.S.-China trade war. The company will hold off on monetizing potential new revenue streams, such as charging merchants for recommendation fees on its redesigned Taobao interface, until economic conditions improve.

Market Impact

Following the mixed results, BABA shares dropped 2.4% on the day. The stock has been hit badly in recent months due to tensions from an ongoing trade war with the United States and regulations. Alibaba currently has a Zacks Rank #3 (Hold) and a VGM Score of D. It belongs to the bottom-ranked Zacks industry (bottom 40%).

Given this, ETFs having the highest allocation to the Chinese e-commerce giant are in focus for the days ahead. Below, we have highlighted six ETFs in detail:

Invesco BLDRS Emerging Markets 50 ADR Index Fund (ADRE – Free Report)
 
The product offers exposure to the 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 41.5% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 16.6%. Brazil, Taiwan, and India round off the next three spots in terms of country exposure. Consumer discretionary, financials, communication services, information technology, and energy are the top five sectors. ADRE has amassed $130.9 million in its asset base while trading in light volume of about 12,000 shares. It charges 18 bps in fees per year and lost 0.4% on the day. ADRE has a Zacks ETF Rank #3 with a Medium risk outlook.