Facebook Rise Buoys ETFs Like SOCL

July 25, 2013

The social media giant surprised with solid earnings, and ETFs that own it are rallying too.

Facebook, the social media giant with $80 billion in market capitalization, shot up some 25 percent higher Thursday following an earnings report that showed a massive jump in profits thanks to a growing number of active advertisers amid an even larger number of active users.

The stock price rally was boosting the performance of a number of ETFs that own stocks of the company, such as the $10.4 million Global X Social Media Index ETF (NYSEArca: SOCL), one of the ETFs with the largest allocation to Facebook, at 8.5 percent of the overall portfolio. SOCL was gaining nearly 4 percent Thursday, pushing year-to-date gains to 26.5 percent.

Similarly, the PowerShares Nasdaq Internet Portfolio (NasdaqGM: PNQI), and the Market Vectors Wide Moat ETF (NYSEArca: MOAT), each with an exposure to Facebook of about 8 percent and 5.4 percent, respectively, were tacking on gains Thursday of some 3 percent, and 1.8 percent, respectively.

Indeed, Facebook’s performance impacts various ETFs. Since the company joined the Nasdaq 100 Index in December 2012, and a pair of other Nasdaq benchmarks, the firm popped into a roster of index-based strategies that include even the likes of the massive $35 billion PowerShares QQQ Trust (NasdaqGM: QQQ), which was also trading marginally higher this morning.

In its quarterly statement, Facebook reported a 61 percent increase in advertising revenue year-on-year, which totaled $1.6 billion. What’s more, mobile advertising revenues—an area many had expected Facebook to struggle with due to stiff competition in the space—made up 41 percent of that total, putting to rest concerns that Facebook wouldn’t make money in mobile ads.

In all, the social media giant reported second-quarter total revenue of $1.81 billion, far exceeding analyst expectations.

Facebook, which went public on May 18, 2012, saw its share price tank right off the bat, partly due to a mishandling of the IPO by Nasdaq, in a case that ended up in a $10 million fine for the exchange. That difficult start to what many had thought would be a historic IPO went on to sour further in the following weeks—stocks of the firm that opened around $45 a share at the IPO went on to slide to around $26 in the first two weeks of trading, and by early September, they had hit a closing price of slightly more than $17, or 62 percent lower than the original IPO price.

It was a clear downtrend that fostered a growing lack of confidence in the firm’s business model and its ability to deliver results in a relatively new industry.

Now, the company reported some 1.16 billion active monthly users at the end of the second quarter, up 21 percent from year-ago levels.

Facebook’s strong performance stands out among other tech names such as Google and Apple—firms that have delivered less-than-stellar quarterly numbers in recent days.

“Facebook is making a lot of money now and starting to deliver on the promise,” Josh Brown, a New York-based investment advisor and avid blogger, said in a blog commentary today.

“The long-term negative is that I still think the company becomes AOL as new generations skip it and go right into building their own networks and sites outside of the walled garden,” he added. “But that's a ways off, and in the meantime, a billion users is a billion users.”


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