Three ETFs to play Amazon’s upcoming Q3 earnings report

Oct 24th, 2016 | By | Category: Equities

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European investors who believe that Amazon may beat analysts’ expectations when it reveals its third quarter earnings on 27 October, may wish to consider several exchange-traded funds that offer exposure to the consumer discretionary giant.

Three ETFs to play Amazon’s upcoming Q3 earnings report

Analysts from data firm JMP estimate that for the whole of 2016, Amazon will report $136.6bn in revenue, earning $12.06 a share.

Analysts surveyed by Yahoo! Finance are expecting Amazon to earn 80 cents a share on $32.7bn in revenues between July and September as more people carry out retail searches on the website – at the expense of search engines – and turn to the company for everything from music and cloud computing to films and groceries. The Nasdaq GS-listed AMZN is up more than 21% year to date and 36.7% over the last year.

The company recently launched Amazon Music Unlimited, competing with Apple Music and Spotify, and offering customers another reason to sign up for its Prime service. Amazon has never disclosed how many $99-per-year premium users it has, but analysts estimate it is in the region of 60 million.

Youssef Squali, the global head of internet and media equity research at Cantor Fitzgerald, said he expects 26% growth in the third quarter.

“While the stock does not look cheap on 2017 estimates, we believe investors need to take a longer term view – i.e., as long as AMZN continues to gain share in this $10tn plus market and shows steady margin improvements, the stock should continue to grind higher,” Squali wrote to clients, as reported by The Street.

Amazon Web Services, a cloud computing unit, has also become a leader in the industry, worth as much as $200bn, say analysts, out of a total company market capitalisation of $380bn.

There are a plethora of ETFs that track the S&P 500 Index, which offers a small exposure to Amazon – about 1.7% – but the company makes up a larger percentage of US and global consumer discretionary ETFs.

The SPDR S&P US Consumer Discretionary Select Sector UCITS ETF (LON: SXLY) tracks the performance of 87 companies of which Amazon is the largest holding. Amazon makes up 13.7% of the fund, followed by Home Depot at 6.7%, Comcast Corporation at 6.6% and Walt Disney at 5.8%.

The $13m fund costs 0.15% and is up 1.6% year to date in USD terms.

Tracking the same index, the $12.5m iShares S&P 500 Consumer Discretionary Sector UCITS ETF (LON: IUCD) also costs 0.15%. Holdings are similar, except Comcast, Walt Disney and Home Depot are the second, third and fourth largest exposures respectively. iShares also offers a Sterling-listed version of the fund on the London Stock Exchange (Ticker: ICDU) which is up 23.4% since 1 January due to the recent strength of the US dollar versus Sterling.

For a more diversified choice that still offers significant exposure to Amazon, investors could consider the $25m SPDR MSCI World Consumer Discretionary UCITS ETF (LON: WCOD). Amazon is still the top holding at 7.9%, followed by Home Depot and Comcast with 3.8% each, and Toyota Motor Corporation at 3.7%. The fund launched in May this year and has delivered 0.35% returns over the last three months in USD terms. The fund charges double the fee of the US sector funds at 0.30%.

As much scrutiny as there will be on this month’s earnings, all eyes will be on the fourth quarter results, which are seen as the most important.

Analysts from data firm JMP estimate that for the whole of 2016, the company will report $136.6bn in revenue, earning $12.10 a share.

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