3 ETFs Edge Higher After Amazon Tops Earnings Expectations

Exchange-traded funds (ETFs) with the heaviest weighting of Amazon moved higher on Friday after the online retail giant topped earning expectations after the closing bell on Thursday.

Shares of Amazon were up as much as 1 percent in the early trading session as Wall Street digested the results, noting that earnings are trending towards less growth, but wider profit margins as it revamps its current operations and services. Revenue and web services came in line with analysts’ expectations.

Amazon’s earnings results:

  • EPS: $7.09 versus $4.72, according to analysts surveyed by Refinitiv
  • Revenue: $59.7 billion versus $59.7 billion, according to Refinitiv
  • AWS: $7.7 billion versus $7.7 billion, according to analysts surveyed by FactSet

One aspect of its future guidance that analysts cheered was its switch to one-day deliveries from two for its “Prime” members. It’s a move to achieve more profitability after revenue grew 16.9 percent compared to a year ago, which showed its slowest expansion since the first quarter of 2015.

“In a potentially game-changing announcement, AMZN on the call highlighted an incremental $800MM investment in 2Q19 to roll out free one-day delivery for Prime members on ~100MM items that have historically been available for free 2-day delivery,” said Cowen’s John Blackledge. “Mgmt. emphasized the rollout will be a multiquarter effort to expand footprint in the US, with global expansion to come later (though we note select markets such as UK, Germany, and France already have a free one-day offering on some items, and we expect them to expand selection over time).”

“The company noted it expects increased conversion and stickiness of the Prime offering as consumers become accustomed to free one day, and management also underscored that prior fulfillment and infrastructure investments (as well as some testing of one-day) should allow them to dial up most of the US footprint by the end of ’19,” added Blackledge.

3 ETFs with Largest Amazon Holdings:

  1. Fidelity MSCI Consumer Discretionary Index ETF (FDIS)–up 0.11 percent: seeks to provide investment returns that correspond generally to the performance of the MSCI USA IMI Consumer Discretionary Index. The index represents the performance of the consumer discretionary sector in the U.S. equity market.
  2. Consumer Discret Sel Sect SPDR ETF (NYSEArca: XLY)–up 0.05 percent: seeks investment results that correspond to the price and yield performance of publicly traded equity securities of companies in the Consumer Discretionary Select Sector Index. The index includes securities of companies from the following industries: retail; hotels, restaurants and leisure; textiles, apparel and luxury goods; household durables; automobiles; auto components; distributors; leisure products; and diversified consumer services.
  3. ProShares Online Retail ETF (NYSEArca: ONLN)–up 0.10 percent: seeks investment results, before fees and expenses, that track the performance of the ProShares Online Retail Index. The index tracks retailers that principally sell online or through other non-store channels. The index uses a modified market-capitalization weighted approach, is rebalanced monthly and is reconstituted annually. Retailers may include U.S. and non-U.S. companies. To be eligible, retailers must: be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems; have a market capitalization of at least $500 million; have a six-month daily average value traded of at least $1 million; and meet other requirements.

“We think the move to 1-day Prime delivery – on top of wage increases in November – will help further separate Amazon from competitors, driving more Prime subscriptions, expanding the TAM and widening the company’s competitive advantages,” said Deutsche Bank’s Lloyd Walmsley. “The company’s history with faster shipping shows that while it weighs on unit economics, it can make up for lower profit contribution per order with an overall increase in orders, driving more contribution per Prime member.”

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