ETFs to Tap on Netflix' Strong Subscriber Comeback in Q3

Netflix NFLX, the world's largest video streaming company, cheered investors with robust third-quarter 2019 results after the closing bell on Wednesday. The company topped earnings estimate and delivered strong subscriber growth, which represents a strong rebound from the second quarter when it lost U.S. streaming customers for the first time in eight years. However, Netflix missed the estimate on the top line.

Subscription growth coupled with earnings beat has pushed shares of Netflix higher by more than 10% in after-market hours.

Netflix Q3 Earnings in Detail

The company reported earnings per share of $1.47, breezing past the Zacks Consensus Estimate by 42 cents and improving from the year-ago earnings of 89 cents. Revenues climbed 31.1% year over year to $5.24 billion but was slightly below the Zacks Consensus Estimate of $5.25 billion.

Netflix added 6.8 million new subscribers globally in the third quarter. Though it missed the company’s own guidance of 7 million subscriber growth, additions are 12% higher than the year-ago quarter. The company added 0.5 million subscribers in the United States versus the 0.8 million guidance and 6.3 million internationally, up from the projected 6.2 million. Solid growth came on the back of new seasons of couple of its most-popular English shows like Stranger Things and Unbelievable as well as new non-English offerings (read: Beaten-Down, Top-Ranked Tech ETFs to Buy Now).  

Among non-English offerings, Season 3 of La Casa de Papel became the most watched show on Netflix with 44 million households watching the new season in the first four weeks of release. Sintonia, the latest Brazilian original, was the second-most watched inaugural season in Brazil. The Naked Director broke out as the biggest title launch in Japan and was also highly successful throughout Asia. The second season of Sacred Games was the most-watched show in India.

So far this year, Netflix has globally released 100 seasons of local language, original scripted series from 17 countries and have plans for over 130 more in 2020. For the fourth quarter, the online video streaming giant has a solid pipeline of global film releases, including The Irishman, Marriage Story, The Two Popes, Dolemite is My Name, 6 Underground, The Laundromat and The King. It expects to add 7.6 million global subscribers, including 0.6 million in the United States and 7 million internationally. Revenues and earnings per share are expected to be $5.44 billion and 51 cents, respectively. Both numbers are well below the current Zacks Consensus Estimate of $5.52 billion for revenues and 84 cents for earnings per share.

Lower-than-expected forecast came on the back of upcoming stiff competition in the streaming services business. This is especially true as Disney DIS is set to launch its streaming service, Disney+ on Nov 12, priced at $7.99 per month. Apple’s AAPL streaming platform will launch Nov 1 at a starting price of $4.99 per month. Netflix’s standard service currently costs $12.99 per month (see: all the Technology ETFs here).

ETFs to Buy

Despite stiff competition, investors might want to capitalize on this Internet television network leader’s subscriber growth and the upcoming surge in its share price with lesser risk in the form of ETFs. For these investors, we have highlighted five ETFs with a higher allocation to Netflix and the potential to be big movers in the coming days.

Invesco NASDAQ Internet ETF PNQI

This fund offers exposure to the largest and most-liquid companies that are engaged in Internet-related businesses by tracking the Nasdaq Internet Index. It holds about 83 stocks with Netflix taking the fifth spot in its basket with 7.8% allocation. Internet & direct marketing retail dominates the portfolio with 37.7% share in the basket, closely followed by Interactive media & services at 32%. The product has AUM of $535.3 million and trades in a lower volume of about 16,000 shares a day. It charges 62 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: ETFs in Focus as Netflix Bags Global Rights for Seinfeld).

iShares Evolved U.S. Media and Entertainment ETF IEME

This newly actively managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 89 stocks in its basket, Netflix occupies the fifth position in the basket with 4.6% share. The fund has accumulated $5.4 million in its asset base and charges 18 bps in annual fees. It trades in a paltry volume of around 4,000 shares.

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 $8 billion and average daily volume of around 418,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 52 bps in fees per year. Holding 43 stocks in its basket, Netflix occupies the eighth position at 4.5%. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Communication Services Select Sector SPDR XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $6.1 billion in its asset base. It follows the Communication Services Select Sector Index and holds 27 stocks in its basket, with Netflix occupying the ninth position with 4.4% share. About 46.7% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two. The product charges 13 bps in annual fees and trades in an average daily volume of 3.4 million shares. It has a Zacks ETF Rank #2 (read: 4 Sector ETFs & Stocks to Bet on Ahead of Q3 Earnings).

Vanguard Communication Services ETF VOX

This fund also targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 113 stocks in its basket, Netflix takes the seventh spot with 4% share. Interactive media & services is the top sector accounting for 43.1% of the portfolio, while integrated telecommunication services, cable & satellite, and movies & entertainment round off the next three spots. VOX has AUM of $2.1 billion and trades in a good volume of 196,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports
 
First Trust Dow Jones Internet Index Fund (FDN): ETF Research Reports
 
Vanguard Communication Services ETF (VOX): ETF Research Reports
 
iShares Evolved U.S. Media and Entertainment ETF (IEME): ETF Research Reports
 
Communication Services Select Sector SPDR Fund (XLC): ETF Research Reports
 
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