ETFs to Watch as Netflix Drops on Weak Subscriber Outlook
Netflix NFLX, the world's largest video streaming company, disappointed investors with its second-quarter results. While the company beat revenue estimates and reported solid subscriber addition, it missed the earnings estimate and offered weak third-quarter subscriber guidance.
The bleak outlook has pushed Netflix shares down more than 11% in after-market hours (read: ETFs to Buy as Netflix Tops Disney Ahead of Q2 Earnings).
Netflix Q2 Earnings in Detail
The company reported earnings per share of $1.59, falling short of the Zacks Consensus Estimate by 25 cents but more than doubled from the year-ago earnings of 60 cents. Revenues climbed 25% year over year to $6.15 billion and came in above the Zacks Consensus Estimate of $6.08 billion.
Netflix added 10.1 million new subscribers globally in the second quarter, up from 2.7 million additions seen in the year-ago quarter and the company’s own guidance of 7.5 million. Netflix now has 192.9 million paid subscribers worldwide. The growth was mainly boosted by original content like English scripted TV Never Have I Ever and new comedy Space Force, and unscripted shows like Love is Blind, Too Hot to Handle and Floor is Lava. Original films — Spike Lee’s Da 5 Bloods, Extraction and The Wrong Missy — and an animated feature film for kids and families The Willoughbys were also big hits.
Netflix is set to introduce 59 new original contents in July, including several new seasons of popular TV shows, entirely new series, new movies, new documentaries, and even some new anime. Some of these are season 2 of The Umbrella Academy, a high-profile Charlize Theron film the Kissing Booth 2, an action movie Project Power, Legendary Pictures’ Enola Holmes, final season of the popular sports documentary series Last Chance U, and the highly anticipated remake of The Babysitters Club. Further, Netflix expects “paused productions” on original shows and films in the first half of 2021, based on its long lead-time content production schedule.
As the streaming giant more than doubled its subscriber growth in the first half of this year compared with 2019, it warned of less growth for the second half of 2020. As such, the company expects to add just 2.5 million global subscribers in Q3, sparking a huge sell-off in Netflix shares (see: all the Technology ETFs here).
Netflix’s revenues and earnings per share are expected to be $6.33 billion and $2.09, respectively for the quarter. The guidance is well below the Zacks Consensus Estimate of $6.37 billion for revenues and $2.00 for earnings per share. The stock currently has a Zacks Rank #3 (Hold) and a Momentum Score of A. However, the stock belongs to an unfavorable Zacks industry (placed at the bottom 40% of 250+ industries).
ETFs in Focus
The weak outlook has put the ETFs with a higher allocation to Netflix in focus. We have highlighted them below:
MicroSectors FANG+ ETN FNGS
This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 stocks in its basket in equal proportion, with Netflix share coming in at 10%. The product has accumulated $49.3 million in its asset base and charges 58 bps in annual fees. It trades in a paltry volume of 9,000 shares a day on average (read: Big Tech Stocks Top Trillion-Dollar Each: ETFs to Bet On).
Multifactor Media and Communications ETF JHCS
This ETF targets a wide range of U.S. media and communication stocks to exploit the sector's opportunities by tracking the John Hancock Dimensional Media and Communications Index. It holds 57 stocks in its basket, with NFLX taking the top spot at 7.7% share. JHCS has managed assets worth $27.9 million and charges 40 bps in annual fees. It trades in average daily volume of under 5,000 shares.
Pacer BioThreat Strategy ETF VIRS
This fund seeks to invest in U.S.-listed companies whose products or services help to protect against, endure or recover from biological threats to human health. It tracks the LifeSci BioThreat Strategy Index, holding 46 stocks in its basket. Netflix occupies the third position with 5.9% of assets. The ETF has accumulated $2.6 million in its asset base and charges 70 bps in annual fees. It trades in average daily volume of 29,000 shares (read: Top ETF Stories of 1H & Investing Ideas for 2H).
Invesco Dynamic Media ETF PBS
This fund provides exposure to companies engaged in the development, production, sale and distribution of goods or services used in the media industry by tracking the Dynamic Media Intellidex Index. It holds 32 stocks in the basket with Netflix (5.6% allocation) taking the third position. The product has been able to manage $34.2 million in its asset base while sees a lower volume of about 9,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
ERShares Entrepreneur 30 ETF ENTR
This fund offers exposure to U.S. large-cap entrepreneurial companies with the highest market capitalization and composite scores based on six criteria. This can be easily done by tracking the Entrepreneur 30 Index. Holding 30 stocks in its basket, Netflix takes the fourth spot at 5.7% share. ENTR has accumulated $127.7 million in AUM. It charges 49 bps in annual fees and trades in lower volume of 16,000 shares a day on average.
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Netflix, Inc. (NFLX): Free Stock Analysis Report
ERShares Entrepreneur 30 ETF (ENTR): ETF Research Reports
Invesco Dynamic Media ETF (PBS): ETF Research Reports
John Hancock Multifactor Media and Communications ETF (JHCS): ETF Research Reports
MICRSFANG (FNGS): ETF Research Reports
Pacer BioThreat Strategy ETF (VIRS): ETF Research Reports
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