Netflix Returns to Growth, Shares Spike: ETFs to Tap

Netflix NFLX spread optimism after reporting solid third-quarter 2022 results after the closing bell on Tuesday. After two straight quarters of subscriber losses, the world's largest video streaming company returned to growth, which marks a major turnaround that has been plagued by declining growth during the past year. Also, the company outpaced the estimate on both the top and bottom lines.

As such, shares of Netflix climbed as much as 16% in after-hours trading. Investors could easily tap the strength through ETFs with the largest allocation to this streaming giant. These funds —MicroSectors FANG+ ETN FNGS, First Trust S-Network Streaming and Gaming ETF BNGE, ProShares On-Demand ETF OND, Global X Cloud Computing ETF CLOU and  Invesco Dynamic Media ETF PBS — seem compelling choices to play the Q3 strength (see: all the Technology ETFs here).

Q3 Earnings in Detail

The company reported earnings per share of $3.10, outpacing the Zacks Consensus Estimate of $2.11 and decreasing from $3.19 in the year-ago quarter. Revenues rose 5.9% year over year to $7.93 billion and edged past the Zacks Consensus Estimate of $7.85 billion.

Netflix added 2.41 million subscribers in the third quarter with broad-based gains in all regions. The number is more than double the Street forecast and well ahead of the loss of around 1.2 million in the first six months of the year. This is especially thanks to a strong slate of fresh programs, which attracted millions of new viewers in the third quarter. Shows and movies such as “Stranger Things” season four, “The Gray Man,” “Purple Hearts,” “Dahmer - Monster: The Jeffrey Dahmer Story,” and ‘Extraordinary Attorney Woo” were major hits.

The streaming giant had about 223 million subscribers worldwide at the end of September and expects to add 4.5 million new streaming subscribers in the fourth quarter. The company is set to introduce a cheaper ad-supported subscription plan in partnership with Microsoft MSFT on Nov 3 for $6.99 a month, about a month before Disney+ DIS launches its own ad-supported tier for $7.99 per month on Dec 8. The timeline is much faster than previously expected in early 2023 (read: Disney Subscriber Base Overtakes Netflix: 5 ETFs to Stream).

Beyond TV and movies, Netflix continues to invest in mobile gaming. It currently has 35 games on service (all included in every Netflix subscription without in-game ads or in-app purchases) and 55 more games in development. The company is focused on creating hit games that would take the game initiative to the next level in the next few years.

Netflix expects revenues and earnings per share of $7.78 billion and 36 cents, respectively, for the ongoing quarter. The Zacks Consensus Estimate is pegged at $7.95 billion for revenues and $1.12 for earnings per share.

ETFs in Focus

MicroSectors FANG+ ETN (FNGS)

MicroSectors FANG+ 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 the Netflix share coming in at 10%.

MicroSectors FANG+ ETN has accumulated $45.7 million in its asset base and charges 58 bps in annual fees. It trades in a paltry volume of 19,000 shares a day on average and has a Zacks ETF Rank #3 (Hold).

First Trust S-Network Streaming and Gaming ETF (BNGE)

First Trust S-Network Streaming & Gaming ETF offers exposure to companies in one of the following business segments, namely content streaming, e-sports, iGaming and tracks the S-Network Streaming & Gaming Index. It holds 45 stocks in its basket, with Netflix occupying the top position with a 6.7% share. Entertainment takes the largest share at 46.5%, while hotels, restaurants & leisure, and semiconductors & semiconductor equipment round off the next two spots with double-digit exposure each.

First Trust S-Network Streaming & Gaming ETF has accumulated $3.1 million in its asset base since its inception on Jan 25 while trades in an average daily volume of 400 shares. It charges 70 bps in annual fees.  

ProShares On-Demand ETF (OND)

ProShares On-Demand ETF is the first ETF focused on investing in companies delivering seamless and convenient services at the touch of a button. It follows the FactSet On-Demand Index and holds 29 stocks in its basket. Netflix takes the second spot with a 6.5% allocation. About 63% of the portfolio is dominated by communication services, while consumer discretionary and industrials round off the next two spots.

ProShares On-Demand ETF has gathered $0.08 million so far in its asset base and charges 58 bps in annul fees. It trades in volume of nearly 500 shares a day on average.

Global X Cloud Computing ETF (CLOU)

Global X Cloud Computing ETF seeks to invest in companies positioned to benefit from the increased adoption of cloud computing technology, including companies whose principal business is in offering computing Software-as-a-Service, Platform-as-a-Service, Infrastructure-as-a-Service, managed server storage space and data center real estate investment trusts, and  cloud and edge computing infrastructure and hardware. The ETF tracks the Indxx Global Cloud Computing Index (read: Least-Hurt Tech ETFs From Worst Stretch Since COVID Outbreak).

Global X Cloud Computing ETF holds 35 stocks in its basket, with Netflix occupying the top position at 6.5% of assets. It has AUM of $544 million and trades in an average daily volume of 348,000 shares. The ETF charges 68 bps in annual fees and has a Zacks ETF Rank #2 (Buy).

Invesco Dynamic Media ETF (PBS)

Invesco Dynamic Media ETF 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 taking the top position, holding a 6% allocation.

Invesco Dynamic Media ETF has been able to manage $30.6 million in its asset base while seeing a lower volume of about 4,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Invesco Dynamic Media ETF (PBS): ETF Research Reports
 
Global X Cloud Computing ETF (CLOU): ETF Research Reports
 
MicroSectors FANG ETN (FNGS): ETF Research Reports
 
ProShares OnDemand ETF (OND): ETF Research Reports
 
First Trust SNetwork Streaming & Gaming ETF (BNGE): ETF Research Reports
 
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