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The world's largest video streaming company – Netflix (NFLX - Analyst Report) – continues to be the darling of investors thanks to its robust earnings announcement for the fourth quarter and an optimistic outlook. NFLX was a high-flying stock in 2013 and was the top performer in the S&P 500 and Nasdaq 100, surging nearly 300% on the year, and there is plenty of hope that this trend can continue in 2014 as well (read: The Incredible Run for NFLX Puts These ETFs in Focus).
Netflix Earnings in Detail
The company surpassed our estimates on both earnings and revenues on an expanding subscriber base. Earnings at NFLX jumped six fold to 79 cents per share in Q4, comfortably beating the Zacks Consensus Estimate of 65 cents. Revenues climbed 24% to $1.18 billion and outpaced our estimate of $1.166 billion.
Netflix added 2.33 million domestic and 1.74 million international subscribers, thus having a total customer base of 44.35 million. The number was well above management expectations of 2 million and 1.3 million for domestic and international subscribers, respectively.
Subscriber gains at home were credited to continued growth in Internet video, strong sales of Internet-connected devices, service improvements and effective marketing (read: Top Ranked Internet ETF in Focus: FDN).
The company provided an upbeat guidance for the first quarter of 2014. It expects earnings per share to come in at 78 cents, which is in-line with the Zacks Consensus Estimate. Additionally, subscriber growth continues to gain momentum with the expected addition of 2.25 million in the U.S. and 1.6 million internationally. This would bring the total subscriber base to more than 48 million in the first quarter.
Amid stiff competitive pressures, Netflix has maintained its lead in online video streaming as it continues to expand its original content offerings and plans to launch more television shows and movies.
This includes a new season of Lilyhammer, House of Cards, Orange Is the New Black and Hemlock Grove; final season of The Killing; a new slate of cartoons from DreamWorks Animation; a Marco Polo series from the Weinstein Co and many others. These will be accretive to subscriber growth going forward.
Further, Netflix is seeking to expand in international markets, in particular Europe. The company is also exploring new pricing strategies that would likely drive revenues and profits higher (read: 3 Top Ranked Europe ETFs to Buy Now).
Moreover, Netflix currently has a Zacks Rank #2 (Buy) and a solid Zacks Industry Rank in the top 35% which adds to the bullish outlook and suggests good trading ahead.
Driven by huge earnings beat, robust subscriber gains and a bullish outlook, NFLX shares soared about 18% in after-hours trading on Wednesday. This has spread more optimism into the stock’s future.
ETFs to Consider
As such, investors might want to capitalize of the NFLX growth and the upcoming surge in its share price with lesser risk in the form of ETFs. For these investors, we have highlighted two ETFs that have high allocations to Netflix and could be big movers in the coming days. These have a top Zacks ETF Rank of 1 or ‘Strong Buy’ and may see more gains in the months ahead (read: 3 ETFs to Watch for Big Moves This Year).
PowerShares Nasdaq Internet Portfolio (PNQI - ETF report))
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 80 stocks in its basket with AUM of $324 million while charging 60 bps in fees per year. It trades in moderate volume of nearly 63,000 shares a day.
Netflix takes the eight spot with 3.40% of assets. In terms of industry exposure, Internet mobile application makes up for more than two-third share in the basket, followed by Internet retail and software & programing. PNQI has added over 1% so far this year.
First Trust Dow Jones Internet Index (FDN - ETF report)
This is one of the popular and liquid ETFs in the broad tech space with AUM of over $2 billion and average daily volume of more than 300,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year (see: all the Technology ETFs here).
Netflix occupies the tenth position in the basket with 3.06% share. From a sector look, Internet mobile applications account for more than half the portfolio while Internet retail and software & programing receive double-digit exposure. The ETF is up nearly 2.4% year-to-date.
These two products are clearly outpacing the broad market funds and are expected to continue seeing this trend in the coming months given the astounding comeback by Netflix and the booming Internet space. And with top Zacks ETF Ranks, the sector is clearly poised for more gains this year as well.
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