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Will These ETFs Stay Afloat as Netflix Sinks on Soft Q2?
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Netflix (NFLX - Free Report) , the world's largest video streaming company, dampened investors’ mood with its second-quarter results after the closing bell on Monday. Though the company surpassed our earnings estimates, it disappointed investors by missing on revenues. The company not only reported lower-than-expected subscribers during the last quarter but also provided a weak subscriber outlook for the ongoing quarter.
Netflix Q2 Earnings in Detail
The company reported earnings per share of 9 cents, easily beating the Zacks Consensus Estimate of 2 cents and 3 cents higher than the year-ago earnings. Revenues climbed 32.7% year over year to $1.966 billion, but missed our estimate of $2.11 billion (see:all the Technology ETFs here).
Netflix added 1.7 million total subscribers in the second quarter, missing its own projection of 2.5 million additions. Both U.S. and International additions of 0.16 million and 1.52 million, respectively, were worse than expected. In April, the company had guided additions of 500,000 members in the U.S. and 2 million internationally during the quarter. The company stated that the disappointing subscriber addition was due to membership churn owing to reports of "ungrandfathering longer tenured members."
For the ongoing third quarter, the company expects to add 0.3 million subscribers in the U.S. and 2 million internationally. This outlook comes as a dampener considering the Olympic Games this year, which is expected to boost viewership.
On a positive note, the company is stepping up non???English language original productions and has a basket of original series like "Orange is the New Black," "House of Cards" and "Making A Murderer.” This trend is expected to continue in the future.
Market Impact
Weak subscriber outlook triggered a sell-off in Netflix stock in after-market hour trading yesterday. Shares of NFLX tumbled as much as 15% in after-market trade. The stock is down more than 10% in the year-to-date period.
This sluggish trading could continue for the ETFs having higher allocation to the online streaming giant as concerns about growing competition and slowing subscriber growth remain. Below, we have highlighted these ETFs in detail and investors should closely monitor the movement in these funds.
This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure from hardware and software to cloud. The fund holds 38 stocks in its basket with Netflix taking the third position at 5.8% of total assets. From a sector look, Internet & mobile applications as well as software & programming collectively make up for nearly half of the portfolio while Internet & catalogue retail and semiconductors round off the next two spots with a double-digit exposure each. The ETF has amassed $14.1 million in its asset base and trades in a paltry average daily volume of 1,200 shares. The expense ratio comes in at 0.75%
This is also an actively managed fund that seeks long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research relating to what ARKK believes are genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 46 securities in its basket. Netflix occupies the fifth position with 4.7% share. Here, biotechnology takes the top spot at 20%, followed by Internet & mobile applications. The product trades in a paltry volume of 1,600 shares and charges an annual fee of 0.75%. It has accumulated $9.1 million in its asset base so far.
First Trust Dow Jones Internet Index (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad tech space with AUM of $3.2 billion and average daily volume of more than 672,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds 40 stocks with Netflix taking the seventh position at 4.6%. Internet and mobile applications account for half of the portfolio while Internet & catalog retail makes up for 21%. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: 6 Sector ETFs Threatened by Brexit Uncertainty).
PowerShares Nasdaq Internet Portfolio Fund (PNQI - Free Report)
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 86 stocks with Netflix taking the ninth spot in its basket with 3.8% allocation. Internet mobile applications dominate the portfolio with 64% share, closely followed by Internet & catalog retail at 35%. The product has AUM of $269.8 million and trades in a light volume of about 29,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank of 2 with a High risk outlook (read: 7 Best Stocks & ETFs of 7-Year Bull Run).
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Will These ETFs Stay Afloat as Netflix Sinks on Soft Q2?
Netflix (NFLX - Free Report) , the world's largest video streaming company, dampened investors’ mood with its second-quarter results after the closing bell on Monday. Though the company surpassed our earnings estimates, it disappointed investors by missing on revenues. The company not only reported lower-than-expected subscribers during the last quarter but also provided a weak subscriber outlook for the ongoing quarter.
Netflix Q2 Earnings in Detail
The company reported earnings per share of 9 cents, easily beating the Zacks Consensus Estimate of 2 cents and 3 cents higher than the year-ago earnings. Revenues climbed 32.7% year over year to $1.966 billion, but missed our estimate of $2.11 billion (see:all the Technology ETFs here).
Netflix added 1.7 million total subscribers in the second quarter, missing its own projection of 2.5 million additions. Both U.S. and International additions of 0.16 million and 1.52 million, respectively, were worse than expected. In April, the company had guided additions of 500,000 members in the U.S. and 2 million internationally during the quarter. The company stated that the disappointing subscriber addition was due to membership churn owing to reports of "ungrandfathering longer tenured members."
For the ongoing third quarter, the company expects to add 0.3 million subscribers in the U.S. and 2 million internationally. This outlook comes as a dampener considering the Olympic Games this year, which is expected to boost viewership.
On a positive note, the company is stepping up non???English language original productions and has a basket of original series like "Orange is the New Black," "House of Cards" and "Making A Murderer.” This trend is expected to continue in the future.
Market Impact
Weak subscriber outlook triggered a sell-off in Netflix stock in after-market hour trading yesterday. Shares of NFLX tumbled as much as 15% in after-market trade. The stock is down more than 10% in the year-to-date period.
This sluggish trading could continue for the ETFs having higher allocation to the online streaming giant as concerns about growing competition and slowing subscriber growth remain. Below, we have highlighted these ETFs in detail and investors should closely monitor the movement in these funds.
ARK Web x.0 ETF (ARKW - Free Report)
This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure from hardware and software to cloud. The fund holds 38 stocks in its basket with Netflix taking the third position at 5.8% of total assets. From a sector look, Internet & mobile applications as well as software & programming collectively make up for nearly half of the portfolio while Internet & catalogue retail and semiconductors round off the next two spots with a double-digit exposure each. The ETF has amassed $14.1 million in its asset base and trades in a paltry average daily volume of 1,200 shares. The expense ratio comes in at 0.75%
ARK Innovation ETF (ARKK - Free Report)
This is also an actively managed fund that seeks long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research relating to what ARKK believes are genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 46 securities in its basket. Netflix occupies the fifth position with 4.7% share. Here, biotechnology takes the top spot at 20%, followed by Internet & mobile applications. The product trades in a paltry volume of 1,600 shares and charges an annual fee of 0.75%. It has accumulated $9.1 million in its asset base so far.
First Trust Dow Jones Internet Index (FDN - Free Report)
This is one of the most popular and liquid ETFs in the broad tech space with AUM of $3.2 billion and average daily volume of more than 672,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds 40 stocks with Netflix taking the seventh position at 4.6%. Internet and mobile applications account for half of the portfolio while Internet & catalog retail makes up for 21%. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: 6 Sector ETFs Threatened by Brexit Uncertainty).
PowerShares Nasdaq Internet Portfolio Fund (PNQI - Free Report)
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 86 stocks with Netflix taking the ninth spot in its basket with 3.8% allocation. Internet mobile applications dominate the portfolio with 64% share, closely followed by Internet & catalog retail at 35%. The product has AUM of $269.8 million and trades in a light volume of about 29,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank of 2 with a High risk outlook (read: 7 Best Stocks & ETFs of 7-Year Bull Run).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>