Netflix (NFLX Quick QuoteNFLX - Free Report) , the world's largest video streaming company, disappointed investors with weaker-than-expected subscriber growth in its second-quarter results after the closing bell on Monday.

The company missed its forecast for the first time in five years by more than a million subscribers, signaling a slowdown in the momentum of streaming-video services. It also lagged revenue estimates but beat on earnings. Additionally, it guided weakness in subscriber base and revenues for the third quarter.

Netflix Q2 Earnings in Detail

The company reported earnings per share of 85 cents, edging past the Zacks Consensus Estimate by a nickel and up from 15 cents in the year-ago quarter. Revenues climbed 40.2% year over year to $3.93 billion, well below the estimated $3.94 billion.

Netflix added a 5.2 million new subscribers globally in the second quarter, falling short of the company’s projection of 6.2 million additions but consistent with year-ago additions. International accounted for the bulk addition of 4.47 million users, while U.S. additions were 0.67 million. The lackluster growth might be attributable to the spring and summer months that tend to be the most sluggish period for Netflix as higher number of people go on vacation. World Cup, the most-watched TV event in the world, also appears to have taken a toll on the growth (read: Play the Best Sector of Summer With These ETFs & Stocks).

The company debuted sci-fi action series Lost in Space and released the second season of 13 Reasons Why, Santa Clarita Diet, A Series of Unfortunate Events, Marvel’s Jessica Jones, La Casa de Papel (Money Heist), GLOW and Marvel’s Luke Cage. In original kids programming, Boss Baby: Back in Business became one of the biggest kids’ series ever. Late in the quarter, Netflix also launched the most-watched original Lust Stories, a new Indian original film.

Notably, the video streaming giant had 130.14 million subscribers globally at the end of the second quarter with international subscribers (72.76 million) outpacing the United States (57.38 million).

For third-quarter 2018, the company expects to add 5 million subscribers, including 0.65 million in the United States and 4.35 million internationally. The numbers are lower than 5.3 million subscribers added in the year-ago quarter. Revenues and earnings per share are expected to be $3.99 billion and 68 cents, respectively. Both numbers are well below the current Zacks Consensus Estimate of $4.14 billion for revenues and 71 cents for earnings per share.

Solid Outlook

The online video streaming giant continues to spend $8.0 billion this year on content including original shows and movies, to become the world's top movie and TV streaming service. It targets 1,000 original shows and movies by the end of 2018. The company is making a big push in India, having debuted its first Indian original series "Sacred Games" on Jul 6 and will follow Ghoul on Aug 24.

Investors should note that Netflix is facing intense competition from tech giants such as Apple (AAPL Quick QuoteAAPL - Free Report) , YouTube, and Amazon (AMZN Quick QuoteAMZN - Free Report) , as well as traditional firms, which have started to invest more in online streaming. In particular, Disney (DIS) plans to launch its own streaming service in 2019 and stop licensing some of its material to Netflix, while AT&T (T Quick QuoteT - Free Report) now owns HBO, Warner Bros and CNN (see: all the Technology ETFs here).

Though the stock has a disappointing VGM Style Score of F along with an inflated P/E ratio of 137.03 compared with the industry average of 11.36, it belongs to a top-ranked Zacks industry (top 30%) and carries a Zacks Rank #3 (Hold), suggesting room for potential upside. Netflix is primed for growth in the months ahead as it has created an unparalleled lead in the Internet TV business that will likely dominate over the long term.

ETFs to Watch

Following the subscriber miss and sluggish forecast, Netflix shares plunged as much as 15% in after-market trading, eroding more than $24 billion from its market capitalization. The beaten down price could be a solid entry point for investors given its dominance in streaming service. As such, we have highlighted five ETFs with a higher allocation to this Internet television network leader that will be in focus in the coming days.

Invesco NASDAQ Internet ETF (PNQI Quick QuotePNQI - 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 95 stocks with Netflix taking the top spot in its basket with 8.4% allocation. Internet software & services dominates the portfolio with 55.7% share in the basket, closely followed by Internet & direct marketing at 34.1%. The product has AUM of $715.3 million and trades in a light volume of about 48,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: 3 Tech ETFs Upgraded to Top Rank Amid Trade Fears).

AdvisorShares New Tech and Media ETF

This is an actively managed ETF designed to invest in companies that are driving economic growth in the modern era, and can adapt to changing leadership by maintaining the ability to invest in the next generation of technology and media companies leading the equity markets. It seeks to provide a similar return stream to the performance of technology and media equity leaders as characterized by the FANG stocks acronym. This approach results in a basket of 24 stocks wherein Netflix takes the top spot with 7.1% allocation. FNG has accumulated $46.4 million in its asset base. It trades in average daily volume of 43,000 shares and comes with a high expense ratio of 0.85%.

First Trust Dow Jones Internet Index (FDN Quick QuoteFDN - Free Report)

This is one of the most popular and liquid ETFs in the broad tech space with AUM of $9.5 billion and average daily volume of around 641,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 53 bps in fees per year. Holding 42 stocks in its basket, Netflix occupies the third position at 6.2%. The product has a Zacks ETF Rank #1 with a High risk outlook (read: 5 Hot Tech ETFs & Stocks Leading the Market Rally).

Consumer Discretionary Select Sector SPDR Fund (XLY Quick QuoteXLY - Free Report)

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and most-popular product in this space with AUM of nearly $14.2 billion and average daily volume of around 6.2 million shares. Holding 80 securities in its basket, Netflix takes the third spot with 5.6% of assets. The fund charges 0.13% in expense ratio and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Invesco Dynamic Media ETF

This fund provides exposure to media stocks under one roof by tracking the Dynamic Media Intellidex Index. It holds 29 stocks in the basket with Netflix taking the third position at 5.5%. The product has been able to manage $63.3 million in its asset base while sees a lower volume of about 18,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Media ETF Hits New 52-Week High).

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