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ETFs to Win From the Netflix, Amazon Q3 Earnings Faceoff

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The COVID-19 pandemic has made it difficult for companies to survive. In this environment, Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) are thriving given the acceleration in adoption of e-commerce, including remote working and digital entertainment.

This is because people are avoiding going out of their homes for fear of exposing themselves to the virus that has boosted demand for cloud computing, gaming, e-sports, streaming services and shopping. Netflix is the biggest beneficiary of the surge in demand for at-home entertainment while consumers flocked to Amazon for shopping coupled with leisure activity (read: ETFs to Shine Bright on Rising Video Streaming Trend).

The two companies will report earnings this week. The world's largest video streaming company is slated to release on Oct 20 and the online e-commerce behemoth on Oct 22. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Both companies have reasonable chances of beating earnings estimates with Netflix witnessing positive earnings estimate revisions, which are generally a precursor to an earnings beat. On the other hand, Amazon saw negative earnings estimate revision.

Let’s delve into the earnings whisper for both the companies:

Netflix Versus Amazon

Netflix and Amazon has a Zacks Rank #3. The Earnings ESP is +2.14% for Netflix and +18.77% for Amazon.

The streaming giant saw positive earnings estimate revision of a penny over the past 30 days for the third quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The company’s earnings surprise history is solid. It delivered a positive earnings surprise of 43.48%, on average, over the past four quarters. Additionally, Netflix is expected to post robust earnings growth of 44.2% and revenue growth of 21.7% for the to-be-reported quarter. Further, the stock belongs to a top-ranked Zacks industry (placed at the top 44% of 250+ industries) with an impressive Growth Score of B (see: all the Technology ETFs here).

Meanwhile, Amazon saw negative earnings estimate revision of 4 cents over the past 30 days for the to-be-reported quarter. However, the Zacks Consensus Estimate represents a substantial year-over-year earnings growth of 71.9% and revenue growth of 32.7%. Additionally, Amazon’s earnings surprise history is impressive, with a positive earnings surprise of 132.03%, on average, for the last four quarters. The stock has a top Growth Score of A and falls under a top-ranked Zacks industry (top 46%).

Netflix surged 64% so far this year while Amazon has risen 77.1%. Both stocks outperformed the S&P 500 Index, which have gained 9.5% in the same period.

What to Watch for in Q3?

Both companies are racing to surpass 200 million global subscribers. Netflix had 192.9 million subscribers worldwide as of the first half of the year but warned of a slowdown for the second half. As such, the company expects to add just 2.5 million global subscribers in Q3. Netflix’s revenues and earnings per share are expected to be $6.33 billion and $2.09, respectively, for the to-be-reported quarter (read: Buy E-Commerce ETFs to Tap "Safe & Early" Holiday Shopping).

On the other hand, Amazon reported in January that it had surpassed 150 million Prime subscribers. There is a high chance that the e-commerce giant will top the 200 million milestone as subscription revenues, which include fees from Prime memberships, increased to $11.6 billion in the first two quarters from $9 billion in the prior year. However, the company has yet to disclose Amazon Prime subscription numbers. Amazon guided revenues of $87-$93 billion for the third quarter, representing 24-33% growth year over year.

ETFs in Focus

Investors could bet on Netflix in a basket form with Multifactor Media and Communications ETF , Invesco Dynamic Media ETF (PBS - Free Report) , and Communication Services Select Sector SPDR Fund (XLC - Free Report) . Netflix accounts for 7.1% share in JHCS, and 5% each in PBS and XLC. PBS has a Zacks ETF Rank #3 and XLC has a Zacks ETF Rank #2.

Meanwhile, investors could bet on Amazon with the help of Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) , ProShares Online Retail ETF (ONLN - Free Report) and Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) . AMZN occupies the top position in these three ETFs with 32.2%, 24% and 22.9% share, respectively. FDIS has a Zacks ETF Rank #3 while XLY carries a Zacks ETF Rank #2 (read: ETFs to Soar on Resurgence in Coronavirus Cases).

Investors seeking to invest in both companies at the same time could look at MicroSectors FANG+ ETN (FNGS - Free Report) , First Trust Dow Jones Internet ETF (FDN - Free Report) , iShares US Consumer Services ETF (IYC - Free Report) and Pacer BioThreat Strategy ETF (VIRS - Free Report) . FNGS invests in Amazon and Netflix with 10% share each, and VIRS invests at least 6% share each in both the stocks. Amazon and Netflix are the top and third firms in the FDN portfolio, accounting for 9.5% and 5.1% of assets, respectively. Meanwhile, Amazon occupies the top position at 9.7% and NFLX takes the fifth spot at 4.66% in IYC. FNGS and IYC have a Zacks ETF Rank #3 each while FDN has a Zacks ETF Rank #1.

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