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ETFs in Focus Ahead of Netflix Q4 Earnings

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Netflix (NFLX - Free Report) is set to release fourth-quarter 2020 results on Jan 19 after market close. Being the world's largest video streaming company, it is worth taking a look at its fundamentals ahead of the results.

The stock has underperformed the broad industry, having lost 6.1% over the past three months compared to the industry’s average growth of 11.6%. The underperformance might reverse if Netflix comes up with an earnings beat.

Earnings Whispers

Netflix has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.11%. 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.
     
The online video streaming giant saw positive earnings estimate revision of a penny over the past 30 days for the fourth 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 an earnings surprise of 28.91%, on average, over the past four quarters. Additionally, Netflix is expected to post substantial earnings growth of 6.1% and solid revenue growth of 21% for the to-be-reported quarter.

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote

However, the stock belongs to a bottom-ranked Zacks industry (placed at the bottom 25% of 250+ industries) with an impressive VGM Score of B (see: all the Technology ETFs here).

The Zacks Consensus Estimate for average target price is $556.68 with nearly 69% of the analysts giving a Strong Buy or a Buy rating ahead of the company’s earnings.

What to Watch Out for?

Netflix is expected to continue benefiting from the global proliferation of Internet-connected devices and increasing consumer preference for on-demand video consumption over the Internet. However, the streaming giant continues to face stiff competition from the likes of Disney (DIS - Free Report) , Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) .

For the fourth quarter, Netflix expects to add 6 million new subscribers worldwide, representing another year-over-year decline after adding 8.8 million in the fourth quarter of 2019. At the same time, the company is on pace to add 34 million subscribers in 2020, its strongest year of growth ever, and surpass 200 million customers in total.

ETFs in Focus

Ahead of its earnings report, investors could focus on ETFs having the largest allocation to this streaming giant. Below are five ETFs with the highest allocation to NFLX that could make compelling plays:

MicroSectors FANG+ ETN (FNGS - Free Report)

This 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 Netflix share coming in at 10%. The product has accumulated $66.8 million in its asset base and charges 58 bps in annual fees. It trades in a paltry volume of 11,000 shares a day on average and a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETFs Set to Soar on Tesla's Robust Q4 Deliveries).

Multifactor Media and Communications ETF (JHCS - Free Report)

This ETF targets a wide range of U.S. media and communication stocks to exploit the sector's opportunities by tracking the John Hancock Dimensional Media and Communications Index. It holds 48 stocks in its basket with NFLX taking the fifth spot at 5% share. JHCS has managed assets worth $30.5 million and charges 40 bps in annual fees. It trades in an average daily volume of under 1,000 shares.

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

This is one of the most-popular and liquid ETFs in the broader tech space with AUM of $11.3 billion and an average daily volume of around 342,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 52 bps in fees per year. Holding 40 stocks in its basket, Netflix occupies the fifth spot at 4.8%. The product has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: An ETF Area That's Worth Your Attention for 2021).

Invesco Dynamic Media ETF (PBS - Free Report)

This fund 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 fifth position with 4.7% allocation. The product has been able to manage $62.6 million in its asset base while sees a lower volume of about 16,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook.

iShares Global Comm Services ETF (IXP - Free Report)
 
This ETF provides global exposure to companies in media, entertainment, social media, search engine, video/gaming and telecommunication services by tracking the S&P Global 1200 Communication Services 4.5/22.5/45 Capped Index. It holds 70 stocks in its basket with Netflix taking the sixth spot at 4.6% share. Interactive media & services dominates the fund’s return at 47%, followed by integrated telecommunication services (17.9%). The fund has amassed $317.3 million in its asset base, while trading in an average daily volume of 21,000 shares. Expense ratio comes in at 0.46%. IXP has a Zacks ETF Rank #3 with a Medium risk outlook.

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