Netflix (NFLX - Analyst Report) , the world's largest video streaming company, pleased investors with robust third-quarter results after the closing bell on Monday. The company delivered a handsome Q3 earnings beat and surpassed our revenue estimate as well. The big surprise came in when Netflix broke a two-quarter trend of disappointing subscription growth, rebuffing Wall Street concerns over slow growth and suggesting that Netflix is on track for revenue and earnings growth over the next few years.
This sent Netflix shares soaring more than 20% in after-market trade yesterday and about 19% in pre-market trade today.
Netflix Q3 Earnings in Detail
The company reported earnings per share of 12 cents, which is double the Zacks Consensus Estimate and up 71% from the year-ago earnings. Revenues climbed 36% year over year to $2.47 billion and edged past our estimate of $2.28 billion. The upside came as global streaming revenue exceeded $2 billion for the first time, reflecting a 36% year-over-year increase, thanks to strong content including that of Stranger Things and the second season of Narcos (see: all the Technology ETFs here).
Netflix added 3.57 million total subscribers in the third quarter. International additions reached 3.20 million, 60% higher than the company’s forecast while U.S. additions of 0.37 million also came ahead the company’s projected 0.3 million. For the ongoing Q4, the company expects to add 5.20 million subscribers, including 1.45 million in the U.S. and 3.75 million internationally.
The online video streaming giant is in the fourth year of its original content strategy and will continue to ramp up its production of original shows and movies. It looks to launch over 1,000 hours of original programming in 2017, up from 600 hours in 2016 and 450 hours in 2015. Some of the content includes The Get DownSeason 2 and more Marvel series like Iron Fist and The Defenders. Notably, Marvel has been on a winning streak over the past eight years since Iron Man hit cinemas. As such, content spending is expected to increase $1 billion to $6 billion in 2017.
Further, Netflix has a global pact with 20th Century Fox Studios to license The People vs. O.J. Simpson: American Crime Story and Queen of the South and The Walt Disney Co. to license Quantico and American Crime in the U.S. and Canada. The company also seeks to share the content globally with original broadcasters for series like Star Trek: Discovery from CBS, The Alienist from Paramount TV and the just-launched ABC series Designated Survivor from eOne (read: 4 Best ETFs & Stocks to Tap the Tech Boom).
ETFs to Buy
Given this, investors might want to capitalize on NFLX growth and the upcoming surge in its share price with lesser risk in the form of ETFs. For these investors, we have highlighted four technology ETFs with a higher allocation to Netflix and the potential to be big movers in the coming days.
ARK Web x.0 ETF (ARKW - ETF 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 39 stocks in its basket with Netflix taking the third position at 5.2% of total assets. From a sector look, Internet & mobile applications as well as software & programming collectively make up for 45% 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 $14.7 million in its asset base and trades in a paltry average daily volume of under 2,000 shares. The expense ratio comes in at 0.75% (read: 5 Millennial Friendly ETF Investing Ideas).
First Trust Dow Jones Internet Index (FDN - ETF report)
This is one of the most popular and liquid ETFs in the broad tech space with AUM of $3.6 billion and average daily volume of around 470,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 54 bps in fees per year. Holding 42 stocks in its basket, Netflix takes the seventh position at 4.7%. Internet 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.
ARK Innovation ETF (ARKK - ETF report)
This is also an actively managed fund that seeks long-term capital appreciation by investing in companies, which 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 4.2% share. Here, biotechnology takes the top spot at 21%, followed by Internet & mobile applications, software & programing, pharmaceuticals and Internet & catalogue retail. The product trades in a paltry volume of 2,000 shares and charges an annual fee of 0.75%. It has accumulated $9.2 million in its asset base so far (read: SEC's New Rule May Boost Active ETFs).
PowerShares Nasdaq Internet Portfolio (PNQI - ETF 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 84 stocks with Netflix taking the seventh spot in its basket with 4.0% allocation. Internet software & services dominates the portfolio with 60% share in the basket, closely followed by Internet & catalog retail at 35.7%. The product has AUM of $300.6 million and trades in a light volume of about 19,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
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