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Netflix Posts Q2 U.S. Subscriber Loss: ETFs to Watch

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Netflix (NFLX - Free Report) reported second-quarter 2019 results after the closing bell on Wednesday. While the world's largest video streaming company beat on earnings estimates, it disappointed investors by losing U.S. subscribers for the first time in eight years and missing targets for overseas customers. As a result, shares of Netflix tumbled more than 13% in after-market hours (read: 5 Unbeatable ETF Strategies for 2nd Half).

Netflix Q2 Earnings in Detail

The company reported earnings per share of 60 cents, breezing past the Zacks Consensus Estimate by 4 cents but declining from the year-ago earnings of 85 cents. Revenues climbed 26% year over year to $4.92 billion, which was in line with the Zacks Consensus Estimate.

Netflix added just 2.7 million new subscribers globally in the second quarter, missing the company’s own guidance of 5 million subscriber growth. It lost 126,000 subscribers in the United States versus the company’s 0.3 million expectation but added 2.8 million internationally, down from the projected 4.7 million. The weaker numbers were due to seasonality, price increase and quarterly content slate (see: all the Technology ETFs here).

For the second half, the online video streaming giant has a solid pipeline of global content slate, including new seasons of some of the biggest series — Stranger Things, Orange is the New Black, The Crown and La Casa de Papel (aka Money Heist) — as well as big films like Michael Bay’s Six Underground and Martin Scorsese’s The Irishman.  Driven by strong content shows, Netflix expects heavy viewership in the third quarter that will reverse the second quarter subscriber loss. It expects to add 7 million subscribers.

Revenues and earnings per share are expected to be $5.25 billion and $1.04 cents, respectively, for the third quarter. Revenue expectations are on par with the Zacks Consensus Estimate, while earnings per share projection is above the Zacks Consensus Estimate of 97 cents.

ETFs to Watch

This sluggish trading could continue for ETFs having higher allocation to the online streaming giant. Below, we have highlighted these ETFs in detail and investors should closely monitor the movement in these funds:

Invesco NASDAQ Internet ETF (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 85 stocks with Netflix taking the fourth spot in its basket with 7.7% allocation. Internet & direct marketing retail services dominates the portfolio with 39.2% share in the basket, closely followed by Interactive media & services at 31%. The product has AUM of $580.1 million and trades in a lower volume of about 22,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

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 acronym. This approach results in a basket of 13 stocks, wherein Netflix takes the sixth spot with 7.3% allocation. FNG has accumulated $14.5 million in its asset base. It trades in average daily volume of 11,000 shares and comes with a high expense ratio of 0.86%.

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 $9.1 billion and average daily volume of around 566,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 52 bps in fees per year. Holding 42 stocks in its basket, Netflix occupies the third position at 5.6%. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: ETF & Stock Winners of Longest US Economic Expansion).

Invesco Dynamic Media ETF (PBS - Free Report)

This fund provides exposure to media stocks under one roof by tracking the Dynamic Media Intellidex Index. It holds 30 stocks in the basket with Netflix taking the fifth position at 4.9% allocation. The product has been able to manage $74.7 million in its asset base while sees a lower volume of about 24,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook (read: Best & Worst ETFs Halfway Through July).

iShares Evolved U.S. Media and Entertainment ETF

This newly actively managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 92 stocks in its basket, Netflix occupies the fourth position in the basket with 4.6% share. The fund has accumulated $7.2 million in its asset base and charges 18 bps in annual fees. It trades in a paltry volume of around 3,000 shares.

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