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ETFs in Focus on Netflix's Solid Q4 But Weak Outlook

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Netflix (NFLX - Free Report) , the world's largest video streaming company, came up strong results for fourth-quarter 2019 after the closing bell on Tuesday. The company topped both earnings and revenue estimates and delivered strong subscriber growth. However, it offered a weak outlook, raising concerns about its dominance in an increasingly crowded field.

As such, shares of Netflix initially dropped 1.5% in after-market hours but then rebounded to close up 2.3%.

Netflix Q4 Earnings in Detail

The company reported earnings per share of $1.30, breezing past the Zacks Consensus Estimate by 78 cents and improving from the year-ago earnings of 30 cents. Revenues climbed 30.6% year over year to $5.47 billion and were above the Zacks Consensus Estimate of $5.44 billion (see: all the Technology ETFs here).

Netflix added 8.8 million new subscribers globally in the fourth quarter, up 20% from the year-ago quarter and its own guidance of 7.6 million subscriber growth. The company added 420,000 subscribers in the United States versus the 600,000 guidance and 8.33 million internationally, up from the projected 7 million.

Solid growth came on the back of new seasons of The Crown, Big Mouth and You and new series and films like Rhythm & Flow, American Son, Turkish series The Gift and French film Banlieusards (aka Street Flow). The psychological thriller You emerged as a global phenomenon on Netflix, while The Witcher, launched in December, is on track to become the biggest season one TV series ever. Netflix now has 167 million paid subscribers worldwide, with more than 100 million outside the United States.

For the first quarter 2020, the online video streaming giant has a solid pipeline of content, including the returning seasons of Sex Education, Altered Carbon, Narcos: Mexico, the Spanish series Elite and Korean historical zombie thriller Kingdom, as well as action film Spenser Confidential (starring Mark Wahlberg) and the movie sequel To All the Boys: P.S. I Still Love You. New original series include the recently released Messiah and the docu-series Killer Inside: The Mind of Aaron Hernandez and the upcoming I Am Not Okay with This. Netflix expects to add 7 million global subscribers, including 0.6 million in the United States and 7 million internationally. The expected subscriber additions are well below the all-time high 9.6 million recorded in the first quarter of 2019 as Netflix is facing increased competition from Apple Inc.’s (AAPL - Free Report) Apple TV+, Walt Disney‘s (DIS - Free Report)   Disney+, Inc.’s (AMZN - Free Report) Amazon Prime Video, and Viacom Inc.’s CBS All Access (read: ETFs to Make the Most of Disney+ Growth Story).

Comcast Corp. (CMCSA - Free Report) unpacked Peacock, due in April for Comcast customers and July for everyone else. AT&T Inc’s (T - Free Report) HBO Max, expected to launch in May, will also join as a big competitor to Netflix.

For the first quarter, Netflix’s revenues and earnings per share are expected to be $5.73 billion and $1.66, respectively. Estimates for revenues are below the current Zacks Consensus Estimate of $5.74 billion, while earnings per share are above the estimated $1.13.

ETFs in Focus

Solid Q4 earnings but cautious outlook has put the ETFs with a higher allocation to Netflix in focus. We have highlighted them below:

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 $35.7 million in its asset base within two months of debut and charges 58 bps in annual fees. It trades in a meager volume of 2,000 shares a day on average (read: S&P 500 Hits New Highs: ETFs Soaring to Start 2020).

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 82 stocks with Netflix taking the fourth spot in its basket with 7.8% allocation. Internet & direct marketing retail dominates the portfolio with 37.1% share in the basket, closely followed by Interactive media & services at 32.3%. The product has AUM of $557.3 million and trades in a lower volume of about 19,000 shares a day. It charges 62 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: 7 Most-Searched ETF Areas in the Past 7 Days).

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 sixth position at 4.9% allocation. The product has been able to manage $44.7 million in its asset base while sees a lower volume of about 12,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

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 88 stocks in its basket, Netflix occupies the third position in the basket with 4.7% share. The fund has accumulated $7.1 million in its asset base and charges 18 bps in annual fees. It trades in a paltry volume of around 3,000 shares.

Vanguard Communication Services ETF (VOX - Free Report)

This fund also targets the communication sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 114 stocks in its basket, Netflix takes the fourth spot with 4.8% share. Interactive media & services is the top sector accounting for 42.7% of the portfolio, while cable & satellite, movies & entertainment, and integrated telecommunication services round off the next three spots. VOX has AUM of $2.2 billion and trades in a good volume of 149,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Oscar or Earnings: What Will Drive Netflix ETFs Ahead?).

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