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Stay-at-Home Boosts Netflix Q1 Subscribers: ETFs to Buy

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Netflix NFLX, the world's largest video streaming company, posted its strongest ever financial results with a record 15.77 million paid subscriber additions – double the analyst forecast. The huge gain came amid the coronavirus crisis, which has resulted in social distancing and stay-at-home mandates, pushing up demand for streaming services. The company lagged earnings estimates but outpaced on revenues.

Shares of Netflix initially jumped as much as 12% before settling to less than 1% gain in after-market hours.

Netflix Q1 Earnings in Detail

The company reported earnings per share of $1.57, falling short of the Zacks Consensus Estimate by 4 cents but improving from the year-ago earnings of 76 cents. Revenues climbed 27.6% year over year to $5.77 billion and came in above the Zacks Consensus Estimate of $5.70 billion.

Netflix added 15.77 million new subscribers globally in the first quarter, up 22.8% from the year-ago quarter and edged past its own expectations of 7 million additions. The growth was mainly boosted by binge-watching of “Tiger King” and “Love Is Blind” to ride out the quarantine in March. Other content like Ozark season 3 and season four of Spanish-language thriller Money Heist also kept Netflix a busy platform. Netflix now has 182.9 million paid subscribers worldwide, with more than 100 million outside the United States (read: FAANG ETFs in the Spotlight Ahead of Q1 Earnings).

Netflix expects viewership and subscriptions to spike this quarter, but also warned of an expected decline in viewership and slowdown in growth if when lockdown orders around the world are lifted. It expects to add 7.5 million global subscribers in Q2 but see a weaker second half.

In second-quarter 2020, the online video streaming giant is looking forward to releasing all of its originally planned shows and films since their filming was completed. It plans to launch a new original comedy series Space Force, and the Michael Jordan documentary The Last Dance. It just launched a buzzy unscripted series Too Hot to Handle. Netflix will also premiere Hollywood from Ryan Murphy, and Extraction, a large-scale action film. Further, the company is finding ways to bolster its programs this year with the recent acquisition of Paramount’s and Media Rights Capital’s The Lovebirds, a comedy starring Issa Rae and Kumail Nanjiani for the second quarter, and Legendary Pictures’ Enola Holmes starring Millie Bobby Brown, Helena Bonham Carter, Henry Cavill, and Sam Claflin, for the third quarter.

For the second quarter, Netflix’s revenues and earnings per share are expected to be $6 billion and $1.81, respectively. The guidance is well above the Zacks Consensus Estimate of $5.97 billion for revenues and $1.54 for earnings per share. Further, Netflix has a Zacks Rank #2 (Buy) and a Momentum Score of A. The stock belongs to a favorable Zacks industry (placed at the top 29% of 250+ industries) (see: all the Technology ETFs here).

ETFs in Focus

The explosive growth in subscribers has encouraged investors to bid up for the Netflix stock. We have highlighted some ETFs with a higher allocation to Netflix that could be a low risk play amid the coronavirus uncertainty.

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 81 stocks with Netflix taking the top spot in its basket with 10.8% allocation. Internet & direct marketing retail dominates the portfolio with 38.7% share in the basket, closely followed by interactive media & services at 27.6%. The product has AUM of $535.4 million and trades in a lower volume of about 28,000 shares a day. It charges 62 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook.

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 $36.5 million in its asset base within six months of debut and charges 58 bps in annual fees. It trades in a paltry volume of 8,000 shares a day on average (read: Tesla Makes a Comeback: ETFs to Ride On).

iShares Evolved U.S. Media and Entertainment ETF (IEME - Free Report)

This newly actively managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 89 stocks in its basket, Netflix occupies the top position in the basket with 8.2% share. The fund has accumulated $6.6 million in its asset base and charges 18 bps in annual fees. It trades in a paltry volume of around 6,000 shares.

Invesco S&P 500 Equal Weight Communication Services ETF (EWCO - Free Report)

This fund follows the S&P 500 Equal Weight Communication Services Plus Index. It holds 26 stocks in its basket with Netflix occupying the top position at 7.8%. The product has amassed $18.5 million in its asset base and trades in average daily volume of 16,000 shares. It charges 40 bps in annual fees and has a Zacks ETF Rank #3 (Hold).

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 56 stocks in its basket with NFLX taking the top spot at 7.7% share. JHCS has managed assets worth $20.8 million and charges 40 bps in annual fees. It trades in average daily volume of under 3,000 shares.

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 30 stocks in the basket with Netflix taking the top position at 7% allocation. The product has been able to manage $28.5 million in its asset base while sees a lower volume of about 8,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook (read: Is It the Right time to Buy Netflix ETFs?).

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