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ETFs in Focus on Dull 2020 Subscriber Outlook for Netflix

Sweta Jaiswal, FRM

Ever since the video streaming wars have become intense, Netflix’s NFLX rating as a suitable investment option has been suffering. Of late, Needham and Co was the fourth Wall Street brokerage to lower its rating for Netflix. According to the brokerage, Netflix can lose around four million premium U.S. subscribers through 2020, largely due to intensifying competition.

Analysts believe that Netflix needs to lower the premium price it charges in comparison to those charged by its competitors like Apple AAPL and The Walt Disney Company DIS. Notably, Disney+, a new ad-free streaming service, is priced at $6.99 a month. Apple’s streaming platform, Apple TV+, was launched at $4.99 per month. Meanwhile, Netflix’s standard service currently costs $12.99 per month. However, Netflix’s stand to not allow advertising on its platform can make it difficult for the video streaming giant to lower prices (read: ETFs to Tap on Netflix' Strong Subscriber Comeback in Q3).

Netflix’s Current Performance

Interestingly, Netflix added 6.8 million subscribers globally in the third quarter, which represents a strong rebound from the second quarter when it lost U.S. streaming customers for the first time in eight years.Though it missed its own guidance of 7 million subscriber growth, additions are 12% higher than the year-ago quarter. The company added 0.5 million subscribers in the United States versus the 0.8 million guidance. Internationally, it added 6.3 million against the projected 6.2 million. The solid growth was backed by new seasons of a couple of its most-popular English shows like Stranger Things and Unbelievable as well as new non-English offerings.

In order to counter competition in video streaming, Netflix recently added all 180 episodes of the Emmy-Award winning sitcom Seinfeld to its content portfolio for five years, beginning 2021. Notably, nearly two decades after the finale was aired in May 1998, the streaming rights to Seinfeld were most sought-after (read: ETFs in Focus as Netflix Bags Global Rights for Seinfeld).

So far in 2019, Netflix has globally released roughly 100 seasons of local language, original scripted series from around 17 countries and have plans for over 130 more in 2020. For the fourth quarter, the online video streaming giant lined a solid pipeline of global film releases, including The Irishman, Marriage Story, The Two Popes, Dolemite is My Name, 6 Underground, The Laundromat and The King. It expects to add 7.6 million global subscribers, including 0.6 million in the United States and 7 million internationally.

ETFs in Focus

Here we have highlighted the ETFs with higher allocation to the online streaming giant:

Invesco NASDAQ Internet ETF PNQI

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 83 stocks, with Netflix taking the fourth spot in its basket with 7.9% allocation. The product has AUM of $528.2 million and trades in a lower volume of about 15,000 shares a day. It charges 62 bps in fees per year (read: Make the Most of this Holiday Season With These ETFs).

First Trust Dow Jones Internet Index FDN

This is one of the most popular and liquid ETFs in the broad tech space with AUM of $7.63 billion and average daily volume of around 373,000 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 seventh position at 4.9% (read: Stocks & ETFs to Profit From Cyber Monday Deals).

Communication Services Select Sector SPDR XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $6.33 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Netflix occupying the seventh position with 4.5% share. The product charges 13 bps in annual fees and trades in an average daily volume of 3.1 million shares (read: Not Santa, Trade Will Rule This December: ETFs to Your Rescue).

Vanguard Communication Services ETF VOX

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 seventh spot with 4.2% share. VOX has AUM of $2.05 billion and trades in a good volume of 157,000 shares a day, on average. It charges 10 bps in annual fees.

iShares Evolved U.S. Media and Entertainment ETF IEME

This new actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 86 stocks in its basket, Netflix occupies the fifth position in the basket with 4.8% share. The fund has accumulated $5.5 million in its asset base and charges 18 bps in annual fees. It trades in a paltry volume of around 2,200 shares (read: Frozen 2 Sets Box Office Record: ETFs to Surge).

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports
 
First Trust Dow Jones Internet Index Fund (FDN): ETF Research Reports
 
Vanguard Communication Services ETF (VOX): ETF Research Reports
 
Communication Services Select Sector SPDR Fund (XLC): ETF Research Reports
 
iShares Evolved U.S. Media and Entertainment ETF (IEME): ETF Research Reports
 
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