What Lies in Store for Netflix ETF in Q3 Earnings?
Netflix NFLX is set to release third-quarter 2023 results on Oct 18 after market close. It is worth taking a look at the fundamentals of the world’s largest video-streaming company ahead of its results.
Netflix shares have plunged about 20% over the past three months amid the broad stock market weakness. The stock has underperformed the broader industry, which has shed 4.6% in the same time frame. The weak trend might reverse if Netflix beats estimates this time around. Netflix has seen favorable earnings estimate revision activity of late, which is generally a precursor to an earnings beat.
As a result, ETFs with the largest allocation to this streaming giant like MicroSectors FANG+ ETN FNGS, Vanguard Communication Services ETF VOX, Fidelity Disruptive Communications ETF FDCF, Pacer BioThreat Strategy ETF VIRS and First Trust S-Network Streaming & Gaming ETF BNGE are in focus.
Earnings Whispers
Netflix has an Earnings ESP of -4.84% and a Zacks Rank #3 (Hold). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The online video-streaming giant saw a positive earnings estimate revision of 3 cents over the past seven days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock.
Netflix is expected to record earnings growth of 20% and revenue growth of 6.5% for the to-be-reported quarter. However, the company’s earnings surprise history is not impressive, as it delivered a negative earnings surprise of 2.38%, on average, over the past four quarters. Netflix belongs to a bottom-ranked Zacks industry (placed at the bottom 14% of 250+ industries).
Netflix currently has an average brokerage recommendation (ABR) of 2.03 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 37 brokerage firms. The current ABR compares to an ABR of 1.97 a month ago based on 35 recommendations.
Of the 37 recommendations deriving the current ABR, 20 are Strong Buy, representing 54.05% of all recommendations. A month ago, Strong Buy represented 57.14%.
Based on short-term price targets offered by 33 analysts, the average price target for Netflix comes to $444.39. The forecasts range from a low of $215.00 to a high of $600.00. The average price target represents an increase of 24.94% from the last closing price of $355.68.
What to Watch?
Netflix anticipates paid net subscriber additions in the third quarter to be similar to the second quarter. It expects revenue growth to accelerate in the second half of the year as it will see “the full benefits” of its password-sharing crackdown and steady growth in its ad-supported plan. Additionally, the company will continue to create compelling shows and movies, improve monetization, boost its video game business and make user experience better (read: Top Ranked ETFs That Crushed the Market YTD).
Per analysts, Netflix's crackdown on password-sharing will likely boost subscribers by about 6 million in the third quarter.
On the last earnings call, the streaming giant expected revenues to grow 7.5% to $8.52 billion and earnings per share of $3.52 for the third quarter.
ETFs in Focus
MicroSectors FANG+ ETN (FNGS)
MicroSectors FANG+ ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar-weighted index. It is 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’s share coming in at 10% (read: 5 ETFs That Are Up More Than 40% So Far This Year).
MicroSectors FANG+ ETN has accumulated $133.3 million in its asset base and charges 58 bps in annual fees. It trades in a moderate volume of 187,000 shares a day on average and has a Zacks ETF Rank #3 (Hold).
Vanguard Communication Services ETF (VOX)
Vanguard Communication Services ETF also targets the communication service sector by tracking the MSCI US Investable Market Communication Services 25/50 Index. Holding 117 stocks in its basket, Disney takes the seventh spot with a 4.1% share. Interactive media & services is the top sector, accounting for 48.6% of the portfolio, while movies & entertainment, integrated telecommunication services, and cable & satellite round off the next three.
Vanguard Communication Services ETF has AUM of $3.4 billion and trades in a good volume of 156,000 shares a day, on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Fidelity Disruptive Communications ETF (FDCF)
Fidelity Disruptive Communications ETF seeks exposure to securities of disruptive communications companies engaged in social media, next-generation digital infrastructure, and connected devices (e.g., 5G communications, cloud networking). It holds 42 stocks in its basket, with Netflix taking the sixth spot at 5.09%. Communication services take the largest share at 49.2%, followed by 32.3% in information technology.
Fidelity Disruptive Communications ETF has amassed $38.1 million in its asset base and trades in a volume of 1,000 shares per day on average. It charges 50 bps in annual fees.
Pacer BioThreat Strategy ETF (VIRS)
Pacer BioThreat Strategy ETF seeks exposure to U.S. companies that provide their goods and services to the market by accomplishing one or more of the seven index themes. It tracks the LifeSci BioThreat Strategy Index, holding 53 stocks in its basket. Netflix occupies the 12th position with 4.3% of the assets.
Pacer BioThreat Strategy ETF has accumulated $3.8 million in its asset base and charges 70 bps in annual fees. It trades in a paltry average daily volume of 200 shares and has a Zacks ETF Rank #3.
First Trust S-Network Streaming & Gaming ETF (BNGE)
First Trust S-Network Streaming & Gaming ETF tracks the S-Network Streaming & Gaming Index and holds 45 stocks in its basket. Netflix is the 12th firm, accounting for 3.9% of the assets. From a sector look, entertainment takes the largest share at 46.3% while hotels, restaurants & leisure, interactive media & services and semiconductors & semiconductor equipment round off the next three spots with double-digit exposure each.
First Trust S-Network Streaming & Gaming ETF has accumulated $4.3 million in its asset base and trades in an average daily volume of under 1,000 shares. It charges 70 bps in annual fees.
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
Vanguard Communication Services ETF (VOX): ETF Research Reports
MicroSectors FANG+ ETN (FNGS): ETF Research Reports
Pacer BioThreat Strategy ETF (VIRS): ETF Research Reports
First Trust S-Network Streaming & Gaming ETF (BNGE): ETF Research Reports
Fidelity Disruptive Communications ETF (FDCF): ETF Research Reports
