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Netflix Falls on Weak Guidance: ETFs to Watch

Sweta Killa

Netflix NFLX, the world's largest video streaming company, reported its fourth-quarter 2018 results after the closing bell on Monday. Netflix topped the earnings estimates while revenues came on par. While the company’s stronger-than-expected subscriber growth applauded investors, its bleak guidance spread pessimism. As such, Netflix shares fell nearly 15% in after-market trading (read: FAANGs See a Weak Start to 2019: More Pain Ahead for ETFs?).

Netflix Q4 Earnings in Detail

The company reported earnings per share of 30 cents, edging past the Zacks Consensus Estimate by six cents but declining from 41 cents in the year-ago quarter. Revenues climbed 27.4% year over year to $4.2 billion, in line with the Zacks Consensus Estimate.

Netflix added 8.84 million new subscribers globally in the fourth quarter, above the company’s projection of 7.6 million additions. International accounted for the bulk addition of 7.3 million users, while U.S. additions were 1.5 million. The impressive growth was attributable to new series like "The Haunting of Hill House," "Chilling Adventures of Sabrina" and "The Kominsky Method” and new seasons of “Big Mouth” and “Nacros: Mexico.” The company also launched original movies such as horror thriller "Bird Box" and Oscar contender "Roma."

Notably, the video streaming giant had 139.26 million subscribers globally at the end of the fourth quarter (see: all the Technology ETFs here).

For first-quarter 2019, the company expects to add 8.9 million subscribers, including 1.6 million in the United States and 7.3 million internationally. Revenues and earnings per share are expected to be $4.49 billion and 56 cents, respectively. Both numbers are well below the Zacks Consensus Estimate of $4.59 billion for revenues and 83 cents for earnings per share.

Going forward in 2019, the online video streaming giant will be launching many new highly anticipated titles – “The Umbrella Academy” (Feb 15), “Triple Frontier” (March), “The Irishman,” “6 Underground,” and “The Politician” as well as new seasons of “The Crown,” “13 Reasons Why,” and season 3 of “Stranger Things.”

Though the stock has a disappointing VGM Score of F along with an inflated P/E ratio of 86.64 compared with the industry average of 13.90, it belongs to a top-ranked Zacks industry (top 24%) and carries a Zacks Rank #3 (Hold), suggesting room for potential upside. Netflix is primed for growth in the months ahead as it has created an unparalleled lead in the Internet TV business that will likely dominate over the long term.

ETFs to Watch

The beaten down price could be a solid entry point for investors given its dominance in streaming service. As such, we have highlighted five ETFs with a higher allocation to this Internet television network leader that will be in focus in the coming days.

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 92 stocks with Netflix taking the top spot in its basket with 9.8% allocation. Interactive media & services dominates the portfolio with 34.8% share in the basket, closely followed by Internet & direct marketing retail at 29.8%. The product has AUM of $517.8 million and trades in a lower volume of about 42,000 shares a day. It charges 60 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook (read: A Pack of ETFs to Buy for 2019).

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 $7.6 billion and average daily volume of around 796,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 53 bps in fees per year. Holding 43 stocks in its basket, Netflix occupies the third position at 6.2%. The product has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Media ETF PBS

This fund provides exposure to media stocks under one roof by tracking the Dynamic Media Intellidex Index. It holds 29 stocks in the basket with Netflix taking the top position at 6.3% allocation. The product has been able to manage $52.5 million in its asset base while sees a lower volume of about 26,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #3 with a Medium risk outlook.

Fidelity MSCI Communication Services Index ETF FCOM

This fund targets the communication services sector in the U.S. equity market by tracking the MSCI USA IMI Communication Services 25/50 Index. It holds 106 stocks in its basket with Netflix occupying the fifth position at 6%. Interactive media & services takes the top spot at nearly 38.8% while diversified telecommunication services, entertainment, and media round off the next three spots. The product has amassed $268.5 million in its asset base and trades in average daily volume of 105,000 shares. It charges 8 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 4 Top-Ranked Undervalued Sector ETFs to Buy in 2019).

Vanguard Communication Services ETF VOX

This fund provides exposure to the new communication sector and currently tracks the MSCI US IMI Communication Services 25/50 Index. Holding 109 stocks in its basket, Netflix takes the fourth spot with 4.9% share. Interactive media & services is the top sector accounting for 39.2% of the portfolio, while integrated telecommunication services and movies & entertainment round off the next two. VOX has AUM of $1.3 billion and trades in a good volume of 257,000 shares a day on average. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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