Thematic ETFs To Tap Netflix Earnings
Netflix, Inc. shares spiked in after-hours trading Tuesday after the company reported better-than-expected second quarter earnings. The price of the subscription streaming service rose as much as 10% before the opening bell, which could have repercussions for hundreds of exchange-traded funds.
The company shed 970,000 subscribers globally in the second quarter, slightly better than the 2 million subscribers it had expected to lose. Revenue rose by 8.6% to $7.97 billion, less than the $8.05 billion the firm had previously forecast.
Netflix lost around 25% of its price and $45 billion in market valuation after posting less than rosy subscriber growth estimates in January.
For the third quarter, Netflix projected it would gain another 1 million subscribers—the number that is likely driving most of the action in the stock.
In addition to directly and indirectly influencing broad market ETFs like the Vanguard S&P 500 ETF (VOO), in which the company has a 0.26% weighting, Netflix’s movements will have an impact on a plethora of thematic ETFs with sizable weightings in the stock.
Under the Global Industry Classification Standard, Netflix is in the communication services sector, along with giants like Google’s parent company Alphabet Inc. and Meta Platforms, Inc., formerly known as Facebook Inc.
The stock’s weighting in the two biggest ETFs tracking that sector, the $9.4 billion Communication Services Sector SDPR Fund (XLC) and the $2.7 billion Vanguard Communication Services ETF (VOX), is 4.8% and 2.5%, respectively.
In addition to those ETFs, the stock has a noticeable footprint in dozens of other funds—including some interesting thematic ETFs. As the world’s largest provider of premium streaming video content, Netflix is at the intersection of multiple trends, and that’s reflected in the diverse set of thematic ETFs it finds itself in.
According to the ETF.com stock finder, 242 ETFs hold Netflix, including the Invesco Dynamic Media ETF (PBS), which has a 5.3% weighting in the stock. PBS tracks an index of U.S. media stocks, including traditional media stocks and social media stocks.
The fund’s top holding is Twitter Inc., followed by Netflix and Alphabet. Sirius XM holdings, including Walt Disney Company, Fox Corporation and Scholastic Corporation, are also included in the PBS fund.
Focusing On Tech
Another ETF to hold a similarly sized position in Netflix is the First Trust S-Network Streaming & Gaming ETF (BNGE), which has 4.7% of its portfolio allocated to the name.
Rather than focus on the fact that Netflix is a media company, this fund keys in on the streaming technology that underlies the service. The company is the fourth largest holding in this ETF, just behind Advanced Micro Devices, Inc., Intel Corporation and Nvidia Corporation.
The portfolio also has large positions in gaming companies like Activision Blizzard, Tencent and Nintendo.
Similar to BNGE, the Global X Cloud Computing ETF (CLOU) looks at Netflix through the lens of its technology. Cloud computing describes the delivery of computing services over the internet. While Netflix isn’t a cloud computing provider, the company is an active user of Amazon Web Services’ public cloud, and those services are fundamental to Netflix’s ability to deliver its own product.
Netflix has a 4.9% weighting in CLOU, making it the third biggest holding in the ETF, just behind DigitalOcean, Inc. and Dropbox, Inc.
While BNGE and CLOU look at the here and now, the First Trust Indxx Metaverse ETF (ARVR) is a tech-focused fund looking out further into the future. The “metaverse” is a buzzy term that means something different to everyone, but it generally coalesces around this idea of interacting within virtual worlds, especially through immersive technologies like virtual and augmented reality.
It may seem strange to see a TV-and-movie-focused company like Netflix in an ETF like ARVR, but the firm has ambitions to become a larger player within gaming and interactive content in general, something that fits well within a metaverse-inspired future.
While BNGE, CLOU and ARVR focus on Netflix’s technology, the ProShares On-Demand ETF (OND) and the Emles @ Home ETF (LIV) home in on its convenience.
OND holds stocks of companies that are involved in the “on-demand” economy, where consumers can get access to goods and services at the click of a button—think streaming video, ride hailing, food delivery, etc.
Netflix has a 4.6% weighting in OND’s portfolio, just ahead of Uber and Spotify.
Meanwhile, LIV provides investors with exposure to “high quality companies that potentially stand to benefit from [the] structural shift towards home-based lifestyle.”
Netflix has a 1.7% weighting in the ETF, according to the ETF.com stock finder.
Millennials & Diversity
The final two ETFs with sizable positions in Netflix that are worth mentioning are the Global X Millennial Consumer ETF (MILN) and the SPDR SSGA Gender Diversity Index ETF (SHE).
MILN holds stocks of companies that generate most of their revenues from millennials. ETF issuer Global X believes millennials are the generation with most of their prime earning years ahead, making companies that target millennials “well-positioned for growth.” Netflix represents 2.1% of the portfolio.
Finally, SHE holds stocks of firms that demonstrate “greater gender diversity within senior leadership than other firms in their sector.” Netflix has a 1.8% weighting in the ETF.
Follow Sumit Roy on Twitter @sumitroy2