ETFs to Tap Netflix's Q2 Earnings Beat, Upbeat Outlook
Investors seeking to tap the opportune moment should invest in ETFs with the largest allocation to this streaming giant. These funds include First Trust Dow Jones Internet Index Fund FDN, FT Vest Dow Jones Internet & Target Income ETF FDND, MicroSectors FANG+ ETN FNGS, Communication Services Select Sector SPDR Fund XLC and Invesco Next Gen Media and Gaming ETF GGME.
Q2 Earnings in Detail
The company reported earnings per share of $7.19, which strongly outpaced the Zacks Consensus Estimate of $7.07 and the year-ago earnings of $4.88. This marks Netflix's sixth-straight quarterly earnings beat, even though the company no longer posts subscriber numbers. Revenues rose 16% year over year to $11.08 billion and were slightly below the consensus estimate of $11.09 billion.
The company remains unscathed by the ongoing tariff chaos, as the entertainment industry demonstrates its resilience in tough economic times. Netflix's low-cost advertising-supported service plan should provide it with greater resilience if the macroeconomic climate worsens (read: Tariff-Led Volatility Ahead for Big Tech? ETFs in Focus).
The robust results were driven by popular Netflix programs such as Squid Game, Sirens, Ginny & Georgia, The Eternaut and Secrets We Keep, and hot movies such as Tyler Perry's Straw and Exterritorial.
Netflix is optimistic heading into the second half of the year, with a standout slate. The upcoming quarters boast a robust lineup, including the second season of Wednesday, the Stranger Things finale, the Canelo-Crawford live boxing match, Adam Sandler's Happy Gilmore 2, Kathryn Bigelow's A House of Dynamite, and Guillermo del Toro's Frankenstein.
For the third quarter, Netflix expects revenues to hit $11.53 billion and earnings per share to be $6.87. The guidance is above the Zacks Consensus Estimate of $11.29 billion for revenues and $6.56 for earnings per share.
The streaming video giant raised its full-year revenue guidance, citing strong subscriber growth and ad sales momentum. It expects revenues to be in the range of $44.8-$45.2 billion, up from $43.5-$44.5 billion. The company launched its in-house ad tech platform on April 1, with international expansion beginning this quarter. Management expects advertising revenue growth to double in 2025, signaling confidence in this relatively new business segment.
ETFs in Focus
First Trust Dow Jones Internet Index Fund (FDN)
First Trust Dow Jones Internet Index Fund follows the Dow Jones Internet Composite Index, giving investors exposure to the broad Internet industry. It holds about 40 stocks in its basket, with Netflix occupying the second spot at 10%. First Trust Dow Jones Internet Index Fund is the most popular and liquid ETF in the broad technology space, with AUM of $7.2 billion and an average daily volume of around 268,000 shares. FDN charges 49 bps in fees per year and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.
FT Vest Dow Jones Internet & Target Income ETF (FDND)
FT Vest Dow Jones Internet & Target Income ETF is an actively managed fund that invests primarily in U.S. exchange-traded equity securities intended to track the Dow Jones Internet Composite Index. It utilizes an "option strategy" consisting of writing (selling) U.S. exchange-traded call options on the Nasdaq-100 Index, or ETFs that track the Nasdaq-100 Index. It holds 41 stocks in its basket, with Netflix occupying the second position at 10% share. FT Vest Dow Jones Internet & Target Income ETF has accumulated $7 million in its asset base and trades in an average daily volume of about 3,000 shares. It charges 75 bps in annual fees.
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%. MicroSectors FANG+ ETN has accumulated $483.3 million in its asset base and charges 58 bps in annual fees. It trades in a moderate volume of 104,000 shares a day on average and has a Zacks ETF Rank #3 (Hold) (read: Mag 7 ETFs Surge: Will the Rally Keep Rolling?).
Communication Services Select Sector SPDR Fund (XLC)
Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services and has accumulated $23.5 billion in its asset base. It follows the Communication Services Select Sector Index and holds 23 stocks in its basket, with Netflix occupying the third position at 8.4% share. Communication Services Select Sector SPDR Fund charges 8 bps in annual fees and trades in an average daily volume of 6 million shares. It has a Zacks ETF Rank #2 (Buy).
Invesco Next Gen Media and Gaming ETF (GGME)
Invesco Next Gen Media and Gaming ETF offers exposure to companies with significant exposure to technologies or products that contribute to future media through direct revenues. It tracks the STOXX World AC NexGen Media Index, holding 93 stocks in its basket. Netflix is the third firm, accounting for 7.7% of the GGME assets. Invesco Next Gen Media and Gaming ETF has amassed $148.1 million in its asset base and charges 61 bps in annual fees. It trades in an average daily volume of 7,000 shares and has a Zacks ETF Rank #3.
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