ETFs To Play The Solid Outlook From Netflix, Inc. [First Trust DJ Internet Index Fund (ETF)]

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July 22, 2014 3:31pm NASDAQ:PNQI NYSE:FDN

new etfsSweta Killa: The world’s largest video streaming company – Netflix (NFLX – Analyst Report) – cheered investors with its second-quarter earnings release, after the closing bell, on Monday. The company outpaced both revenue and earnings estimates

and outlined plans for growth and expansion, spreading bullishness into the company’s future.

Netflix Q2 Earnings in Detail

The company reported earnings per share of $1.15, a penny ahead of the Zacks Consensus Estimate and more than double the year-ago earnings of 49 cents. Revenues climbed 25.2% year over year to $1.340 billion, beating the Zacks Consensus Estimate of $1.336 billion.

Netflix added 0.57 million domestic and 1.12 million international subscribers, reaching the 50 million customer base milestone for the first time. The second season of its original show “Orange Is the New Black” debuted in June and the adoption of smart TV in Latin America for the FIFA World Cup attracted a huge number of subscribers during the quarter.

The solid gain came despite the fact that the company raised the subscription price of its most popular video streaming plan for new customers for the first time in three years by a modest $1 per month in May.

Solid Outlook Ahead

The company provided an upbeat guidance for the third quarter. It expects to add 1.3 million subscribers in the U.S. and 2.4 million internationally. Earnings per share are expected at $0.89, well below the Zacks Consensus Estimate of $1.02. However, investors might overlook the soft EPS guidance given that the company has strong growth potential and expansion plans.

This is especially true as Netflix is expected to grow 24.10% over the next five years compared to the industry average of 20.80% as per the Zacks Estimate. Amid stiff competition, Netflix continued to maintain its lead in online video streaming as it expands its original content offerings and plans to launch more television shows and movies (read: Pump Profits with These Alpha-Generating ETFs).

These include the final and the fourth season of The Killing, Mission Blue, and the new animated comedy series BoJack Horseman in the coming weeks. The momentum is likely to continue this year and in the next with many other offerings such as an adventure series Marco Polo, the first series of Marvel’s Daredevil, the third season of Orange is the New Black, the third season of House of Cards, a psychological thriller from the creators of Damages, sci-fi drama Sense 8 from the Wachowskis, and an action drama series Narcos. These would be accretive to subscriber growth going forward.

Further, Netflix is strengthening its presence in international markets, particularly in Europe including Austria, Belgium, France, Germany, Luxembourg and Switzerland. This would beef up the international addressable market with over 180 million broadband households or double the current number of current U.S. broadband households.

If this wasn’t enough, the company is also seeking to launch physical gift cards in the U.S., Canada, Mexico and Germany later this year. The move will allow more subscribers to access Netflix with developing online payments, thereby boosting both top and bottom lines.

Based on strong earnings and solid outlook, NFLX shares rose 0.74% in aftermarket trade on elevated volume. The stock has a favorable Zacks Rank #3 (Hold), suggesting more room for upside in the coming weeks (see: all the Technology ETFs here).

ETFs to Consider

Given this, investors might want to capitalize on NFLX growth and the upcoming surge in its share price with lesser risk in the form of ETFs. For those investors, we have highlighted two ETFs with a higher allocation to Netflix and potential to be big movers in the coming days. These have a Zacks Rank of 3 or ‘Hold’ rating with a High risk outlook.

PowerShares Nasdaq Internet Portfolio (NASDAQ:PNQI)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 99 stocks in its basket with AUM of $322.6 million while charging 60 bps in fees per year. It trades in moderate volume of more than 73,000 shares a day.

Netflix takes the seventh spot with 4.12% of assets. In terms of industrial exposure, Internet software & services makes up for more than two-third share in the basket, followed by Internet & catalog retail. PNQI is down 1% so far this year.

First Trust Dow Jones Internet Index (NYSE:FDN)

This is one of the popular and liquid ETFs in the broad tech space with AUM of over $1.7 billion and average daily volume of more than 578,000 shares. The fund tracks the Dow Jones Internet Composite Index and charges 57 bps in fees per year.

Holding 42 stocks in its basket, Netflix occupies the ninth position with 4.15% share. From a sector look, Internet mobile applications account for more than half the portfolio while Internet retail make up for 26% of assets. The ETF has lost nearly 1.3% year to date.

This article is brought to you courtesy of Sweta Killa.

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