Netflix NFLX is set to release second-quarter 2020 results on Jul 16 after market close. Being the world’s largest video streaming company, it is worth taking a look at its fundamentals ahead of the results.
The stock has jumped more than 73% since mid-March and 19.6% over the past three months, outperforming the industry’s average growth of 16.2%. In fact, Netflix shares have seen a remarkable rally of 29% over the past 10 trading days that has pushed up its market valuation to $250 billion. The surge makes Netflix more valuable than Walt Disney DIS, AT&T T, Verizon Communications VZ and Comcast CMCSA.
The outperformance is expected to continue given that the company has strong chances of beating estimates and witnessed positive earnings estimate revisions, which are generally a precursor to an earnings beat.
Netflix has a Zacks Rank #2 (Buy) and an Earnings ESP of +2.27%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) increases 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 positive earnings estimate revision of a penny over the past 7 days for the second quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The company’s earnings surprise history is solid. It delivered a positive earnings surprise of 48.67%, on average, over the past four quarters. Additionally, Netflix is expected to post whopping earnings growth of 207% and solid revenue growth of 23.5% for the to-be-reported quarter.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Further, the stock belongs to a top-ranked Zacks industry (placed at the top 42% of 250+ industries) with an impressive VGM Score of B (see: all the Technology ETFs here).
The Zacks Consensus Estimate for average target price is $473.37 with nearly 58% of the analysts giving a Strong Buy or a Buy rating ahead of the company’s earnings.
What to Watch
Netflix is the clear winner of the ongoing coronavirus pandemic despite increased competition from the likes of Disney, Apple AAPL and Amazon AMZN. This is because the pandemic has accelerated the shift toward streaming content and away from traditional TV (read: 5 ETF Areas Hitting Highs on Resurging Coronavirus Cases).
On the last earnings call, Netflix said that viewership and subscriptions would spike in the second quarter and expects an addition of 7.5 million global subscribers in Q2. However, it also warned of an expected decline in viewership and slowdown in growth if lockdown orders around the world are lifted.
ETFs in Focus
Given the optimism, investors could focus on ETFs having the largest allocation to this streaming giant. Below are five ETFs with the highest allocation to NFLX that could make compelling plays ahead of the earnings report:
MicroSectors FANG+ ETN FNGS
This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, 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 share coming in at 10%. The product has accumulated $49 million in its asset base and charges 58 bps in annual fees. It trades in a paltry volume of 9,000 shares a day on average (read: Big Tech Stocks Top Trillion-Dollar Each: ETFs to Bet On).
Multifactor Media and Communications ETF JHCS
This ETF targets a wide range of U.S. media and communication stocks to exploit the sector’s opportunities by tracking the John Hancock Dimensional Media and Communications Index. It holds 57 stocks in its basket with NFLX taking the top spot at 6.9% share. JHCS has managed assets worth $27.2 million and charges 40 bps in annual fees. It trades in average daily volume of under 5,000 shares.
Pacer BioThreat Strategy ETF VIRS
This fund seeks to invest in U.S. listed companies whose products or services help to protect against, endure or recover from biological threats to human health. It tracks the LifeSci BioThreat Strategy Index, holding 45 stocks in its basket. Netflix occupies the third position with 6.5% of assets. The ETF has accumulated $2.6 million in its asset base and charges 70 bps in annual fees. It trades in average daily volume of 30,000 shares (read: Top ETF Stories of 1H & Investing Ideas for 2H).
Invesco Dynamic Media ETF PBS
This fund provides exposure to companies engaged in the development, production, sale and distribution of goods or services used in the media industry by tracking the Dynamic Media Intellidex Index. It holds 32 stocks in the basket with Netflix taking the third position with 5.8% allocation. The product has been able to manage $33.1 million in its asset base while sees a lower volume of about 9,000 shares a day. It has 0.63% in expense ratio and a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.
ERShares Entrepreneur 30 ETF ENTR
This fund offers exposure to U.S. large-cap entrepreneurial companies with the highest market capitalization and composite scores based on six criteria. This can be easily done by tracking the Entrepreneur 30 Index. Holding 30 stocks in its basket, Netflix takes the fourth spot at 5.7% share. ENTR has accumulated $126.3 million in AUM. It charges 49 bps in annual fees and trades in lower volume of 16,000 shares a day on average.
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