ETFs With Netflix (NFLX) – PBS, FDN
Netflix (NFLX) is single handedly changing the media business.
The streaming television and content creator has come under fire lately. After their latest quarterly earnings report, the stock has fallen more than 20% below the recent highs.
In fact, after their most recent quarterly earnings report, NFLX dropped more than $100 and lost about 1/3rd of their market cap over night!
Why did NFLX stock get killed?
The company didn’t live up to investor expectations. The market was expecting NFLX to grow the number of subscribers by 1.33 million but they ONLY added 980,000 new users in the quarter. And the slowdown is expected to continue into the 4th quarter.
Investors have become concerned about increasing competition from Amazon (AMZN) and other media companies, like HBO and CBS, launching their own internet only subscription based services.
Look, the recent slowdown in subscriptions and the increase in competition is to be expected.
NFLX is starting to reach a saturation point in the US… it’s already in 53 million households. So a slowdown in the pace of US users is to be expected. But they’re still on track to grow to over 100 million households.
And don’t forget about international growth. NFLX hasn’t even scratched the surface for this market… but it’s coming and it will be huge for the company’s growth.
What’s more, I believe the new competition from the likes of HBO and CBS only serves as proof that NFLX’s business model is the future of media content.
Put simply, NFLX is at the epicenter of change in the media industry. They have a dominant position and tremendous growth opportunities in the future.
And I’m not the only one who thinks so… billionaire Mark Cuban recently bought $17 million worth of NFLX after the recent selloff.
Investors who want to use an ETF to invest in NFLX have a few options. Let’s take a look at two ETFs with large holdings of NFLX.
The ETF with the largest percentage of holdings currently devoted to NFLX is PowerShares Dynamic Media (PBS). 4.84% of the holdings in PBS are in NFLX.
There are 32 other stocks in PBS. These are other U.S. media companies.
The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness, and risk factors.
So far this year, PBS has limped along to a 7% loss. But it has been showing signs of a bullish reversal in recent weeks. This ETF is great way to get exposure to NFLX and other media companies.
Another ETF with a portion of holdings dedicated to NFLX is First Trust Internet Index (FDN). Right now, NFLX makes up 3.89% of FDN’s holdings.
As the name suggests, FDN tracks an index of internet stocks. To be eligible for inclusion in the index, a company must currently be included in the Dow Jones U.S. Index and also generate at least 50% of its annual sales/revenues from the Internet.
The stocks are selected to the index based on their rankings by float-adjusted market capitalization and then by share volume. The index is weighted by market capitalization, subject to a cap on very large stocks.
FDN has performed better than PBS this year. It’s basically flat for the year with a small gain of 0.17%.
Here’s the bottom line…
NFLX is helping to transform the media industry. More and more content is delivered via the internet without the need for a cable or satellite TV subscription.
The changes should help drive revenue and earnings growth for the entire media and internet industries in the years ahead. Adding exposure to these industries through an ETF like FDN or PBS is a great way to benefit from these changes.
Good Investing,
Corey Williams
Category: ETFs
