Shares of streaming content and entertainment provider Netflix (NasdaqGS: NFLX) plunged as much as 26% in Wednesday’s after-hours session after the company reported third-quarter earnings of 96 cents per share on revenue of $1.409 billion.
Analysts expected earnings of 92 cents a share on revenue of $1.409 billion. Traders punished the stock after the California-based company said it added 3.02 million streaming subscribers, well below company-issued guidance of 3.69 million subscribers. Netflix added 2.04 million international subscribers, also below previous guidance of 2.36 million.
Netflix had been holding up relatively well amid the recent pullback in U.S. stocks. For the one-month period ending Oct. 15, shares of NFLX fell about 2% compared to a 6.2% loss for the PowerShares QQQ (NasdaqGM: QQQ). That somewhat smooth ride for Netflix looks to be over and several ETFs could be crimped by a Netflix selloff.
Although the stock is not a significant part of many ETFs, there are a few (13 to be precise) that feature Netflix among their top-10 holdings. http://www.etftrends.com/2014/01/netflix-really-doesnt-mean-much-to-etfs/
ThePowerShares NASDAQ Internet Portfolio (NasdaqGS: PNQI) and the First Trust Dow Jones Internet Index Fund (NYSEArca: FDN), both of which have been stung by the retrenchment in Internet stocks, each allocate just over 4% of their respective weights to Netflix. Both ETFs are down about 7% over the past month, only slightly worse than the 6.4% shed by the S&P 500.
The PowerShares Dynamic Media Portfolio (NYSEArca: PBS) is one of a small number of ETFs that feature a Netflix allocation of at least 5% (5.1% in this case). That makes Netflix PBS’ fourth-largest holding.
Although PBS houses several Internet stocks, its status as a media play places it in the confines of the struggling consumer discretionary sector. If there is a silver lining here it is that discretionary sector valuations have retreated to attractive levels and the sector is entering its favorable seasonal period. [Best Sector ETFs for October]
Another almost Netflix ETF to keep an eye on is the SPDR Morgan Stanley Technology ETF (NYSEArca: MTK). MTK allocates 3.3% of its weight to Netflix and although the ETF and the stock do not yet share an intimate correlation, that correlation is rising. Over the past three years MTK’s correlation to Netflix is just 0.25, but over the past 12 months, that number has risen to just over 0.33.
First Trust Dow Jones Internet Index Fund
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of QQQ.