With its third-quarter earnings report, Netflix reported an unexpected and outsized win, beating top and bottom-line expectations. The streaming giant’s revenue in Q3 was $7.93 billion on expectations of $7.837 billion, and earnings per share came in at $3.10, significantly higher than the anticipated $2.13 per share, reported CNBC.
On a perhaps even greater note, Netflix reported adding 2.41 million new global subscribers, more than twice its projected 1 million, and a huge turnaround from the loss of over a million subscribers in the first half of the year.
“We’re still not growing as fast as we’d like,” said Spencer Neumann, CFO for Netflix, on the earnings call. “We are building momentum, we are pleased with our progress, but we know we still have a lot more work to do.”
The addition of ad-supported plans for Netflix in November should help drive more subscribers heading into 2023. The company is forecasting the addition of 4.5 million new subscribers next quarter, up from prior forecasts of 3.9 million.
“After a challenging first half, we believe we’re on a path to reaccelerate growth,” Neumann (?) said in an after-earnings statement. “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard – we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 to $6 billion annual operating profit.”
Investing in Netflix with NSPI
A strategy for advisors looking for investment opportunities within equities with exposure to Netflix’s growth is the Nationwide S&P 500® Risk-Managed Income ETF (NSPI), which seeks high current monthly income with a measure of downside protection.
NSPI is an actively managed ETF that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the S&P 500® Index. The S&P 500® Index consists of approximately 500 leading U.S.-listed companies representing approximately 80% of the U.S. equity market capitalization.
The fund also utilizes an options collar in seeking to generate monthly income; a collar strategy is a strategy that entails holding shares of an underlying security while simultaneously buying protective put options as well as writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specific price on a specific day, while a call option gives its owner the right but not the obligation to buy the asset instead.
The options collar is intended to reduce the fund’s volatility and provide a measure of downside protection while seeking to generate high monthly income.
NSPI had a 0.38% allocation to Netflix as of 10/28/22. (Click here to see top holdings and fund information)
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KEY RISKS: The Nationwide Nasdaq-100® Risk-Managed Income ETF, Nationwide S&P 500® Risk-Managed Income ETF, Nationwide Dow Jones® Risk-Managed Income ETF, and Nationwide Russell 2000® Risk-Managed Income ETF (collectively, the “Risk-Managed Income ETFs”) are subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Risk-Managed Income ETFs are subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting, and limited availability of information, all of which are magnified in emerging markets).
The Risk-Managed Income ETFs may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Risk-Managed Income ETFs employ a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Risk-Managed Income ETFs’ investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties. The Risk-Managed Income ETFs expect to invest a portion of their assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index.
The Risk-Managed Income ETFs frequently may buy and sell portfolio securities and other assets to rebalance their exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Risk-Managed Income ETFs and greater tax liabilities for shareholders. The Risk-Managed Income ETFs may concentrate on specific sectors or industries, subjecting them to greater volatility than that of other ETFs. The Risk-Managed Income ETFs may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Funds’ value and total return. Although the Risk-Managed Income ETFs intend to invest in a variety of securities and instruments, the Risk-Managed Income ETFs will be considered non-diversified.
Additional risks include: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.
The Fund expects to invest a portion of its assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index. The Fund frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Fund and greater tax liabilities for shareholders. The Fund may concentrate on specific sectors or industries, subjecting it to greater volatility than that of other ETFs. The Fund may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Fund’s value and total return. Although the Fund intends to invest in a variety of securities and instruments, the Fund will be considered nondiversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.
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