Carrying the benchmark for modern entertainment content, Netflix Inc. (NASDAQ:NFLX) can arguably be referred to as the only streaming service with true global penetration. According to the company's website, its programs reach over half a billion people in more than 190 countries. In many ways, Netflix is synonymous with streaming the way Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google is with search. As such, this enormous scale lets the enterprise amortize content costs over a far larger subscriber base than its rivals.
Better yet, it's not just empty rhetoric. With over 300 million subscribers worldwide, Netflix's canvas continues to grow. In the technical charts, NFLX stock remains a solid name, despite apparently passing the meaty part of its growth curve. In the past 52 weeks, NFLX gained roughly 24%. During the same period, the Nasdaq Composite moved up 20%, while the benchmark S&P 500 marched up only 12%.
Even better, Netflix's strategic shifts — including its advertisement tier — have been steadily gaining traction. Since its introduction, this business segment has represented one of the biggest new profit levers in years. Furthermore, average revenue per user (ARPU) from ads can potentially exceed subscription-based ARPU. Symbiotically, many companies eagerly seek to associate themselves with Netflix's brand-safe environment. As such, the streaming giant may be able to push margins higher without requiring price hikes.
Still, not everything has worked out favorably for the entertainment juggernaut. In the most recent financial disclosure, Netflix posted earnings per share of $5.87, badly missing the consensus view of $6.94. On the top line, the company only generated $11.51 billion, slipping ever so slightly below the consensus target. This was the first miss on either earnings or sales since late January of last year.
Subsequently, NFLX stock has been down more than 2% in the trailing month and lost about 12% of value in the trailing half-year period. Fundamentally, analysts have started to question Netflix's dealmaking initiatives, along with prospects for its forward viability amid rising competition.
The Direxion ETFs: With traders on both sides of the sentiment aisle digesting the news surrounding Netflix, Direxion provides intriguing avenues for speculation. Essentially, the financial services provider offers two countervailing exchange-traded funds.
First, the upwardly ambitious may consider the Direxion Daily NFLX Bull 2X Shares (NASDAQ:NFXL), which seeks 200% of the performance of NFLX stock. On the other side, the Direxion Daily NFLX Bear 1X Shares (NASDAQ:NFXS) tracks 100% of the inverse performance of the namesake equity.
One of the core reasons why investors gravitate toward Direxion's leveraged and inverse products is the ability to speculate without resorting to derivative mechanisms such as options. Another overlooked advantage is that these ETFs are debit-based transactions. Unlike credit-based trades, the speculator is not subject to tail risk, which is the threat of an ever-rising obligatory payment as the underwritten event gets realized to the extreme ends of the distribution.
In other words, the risk of loss is limited to whatever investors put into the trade.
Still, prospective participants must exercise extreme caution with leveraged and inverse ETFs. For starters, these products tend to be far more volatile than standard funds tracking major indices such as the Nasdaq Composite. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Otherwise, going beyond the recommended holding period may expose unitholders to decay tied to the daily compounding effect.
The NFXL ETF: Since the beginning of the year, the NFXL ETF has gained nearly 16%. However, the trailing six months have been problematic at a loss of 30%.
- Currently, momentum isn't exactly favorable for NFXL, with the price action slipping below both the 50- and 200-day moving averages.
- Recently, the price action did hold psychological support at $40, which was important. Still, declining volume presents a concern for bullish speculators.
The NFXS ETF: Since the January opener, the NFXS ETF has lost nearly 22%. However, in the past six months, sentiment has improved to a gain of more than 10%.
- After meandering sideways during the summer, NFXS has started to pick up as the weather got colder. Right now, the ETF is trading above the 50 and 200 DMAs.
- Volume has been relatively thin for the inverse fund. Still, accumulative volume has been picking up recently, which may encourage the bears.
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