Sustainability Concerns Over Netflix's Stratospheric Rise Fuel Direxion's NFLX-Focused Bull And Bear Funds

Undeniably, one of the most remarkable performances in the equities arena hails from streaming giant Netflix Inc. NFLX. Despite a tricky economic environment, the entertainment stalwart continues to attract massive sentiment. Since the start of the year, NFLX stock has gained nearly 36%. In contrast, the benchmark S&P 500 just barely entered positive territory. Nevertheless, rampant success can breed its own questions.

On the optimistic front, it's difficult to deny Netflix's massive growth engine, which continues its relentless march northward. In the first quarter of fiscal 2025, Netflix posted revenue of $10.543 billion, pipping analysts' consensus target of $10.51 billion. Additionally, the company reported earnings per share of $6.61, comfortably exceeding Wall Street's estimate of $5.72.

Moreover, the fundamentals of the business look encouraging. Earlier this month, Netflix announced that its advertisement-supported subscription plan – which launched in 2022 – has hit 94 million monthly active users globally. This tally is up significantly from the 70 million figure it posted in November last year.

Fueling the optimism is the fact that ad-supported plan users spend 41 hours watching Netflix content a month on average. Significantly, per management, this subscription tier reaches more people in the key 18-to-34-year-old demographic than any broadcast or cable network.

Still, there's a contrasting view for every narrative, and for NFLX stock, arguably the most predominant concern is the valuation. Currently, shares trade hands for around 56 times trailing-12-month earnings – a figure that has been gathering steam since June 2022. Three years ago, the price-earnings ratio was only around 15.54.

Fundamentally, it's fair to point out that NFLX stock is relatively insulated from the tariff policies that have dominated the broader economic discourse this year. Still, President Donald Trump's proposal of a 100% tariff on foreign films could potentially lead to increased content costs and subsequently hiked prices.

The Direxion ETFs: Despite the clashing of theses, the conflict itself makes for compelling storylines – and that suits financial services provider Direxion perfectly thanks to its offering of NFLX-specific bull and bear exchange-traded funds.

For the optimists, the Direxion Daily NFLX Bull 2X Shares NFXL seeks the daily investment results, before fees and expenses, of 200% of the performance of NFLX stock. In contrast, the Direxion Daily NFLX Bear 1X Shares NFXS seeks the daily results of 100% of the inverse performance of the namesake security.

Primarily, the central purpose behind these specialized financial vehicles is to facilitate a convenient mechanism for speculation. Typically, those interested in utilizing leverage or shorting a security must engage the options market. Though derivatives bring incredible flexibility to the table, they are inherently complex instruments. With Direxion ETFs, the individual units can be bought and sold, much like any other public security. Thus, the learning curve is comparatively shallow.

Still, caution is warranted regarding both leveraged and inverse ETFs. First, prospective investors should be aware of volatility risks. Second and most importantly, these products are designed for exposure lasting no longer than one day. Holding onto these ETFs beyond the recommended period may lead to value decay due to the impact of daily compounding.

The NFXL ETF: Since the start of the year, the Direxion Daily NFLX Bull 2X Shares has shot up over 65%, amplifying the remarkable rally of the namesake security so far this year.

Not surprisingly, momentum is robust for NFXL, with the bull fund storming above both its 50-day moving average (DMA) and its 20-day exponential moving average (EMA).
Moving forward, some choppiness wouldn't be out of the question given the valuation concerns. Still, holding the $50 psychological support line will be crucial.

The NFXS ETF: In sharp contrast to its counterpart, the Direxion Daily NFLX Bear 1X Shares has lost more than 29% of market value since the start of the year.

In an inverse performance to the bull fund, NFXS slipped conspicuously below its 50 DMA and its 20-day EMA.
For a reversal to materialize, the bears need to establish a support line at $15. Otherwise, the bear fund risks incurring further technical damage.