Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day. Investing in the Funds is not equivalent to investing directly in NFLX.
Once upon a time, before the “Magnificent Seven,” (Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta and Tesla) the stock market had another themed group of leadership known as “FAANG.” This group included the names Facebook (now Meta), Apple, Amazon, Netflix, and Alphabet. Of this original group, Netflix (Ticker: NFLX) was relegated and is currently not included in the “Magnificent Seven” category, but that doesn’t mean the stock can’t offer solid trading opportunities to the upside and downside.
Netflix’s Transformative Legacy
Streaming services have completely revolutionized the way people consume entertainment content. Since Netflix's streaming business launched back in 2007, ten years after the company was founded, it has become a top example of a company that transformed media, as it captured a notable segment of the legacy cable audience by giving individuals access to affordable, more curated content.
Many other media companies eventually followed Netflix’s business model, but Netflix continues to enter new markets and grow its subscriber base. The company added 17.4 million new customers in the first six months of 2024, bringing its total subscribers to 277.7 million across 190 countries.
The company continues to have strong operating margins, and management expects it to grow from 21% to 26% in the next year, indicating its scalability. Netflix’s next earnings report on October 17 will provide a major update in regard to the state of its business growth.
Traders seeking to position in a bullish manner with Netflix may find a trade with Direxion’s Daily NFLX Bull 2X Shares (Ticker: NFXL), which seeks daily investment results, before fees and expenses, of 200% of the performance of the common shares of Netflix, Inc. (Ticker: NFLX).
Below is a daily chart of NFLX as of September 27, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
Economic Headwinds & Earnings Issues
Over the past few earnings reports, Netflix has managed to exceed analyst expectations. But a miss this time around could create some notable technical headwinds for the stock. The current expectation is for an earnings-per-share (EPS)* of $5.11. If it misses, the stock may suffer a slide.
The street will also want to see strong user growth and expanding markets. If guidance falls short on this front, it could present issues for Netflix in the near-term.
There are also lingering concerns of an economic slowdown despite the recent Q2 Gross Domestic Product (GDP)* report coming in above estimates. The initial Q3 GDP reading will be on October 30, and if it comes in below estimates, it could warn of a slowdown in consumer spending. In this case, Netflix may suffer some margin compressions if people decide to cancel or reduce their subscription packages.
In this scenario, Direxion’s Daily NFLX Bear 1X Shares (Ticker: NFXS), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the common shares of Netflix, Inc. (Ticker: NFLX), could see a nice rally.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The Funds have derived all disclosures contained in this document regarding Netflix, Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Netflix, Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Netflix, Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Netflix, Inc. could affect the value of a Fund’s investments with respect to Netflix, Inc. and therefore the value of the Funds.
Direxion Shares Risks – An investment in a Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund’s investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund’s other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning.
Leverage Risk – The Bull Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day. Leverage will also have the effect of magnifying any differences in the Fund’s correlation with NFLX and may increase the volatility of the Bull Fund.
Daily Correlation Risk – A number of factors may affect the Bull Fund’s ability to achieve a high degree of correlation with NFLX and therefore achieve its daily leveraged investment objective. The Bull Fund’s exposure to NFLX is impacted by NFLX’s movement. Because of this, it is unlikely that the Bull Fund will be perfectly exposed to NFLX at the end of each day. The possibility of the Bull Fund being materially over- or under-exposed to NFLX increases on days when NFLX is volatile near the close of the trading day.
Daily Inverse Correlation Risk – A number of factors may affect the Bear Fund’s ability to achieve a high degree of inverse correlation with NFLX and therefore achieve its daily inverse investment objective. The Bear Fund’s exposure to NFLX is impacted by NFLX’s movement. Because of this, it is unlikely that the Bear Fund will be perfectly exposed to NFLX at the end of each day. The possibility of the Bear Fund being materially over- or under-exposed to NFLX increases on days when NFLX is volatile near the close of the trading day.
Netflix, Inc. Investing Risk – Netflix, Inc. faces risks related to maintaining and expanding membership for its streaming services; competition in the entertainment video market; unforeseen costs or liability in connection with content that is acquired, produced, licensed and/or distributed through its service, among other risks.
Entertainment Industry Risk — Companies in the entertainment industry may be impacted by the high costs of research and development of new content and services in an effort to stay relevant in a highly competitive industry, and entertainment products may face a risk of rapid obsolescence.
Consumer Discretionary Sector Risk — Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy.
Additional risks of each Fund include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Industry Concentration Risk, Market Risk, Indirect Investment Risk, and Cash Transaction Risk. Additionally, for the Direxion Daily NFLX Bear 1X Shares, Shorting or Inverse Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of a Fund.