Stream or Scream: Netflix Earnings a Plot Twist for Traders?
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. Investing in the Funds is not equivalent to investing directly in NFLX.
Shares of Netflix, Inc. (Ticker: NFLX) climbed to a record high on January 22, reaching as high as $999 per share. This move to a record high came after a stronger-than-expected earnings report on January 21, where the company was able to share some exciting business results.
Netflix remains a dominant force in the entertainment business with a vast library of original content, exclusive deals, and a growing international presence. Hit shows like Squid Game and Stranger Things have helped attract millions of subscribers, which has solidified its brand loyalty and expanded its global audience across different demographics. The company is also diversifying its growth by venturing into gaming and the metaverse, offering interactive and immersive experiences to stand out in the competitive streaming market. This strategy allows Netflix to provide a wider variety of entertainment options, positioning itself for continued long-term growth.
Netflix takes a data-driven approach that enables the company to refine its content offerings based on user behavior, improving engagement and retention. With its combination of subscription fees and an ad-supported tier, Netflix is well-positioned for strong financial performance, despite increasing competition from rivals like Disney+ and Amazon Prime.
Traders that think the recent surge in Netflix is only the first before another leg higher 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 Netflix, Inc. common stock (Ticker: NFLX).
Below is a daily chart of NFLX as of January 23, 2025.
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.
At What Point Do Users Feel the Pinch?
Netflix reported its earnings on January 21, revealing key insights into the company’s performance amidst rising competition and economic pressures. Despite its ongoing growth, Netflix continues to face significant risks, particularly from rivals like Amazon, Apple, and Disney, which are pouring billions into content and subscriber acquisition. This competitive landscape may challenge Netflix’s ability to sustain its market dominance.
Additionally, market saturation in regions like the U.S. and Europe could hinder subscriber growth as the company raises its subscription prices. Netflix’s heavy reliance on original content remains a double-edged sword—while its in-house productions have driven success, the soaring costs of producing high-quality shows and films, coupled with fierce competition for top creative talent, could impact profitability if audience expectations aren’t met.
This week's earnings report was closely watched for signs of resilience or cracks in the company’s strategy. Analysts had anticipated an earnings-per-share (EPS)* of $4.21, but any shortfall or weak guidance may fuel further bearish sentiment, especially after the stock’s decline from its December highs.
In this environment, traders eyeing short-term opportunities may consider Direxion’s Daily NFLX Bear 1X Shares (Ticker: NFXS), designed to provide daily investment results, before fees and expenses, that correspond to 100% of the inverse performance of Netflix’s common shares (Ticker: NFLX). This ETF could attract attention if bearish momentum builds in the aftermath of Netflix’s earnings announcement.
*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.