Netflix’s positive revenue growth and all-time ad sales were not enough to lift streaming and internet-focused ETFs, all of which traded down after the company reported its third-quarter results. Overall, the communication services sector dipped 0.15% Wednesday morning. The weakness highlights investor wariness of richly valued communication and technology names, despite Netflix’s expansion beyond its core subscription model.
- XLC is in focus as Netflix delivers a margin miss. Track its prices live.
The Communication Services Select Sector SPDR Fund (NYSE:XLC), Vanguard Communication Services ETF (NYSE:VOX), First Trust Dow Jones Internet Index Fund (NYSE:FDN), and Invesco Next Gen Media and Gaming ETF (NYSE:GGME), all of which have Netflix as a significant holding, declined as the streamer’s EPS miss and margin squeeze countered its otherwise strong revenue performance.
Netflix reported $11.51 billion in revenue, a 17.2% year-over-year increase, but missed the Street’s forecast of $6.97 billion at $5.87 per share in earnings. The mixed response to the stock weighed on the broader basket of internet and streaming names, indicating ongoing uncertainty about the near-term profitability of the group.
For XLC and VOX, in which Netflix is nestled among Alphabet Inc. (NASDAQ:GOOGL) and Meta Platforms Inc. (NASDAQ:META), the outcomes reinforced the extent to which margin pressures and regulatory uncertainty in online media continue to hinder fund performance. Both ETFs closed lower for the week despite Netflix doubling its ad revenue at the U.S. upfront and the firm highlighting new AI-powered ad tools for 2025.
Meanwhile, FDN, which follows leading internet platforms, and GGME, which focuses on next-generation media and gaming equities, also struggled to gain traction. Although Netflix’s overseas success, such as 24% revenue growth in APAC and record-breaking viewership for KPop Demon Hunters, indicates a long growth runway for international streaming, investors are possibly wary of the high valuations and flattening domestic pace of the sector.
A Brazilian tax controversy drove the operating margin lower to 28%, below guidance, further obscuring sentiment. With the stock and its ETF peers falling on strong fundamentals, the market’s message seems clear: investors need evidence that Netflix’s ad and licensing gambles can translate into sustainable earnings growth.
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