Should Netflix be One of the Mag 7, Replacing Tesla? ETFs in Focus

Shares of the Magnificent Seven (Mag 7) — NVIDIA NVDA, Apple AAPL, Alphabet GOOGL, Amazon AMZN, Meta META, Microsoft MSFT and Tesla TSLA — are under pressure this year, as trade tensions, AI disruption and demand swings shake confidence (read: 5 Resilient Tech ETFs Over the Past Month Amid Worsening Outlook).

Roundhill Magnificent Seven ETF MAGS has lost 16.7% so far this year (as of April 24, 2025). Among the seven players, Tesla Inc TSLA shares are the most beaten-down, plunging 31.6% as of the same date.

Meanwhile, Netflix Inc. NFLX shares have advanced 23.7% this year. Netflix reported strong first-quarter 2025 results after the closing bell on April 17. The world's largest video-streaming company outpaced earnings estimates but slightly missed on revenues.

Inside the Bullish Outlook of Netflix

Zacks Rank #2 (Buy) Netflix offers an upbeat outlook for the ongoing quarter and several analysts raised the target price on the stock, signaling bullish trends. Nine out of 11 analysts upped their earnings estimates for the upcoming quarter over the past seven days, while none cut estimates. Netflix’s earnings estimate for the June quarter stands at $7.05 per share, up from $6.22 recorded seven days ago.

What’s Happening to Tesla?

Zacks Rank # 4 (Sell) Tesla TSLA reported dismal first-quarter 2025 results this week, missing estimates for earnings and revenues. However, shares of Tesla jumped more than 5% in after-market hours (after reporting the earnings results) after CEO Elon Musk injected optimism by reaffirming the company’s goals for the launch of robotaxis and affordable vehicles. Musk’s promise to refocus on his business rekindled investor hopes.

There has been no movement in earnings estimates for Tesla over the past seven days. However, seven out of 10 analysts cut their estimates over the past 30 days for the earnings of the upcoming quarter. Zacks Consensus Earnings estimate for Tesla for the June quarter stands at 57 cents, down from 63 cents over the past one-month period.

Could Netflix be a More Suitable Candidate?

As Tesla’s standing falters, streaming giant Netflix is emerging as a possible replacement, thanks to its strong earnings, subscriber growth, improving free cash flow, and solid guidance. Year to date, Netflix stock is in the green, defying the Mag-7 candidates.

Netflix is known for its free cash flow strength. It reported $2.661 billion free cash flow (FCF) in Q1, up 24.5% year over year and 93% from the prior quarter. Moreover, its FCF margin shot up to 25.2% from 15% in Q4, implying NFLX stock could be worth much more.  

Netflix's revenue grew by just 12.5% year over year, but free cash flow (FCF) jumped 24.5% — from $2.137 billion to $2.661 billion — nearly twice as fast. This highlights strong operating leverage in action: as revenue increases, profitability scales even more rapidly.

Valuation Comparison: Tesla Vs. Netflix

Tesla trades with a forward price-to-earnings (P/E) ratio of 99.34X (even after this year’s crash) compared with the past median value of 125.01X. Tesla’s P/FCF ratio stands at 254.66 times.

In comparison, Netflix trades at a forward P/E of 44.77X (even after this year’s rally), much lower than the 10-year median value of 76.96X. Netflix’s P/FCF ratio stands at 69.24 times. This clearly explains that Netflix is undervalued.

Netflix-Heavy ETFs in Focus

Investors who believe that Netflix shares deserve a spot in the tech elite club may play the stock in the exchange-traded fund (ETF) form, too. Netflix-heavy ETFs include single-stock funds like T-Rex 2X Long NFLX Daily Target ETF NFLU and Direxion Daily NFLX Bull 2X Shares NFXL.

Some other Netflix-heavy ETFs are MicroSectors FANG+ ETN (FNGS) (Netflix has a 9.18% weight), Invesco Next Gen Media and Gaming ETF GGME (NFLX stock has an 8.80% weight) and First Trust Dow Jones Internet Index Fund FDN (NFLX shares have a 9.19% weight).

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research