J.P. Morgan urges buying Netflix pullbacks as Paid Sharing begins wider rollout
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J.P. Morgan is joining the chorus of research firms singing some Netflix (NASDAQ:NFLX) praises after the past month's declines and urging buying the stock on pullbacks.
Netflix stock (NFLX) is down 18% since its 2023 highs in late January, and has fallen 4% against a flat broader market since a relatively strong fourth-quarter earnings report.
That comes alongside some "noise" around Netflix's "password crackdown" (the implementation of its Paid Sharing plan in a few international markets - Canada, New Zealand, Spain and Portugal) with bigger market launches ahead, analyst Doug Anmuth noted.
Data is pointing to "increased volatility across all four Paid Sharing markets since the rollout, but we believe headlines may also be impacting other markets where Paid Sharing has not yet been rolled out, including the U.S.," he said.
The rollout to more markets was supposed to come late in the first quarter, but with just days left in that interval, there's growing concern that early friction could impact that launch, into deeper in Q2 (a seasonally weak quarter already) or beyond.
A flip side of a slower rollout of sharing is that Q1 net subscriber additions could come in better than expected; J.P. Morgan expects 1.5M adds, a little below consensus for 2.3M.
"In any case â regardless of the exact timing â we expect NFLX to continue down the path of transitioning users away from widespread account sharing, making select policy & customer service tweaks along the way to reduce friction," Anmuth said. "Ultimately we expect NFLX to generate more revenue through the combination of Extra Members and new standalone accounts, especially as Paid Sharing is paired with the low-priced Basic With Ads tier."
He says the firm recognizes the near-term noise, and believes that buying Netflix for 12 months out may be easier than the next 3-4 months.
Still, he's staying bullish (and reiterating an Overweight rating) due to accelerating revenue growth (based on solid content, ads and paid sharing); expanding operating margins as revenues accelerate amid cost controls; and free cash flow ramping up on improving profits.
His price target of $390 implies 29% upside.
Earlier, Netflix announced it was moving forward with a push into gaming, announcing it would put out games monthly this year and has more than 100 releases in its pipeline.