J.P. Morgan urges buying Netflix pullback on price-cut news
GoodLifeStudio/iStock Unreleased via Getty Images

Netflix (NASDAQ:NFLX) is among the day's top decliners in media, with the stock down 4% - apparently at least in part due to news that the company has dialed back its prices in dozens of markets - a development that has J.P. Morgan saying "We'd buy the pullback."
The streaming pioneer is reducing prices on certain tiers in markets ranging across the Middle East, sub-Saharan Africa, eastern Europe, Latin America and parts of Asia.
Those cuts "appear concentrated toward markets where the company is still in the early innings of service adoption," KeyBanc analyst Justin Patterson says, estimating the cuts land for about 6-10% of subscribers.
That makes it "likely immaterial to revenue," Patterson said, given the small size of the markets and the fact that Netflix likely had the cuts in the works when it issued guidance. Lower average revenue per user from those regions will likely be offset by improved retention and possibly new subscribers, he noted.
"Bigger picture, Netflix (NFLX) appears to be balancing both sides of its subscriber bases, by making the service more cost-effective in nascent markets and taking monetization actions (whether through paid sharing, ads, or price increases) in mature markets," Patterson said.
The new cuts appear to follow Netflix's path in India, where it cut prices in December 2021 to maximize potential, J.P. Morgan analyst Doug Anmuth noted.
Like Patterson, he said though price cuts might reach 10% of subs, their total revenue contribution is likely single-digits considering the lower average revenue, suggesting a 2-4% hit to overall revenue that should be offset by drawing more subscribers.
"We would buy the pullback in shares given (1) content, advertising and paid sharing should still drive accelerating (foreign-exchange-neutral) revenue growth through 2023; (2) operating margins expand due to faster revenue growth and tighter cost discipline; and (3) [free cash flow] ramps on improving profit and stable cash content spend," Anmuth said.