By Sam Boughedda
JPMorgan told investors in a note Monday morning to "buy pullbacks" in Netflix (NASDAQ:NFLX). The firm reiterated an Overweight rating and $390 per share price target on the streaming giant.
JPMorgan analysts said paid sharing — Netflix's clampdown on password sharing outside of households — creates near-term chop but is accretive over time.
"There has been considerable early pushback around Paid Sharing launches in select international markets (Canada, New Zealand, Spain, Portugal), & elevated news headlines, Twitter activity, & customer support engagement are driving greater concerns around near-term churn," they wrote.
The analysts added that Apptopia Downloads (DLs) data suggests increased volatility across all four paid sharing markets since the rollout, but JPMorgan believes the headlines may also be impacting other markets where it has not yet been rolled out, including the US.
"There is growing concern that early friction could delay or stagger the rollout, pushing it deeper into 2Q and beyond. That could put NFLX's projection for more net adds in 2Q than 1Q at risk," they said.
The analysts said JPMorgan recognizes the near-term noise and believes that buying Netflix for 12 months out may be easier than for the next three to fourth months.
"Overall, we remain bullish as: 1) Solid content, Advertising, & Paid Sharing should drive accelerating FXN revenue growth through 2023; 2) operating margins expand due to faster revenue growth and tighter cost discipline; and 3) FCF ramps on improving profit & stable cash content spending. Importantly, as the streaming industry becomes more rational, we believe NFLX benefits through its strong scale, industry-leading position, & 20%+ operating margins," they concluded.