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JPMorgan reiterates Overweight rating on Netflix stock

Yahoo Finance entertainment reporter Allie Canal examines Netflix stock amid ad tier subscriber outlook and its ventures into the gaming space.

Video transcript

- JPMorgan doubling down on Netflix. They're bullish on the streaming giant and saying that investors should buy the dip. Yahoo Finance senior reporter Alexandra Canal joining us now with more. Allie, the key takeaways of it. JPMorgan very encouraged maybe by what we'll see from Netflix here shortly.

ALLIE CANAL: 100%. They were out with a new note earlier today encouraging clients to buy this pullback that we've seen in the stock. And this despite some very near-term noise surrounding the password sharing crackdown. We know that has been a big pain point for customers. And it's been reflected in the stock price.

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Shares are down about 4% since the company's latest earnings report, which was largely positive. The stock has given out more than 17% of gains since hitting a year to date high on January 26th. And there has been further pain after the streamer slashed prices in 100 overseas markets.

So certainly a near-term noise, near-term risk. That has indeed impacted sentiment. But analyst Doug Anmuth from JPMorgan reiterated his outperform rating and price target of $390 a share. He argued that he's still bullish because initiatives like the crackdown on password sharing, like ad supported, like solid content, that will drive revenue, margin expansion, and free cash flow in 2023.

So really focusing in on the long term. Now what that means for the short term? That remains to be seen. I think the hysteria that we've seen surrounding the password sharing crackdown, it's going to push that rollout in the US potentially to the second quarter. There's only a few days left in Q1. Netflix initially said that the first quarter that's when we'll see all these changes.

But so far, we haven't seen it hit the US yet. And I think a major part of that has been all the negative headlines. But there have been some positive headlines. And over the weekend we did get this from Bloomberg reporting that the ad tier service for Netflix reached roughly 1 million monthly active users in the US in its second month on the market and that the user base grew by more than 500% in the first month and then 50% in the second month.

I did reach out to Netflix. They declined to comment on the Bloomberg report and said that the only external subscriber data is what they have provided in earnings. We'll see if we get any updates when the company does report for first quarter earnings on April 18th. I investors are going to really want to focus on that and any potential updates there.

- And Netflix also confirming a big move in the gaming space. What's the investor side of that story?

ALLIE CANAL: The gaming story is interesting. They did announce in a blog post that they have 70 games in development with external partners, additional 16 games in progress that the company's in-house game studio. They have released 55 games so far. About 40 more are slated for later this year.

So it does seem like gaming is a potential, actually no, not even a potential it is part of the strategy. I think the big question though, and I've heard this from investor and from analysts is how important is it going to be for Netflix in the long term? I think at the end of the day, they're really trying to diversify. We've seen that with some of their live content like the live Chris Rock Special. Some of the ways that they've been trying to integrate more sports content on the platform, not necessarily buying sports rights, but leaning in on more documentary-style pieces to try and lure in that type of viewer and user. I just am not convinced with the gaming side of things right now.

- I'm just looking it up now because I've never--

ALLIE CANAL: I never used games. I don't know of many people that.

- I don't think I'm the target. Yeah.

ALLIE CANAL: Yeah.

- It's just mobile, right? I mean, it's not for my--

- From my understanding, yes.

- Huh. Interesting. Yeah, I've never known anyone that used Netflix for gaming. Have you?

ALLIE CANAL: I've not. I've not. And that's and that's why I'm not fully convinced. It is still early days. I do think maybe we need more time to see how this all shakes out. But I just think that there are other things that Netflix needs to worry about besides just gaming, but we'll see.

- He's looking at them now.

- I'm looking-- nothing's--

- Maybe it's never been a game before. We've already lost you.

ALLIE CANAL: That proves that maybe Netflix is on to something here.

- Maybe.

- I don't have enough time on my hands. I'm not--

ALLIE CANAL: Maybe.

- Not a gamer.

ALLIE CANAL: We'll have to figure it out.

- But there's a huge market. Allie Canal, thanks so much.