Netflix Q2 Estimates Face Risk From Paid Sharing – JPMorgan

Netflix (NASDAQ: NFLX) shares have edged slightly higher Tuesday despite JPMorgan analyst Doug Anmuth telling investors in a note that he sees a risk to second-quarter estimates from paid sharing.

Despite the analyst remaining positive on Netflix shares heading into its first-quarter results on April 18, Anmuth said he feels there is a near-term risk to second-quarter estimates, with paid sharing likely rolling out more widely during the quarter.

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He explained that with initial subscriber pushback and “bumpiness” in recently launched markets, including Canada, they should expect similar contention across a more extensive set of markets, including Brazil, the US, countries in Western Europe, and many others.

As a result, JPMorgan, which has an Overweight rating and $390 price target on Netflix, sees the streaming giant walking back its expectation for greater paid net adds in the second quarter as most of the paid sharing rollout will probably now come in Q2, which Anmuth explained is a seasonally weak quarter with fewer gross additions “at the top of the funnel.”

The firm increased its first-quarter net adds estimate from 1.5 million to 3.25 million and lowered its second-quarter net adds outlook from 3.25 million to 1 million.

Elsewhere, Morgan Stanley analyst Benjamin Swinburne, who has an Equal Weight rating and $350 price target on Netflix, said in a note Tuesday that they see a balanced view of the upside and downside potential in Netflix shares at current prices.

Swinburne believes a slower paid sharing rollout and associated churn creates upside to first-quarter net adds, but he believes the company’s second quarter “faces seasonality and tough content comp headwinds.”