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Netflix Stock: Strong Secular Growth Remains, Says J.P. Morgan

Like many pandemic era stars, Netflix (NFLX) shares have endured a torrid time this year. The stock has toned down by 37% since the turn of the year. The current state of the markets has not helped the streaming king’s case, but Netflix’ troubles run deeper.

J.P. Morgan’s Doug Anmuth says “in-line 4Q subs & a light 1Q outlook have driven lower growth expectations & increased questions around subscriber penetration, the impact of content, & competition.”

That said, the data showed Q1 got off to a better-than-expected start and going by an analysis of Apptopia data as of early March, NFLX is still “running ahead of plan,” despite a slowdown in net adds.

Compared to the 9% year-over-year growth in February, March MTD (month-to-date) global Downloads (DL) have dropped by 2% vs. the same period last year. However, global DAUs are up by 11% YoY, just a touch under February’s 12% uptick.

If the quarter was to end at its recent pace, the 5-star analyst reckons Net Adds would be over 4 million, lower than the 5 million+ suggested by mid-February’s regression analysis, but still meaningfully higher than the 2.5 million guide, although there could be around a 300,000 subscriber shortfall, given the service’s suspension in Russia.

Q1 content has also performed above expectations; Inventing Anna has slotted in as the 6th best debut NFLX original series ever while the original Korean series All of Us Are Dead is the 3rd best non-English series debut of all time.

Investors might be mulling over Netflix’s long-term growth prospects, but Anmuth is sanguine, believing there is still “strong secular growth” in global streaming. In the US— its biggest market – Netflix viewing represents less than 10% of TV time, while penetration is still below 30% of global broadband households (ex-China).

Overall, Anmuth’s Overweight (i.e. Buy) rating stays as is and so does his Street-high $605 price target. The figure suggests share gains of 59% over the coming months. (To watch Anmuth’s track record, click here)

Wall Street offers a pretty wide selection of views when considering Netflix’ prospects; based on 18 Buys, 15 Holds and 2 Sells, the stock has a Moderate Buy consensus rating. However, most are anticipating some decent gains; going by the $515.57 average target, shares will appreciate ~36% in the year ahead. (See Netflix stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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