By Sam Boughedda
Morgan Stanley analysts maintained an Equal-Weight rating and $350 price target on Netflix (NASDAQ:NFLX) in a note on Tuesday, telling investors the firm sees a balanced upside and downside potential in the streaming giant's shares at current prices.
They explained that a slower paid sharing rollout and associated churn creates upside to first-quarter net adds but that the second quarter faces seasonality and tough content comp headwinds.
"Paid sharing and ad-tier opportunities are significant but appear largely captured in expectations and valuation, creating a balanced risk/reward in shares," the analysts wrote. "Netflix has rolled out paid sharing in just four markets thus far this year, less than expected. This creates another favorable YoY churn comparison, given 1Q22's broad rate increase activity, including in the US. All else equal, this suggests upside to 1Q net adds guidance/expectations (MSe +1.5mm, unchanged)."
Netflix is set to post its first-quarter results on April 18. Morgan Stanley "remains below consensus for 2Q23 net additions (MSe at +1.55mm vs. consensus of +3.8mm), given typical seasonality headwinds."
The analysts added that "a continued delay in paid sharing and associated churn creates the potential for upside while a more substantial rollout of paid sharing during 2Q creates downside risk."
"We continue to see NFLX shares and estimates reflecting a healthy degree of success in executing against its two revenue acceleration initiatives - paid sharing and advertising tiers. Said differently, we see similar downside risk from any shortfall in results vs. expectations as upside from outperformance," they said.