Gene Munster, founding partner of Loup Ventures recently told CNBC that Netflix (NFLX) is a tough stock to hold in the portfolio. He said this even as the company beat analyst estimates on earnings but not on revenue.
Explaining the Netflix stock
According to Munster,
“This was positive to expectations, but this is still a story that I think would be difficult to own.”
The streaming company’s stock traded higher on Wednesday after its third-quarter financials became public. The company reported a great earnings figure but it could not match expectations when it came to the number of domestic paid subscribers. Instead, it was able to increase the international paid subscribers which build on the ongoing trend of the company.
In July this year, Munster said that the best days of Netflix are gone and he continued to have a bearish sentiment on the company’s stock. He said that the company needs the margin expansion to work and will have to keep growing the number of its subscribers. Munster also added that the company is entering multiple quarters of uncertainty.
What keeps Netflix in its current position?
Munster said that Netflix will have to keep working on expanding margin but the company doesn’t have a clear path for achieving its goals. He even said that he was surprised that the company is expecting to raise its margin expansion by 300 basis points in 2020.
“I don’t know how you get there. The easiest way to get there, obviously, is through price increases, which is now off the table … and you continue to need to fund this quite aggressively. The one opportunity is if they can get cheap debt.”
The young streaming company has over $12 billion in debt and Munster doesn’t see an easy way out for the company. The competitive landscape right now is much tougher than it was a year ago with major streaming services like Apple TV+ and Disney+. Both streaming services will have lots of content to offer to its customers and have much deeper pockets than Netflix. With billions of dollars of debt already, the company will need a mindful and aggressive strategy to take on its rivals.
Other rivals in this sector are HBO Max by WarnerMedia and Peacock by NBCUniversal. Munster rates Netflix’s Q3 performance as C+. How the company manages to keep up with its competition going into 2020 is yet to be seen.