Netflix needs to evolve for the stock to continue its stellar run, says Gene Munster

  • Gene Munster told CNBC Netflix may be a great business for consumers, but he questioned whether the stock will continue its great performance for investors.
  • "I'm thinking about the stock and making money in the stock market. Ultimately, to do that, you have to evolve the business," the co-founder of venture capital firm Loup Ventures said.
  • Munster said Netflix's FAANG peers such as Apple and Google-parent Alphabet offer more transformative potential for investors.

Tech investor Gene Munster on Tuesday questioned whether Netflix's stock will be able to continue its stellar appreciation in recent years, and suggested that the streaming giant will need to evolve its business to keep delivering robust returns for investors.

Shares of Netflix were down nearly 6% Tuesday following the company's latest quarterly earnings report, in which it missed analyst expectations on subscriber additions and earnings per share. Revenues of $6.44 billion topped forecasts of $6.38 billion, however.

There's no question Netflix's growth strategy — from a company sending DVD rentals by mail to an Academy Award-winning company — has delivered remarkable gains for investors, said Munster, a former Wall Street tech analyst turned venture capitalist. Netflix's stock has soared about 425% in the last 5 years, outpacing the S&P 500, which has advanced a little over 65%.

"It's been great. This is almost a $250 billion company, much bigger than I ever thought it would be. But that same playbook I don't think will yield the same results, that same price appreciation," Munster said on "Fast Money."

He also acknowledged how transformative Netflix's streaming business has been, prompting many of its industry rivals to launch competing services in recent years. Just last week, for example, Disney announced digital streaming would become the "primary focus" of its media and entertainment divisions, putting in place a reorganization to align with that mission.

But he contended that Netflix, as a pioneer in the space, has a different challenge than some its peers.

"Essentially they're driving into what is a dead end here. Again, this is a great service. Consumers get a lot of value for their Netflix subscription, but again, I'm thinking about the stock and making money in the stock market," Munster said. "Ultimately, to do that, you have to evolve the business."

Munster said he was worried Netflix does not have a clear path to augment its streaming business in a way that would continue generating the returns to which shareholders have become accustomed.

Munster said there are more intriguing prospects for some of Netflix's FAANG brethren, which are more diversified.

"Think about what Google is doing with some of their Other Bets. Think about Amazon, what they're doing related to fulfillment. Think about Apple, what they're doing with AI and wellness wearables. All of these are transformative types of aspects on our life," Munster said. "I think in the case of Netflix, I don't know what that is. I don't know if it's some sort of virtual reality type experience. I don't know where they go from this."

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