Netflix Inc. (NFLX), the spectacularly successful streaming giant whose shares have risen about 7-fold in five years, is now overvalued and poised for a fall, according to Gene Munster, managing partner and co-founder at Loup Ventures. While many analysts remain bullish despite the streaming giant's mixed earnings report, Munster says the stock will be reined in by rising cash burn and heightened competition from rivals such as Walt Disney Co. (DIS), Apple Inc. (AAPL) and Inc. (AMZN), per an interview with CNBC.

Why Netflix's Best Days May Be Over

(stock performance)

  • 5-year gain through 2018 peak: + 1,093%
  • Since 2018 peak: -14.8%
  • YTD: + 34.8%
  • Last three months: + 2.1%

Source: Investopedia

Competition Exacerbates Cash Burn

Netflix stock has fallen roughly 15% off its 2018 high and made little movement over the last three months. Despite bulls' optimism about Netflix, Munster's big concern is that the company will burn through $3.5 billion in cash this year. This mounting cash burn is unlikely to lessen much before 2020 as rivals exacerbate Netflix's financial situation, pressuring its market value of roughly $155 billion.

“At the current run rate, that probably puts it toward the end of 2020 before they kind of alleviate that cash burn,” he said. “Now they can do some things in terms of making some of the content costs a little bit more efficient. But I think that in general more competition is not good for that.”

Earlier this year, Apple joined the growing number of deep-pocketed companies in the streaming wars, announcing Apple TV+ slated to release this fall. Last week, legacy entertainment giant Disney said it’s on-demand service, Disney+, will be available in November at a price of $6.99 monthly, or $69 per year, about half the price of Netflix.

Netflix wrote in its shareholder letter that it is not worried about the new platforms materially affecting its growth, “because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings."

Netflix now has nearly 149 million subscribers globally. Despite its massive franchise and strong brand identity, Munster says he “doesn’t necessarily believe that that’s a good stock.” He doesn’t negate that Netflix will do well in the U.S. and abroad, yet he believes that its valuation is at risk of downward pressure. “The more buy-side people that subscribe to either Disney or Apple ... the more some of that shine gets taken off of the multiple,” he said. As a result, “There’s just a lot better places to play in tech,” he added.

Looking Ahead

Netflix stock was slightly lower on Wednesday afternoon after offering weaker-than-expected guidance for the second quarter on Tuesday. While Netflix forecast lower subscriber gains than the consensus, it blamed the trend on higher subscription pricing rather than new competitors. Until now, Netflix has spent heavily to bolster its original content to maintain its subscriber growth. But if Netflix's growth starts losing momentum, investors might pay dearly for it in the company's stock price.