One Word To Describe Netflix's Q1 Results? 'Temporary,' Says Loup Ventures' Munster

Netflix Inc.'s NFLX first-quarter results are impressive but signal a temporary trend, according to Loup Ventures Managing Partner Gene Munster.

What Happened

Netflix reported Q1 earnings per share of $1.57, up 106.6% year-on-year, on Tuesday. The video-on-demand service provider also added 15.8 million paid memberships in the quarter, beating analyst estimates by 92%.

According to Munster, these results suggest that Netflix has "cemented itself as a central piece of consumers' content diet" during the lockdown period imposed to curb the spread of the novel coronavirus (COVID-19).

The impressive results are, however, offset by the company's warning of a slowdown in production of new content and the surge in paid memberships being "temporary" due to the pandemic, the former research analyst said.

Munster noted that Netflix could weather through the pandemic without producing new content due to its "deep catalog" compared to most other streaming services, but a key factor would be if it can maintain the paid membership surge in the long term.

The former Piper Jaffray analyst expects the California-based company to add another 10 million subscribers in the second quarter and for the subscribers to keep increasing for the rest of this year. Beyond that, things get "measurably more difficult."

"For Netflix's valuation to grow beyond its current $190B, the company needs to tap into a new long-term trend," Munster noted. "Unfortunately, the truth is people want to spend less time at home, which is a headwind for retention and price increases."

"Summarizing the quarter in one word: temporary," he said.

Price Action

Netflix's shares closed 0.8% lower at $433.83 on Tuesday. The shares traded slightly higher in the after-hours at $434.40.